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October 1, 2010
Bank of America to Freeze Foreclosure Cases
By DAVID STREITFELD
Bank of America, the country’s largest mortgage lender by assets, said on Friday that it was reviewing documents in all foreclosure cases now in court to evaluate if there were errors.
It is the third major lender in the last two weeks to freeze foreclosures in the 23 states where the process is controlled by courts.
But Bank of America went further than the first two lenders, GMAC Mortgage and JPMorgan Chase, which have said they will amend paperwork only in cases they think were improperly done. So far, that has amounted to only a handful of cases.
Chase said this week that it had frozen 56,000 foreclosure cases. GMAC, which is largely owned by the Treasury after receiving $17 billion in federal bailout money to prevent its collapse, has repeatedly declined to say how many cases it is halting.
The nation’s two other major lenders, Citi and Wells Fargo, have issued statements maintaining they have no problems with their cases.
The problem for all the lenders that have announced moratoriums stems directly from their attempt to deal with an unprecedented number of foreclosures.
According to LPS Applied Analytics, a mortgage data firm, 2 million households are in foreclosure. Another 2.37 million households are seriously delinquent and waiting for their lender to take action.
Sometimes these loans are still owned by the lender but often, the banks are merely the loan servicer acting on behalf of the owner.
Many of the loans are owned by Fannie Mae and Freddie Mac, the mortgage holding companies now controlled by the Treasury. In other cases the loans have been sold to private investment pools.
Confronted with so many cases, the lenders tried to process them on a wholesale basis, with the goal of avoiding the expense of a full trial and instead getting summary judgments.
The tool for doing this was the so-called robo-signers, in which midlevel bank executives would sign thousands of affidavits a month attesting that they had personal knowledge that the facts of the case were as presented. The affidavits were prepared by lawyers who were paid a flat fee, which also placed a premium on volume.
When defense lawyers started deposing these robo-signers, they acknowledged that they could not possibly have knowledge of all the cases. The banks say this is a technicality.
Wall Street and the Banksters in-house newsletter, the NY Times, quotes from:http://www.nytimes.com/2010/10/02/bu...1&ref=business
Bank of America to Freeze Foreclosure Cases
By DAVID STREITFELD
Bank of America, the country’s largest mortgage lender by assets, said on Friday that it was reviewing documents in all foreclosure cases now in court to evaluate if there were errors.
It is the third major lender in the last two weeks to freeze foreclosures in the 23 states where the process is controlled by courts.
But Bank of America went further than the first two lenders, GMAC Mortgage and JPMorgan Chase, which have said they will amend paperwork only in cases they think were improperly done. So far, that has amounted to only a handful of cases.
As a white-collar criminologist and former financial regulator much of my research studies what causes financial markets to become profoundly dysfunctional. The FBI has been warning of an "epidemic" of mortgage fraud since September 2004. It also reports that lenders initiated 80% of these frauds.1 When the person that controls a seemingly legitimate business or government agency uses it as a "weapon" to defraud we categorize it as a "control fraud" ("The Organization as 'Weapon' in White Collar Crime." Wheeler & Rothman 1982; The Best Way to Rob a Bank is to Own One. Black 2005). Financial control frauds' "weapon of choice" is accounting.
The nation’s two other major lenders, Citi and Wells Fargo, have issued statements maintaining they have no problems with their cases.
Fraud is the principal credit risk of nonprime mortgage lending. It is impossible to detect fraud without reviewing a sample of the loan files. Paper loan files are bulky, so they are photographed and the images are stored on computer tapes. Unfortunately, "most investors" (the large commercial and investment banks that purchased nonprime loans and pooled them to create financial derivatives) did not review the loan files before purchasing nonprime loans and did not even require the lender to provide loan tapes.
According to LPS Applied Analytics, a mortgage data firm, 2 million households are in foreclosure. Another 2.37 million households are seriously delinquent and waiting for their lender to take action.
Sometimes these loans are still owned by the lender but often, the banks are merely the loan servicer acting on behalf of the owner.
Worse, the S&P document demonstrates that the investment and commercial banks that purchased nonprime loans, pooled them to create financial derivatives, and sold them to others engaged in the same willful blindness. They did not review samples of loan files because doing so would have exposed the toxic nature of the assets they were buying and selling. The entire business was premised on a massive lie -- that fraudulent, toxic nonprime mortgage loans were virtually risk-free. The lie was so blatant that the banks even pooled loans that were known in the trade as "liar's loans" and obtained AAA ratings despite FBI warnings that mortgage fraud was "epidemic." The supposedly most financially sophisticated entities in the world -- in the core of their expertise, evaluating credit risk -- did not undertake the most basic and essential step to evaluate the most dangerous credit risk. They did not review the loan files. In the short and intermediate-term this optimized their accounting fraud but it was also certain to destroy the corporation if it purchased or retained significant nonprime paper.
Fitch's analysts conducted an independent analysis of these files with the benefit of the full origination and servicing files. The result of the analysis was disconcerting at best, as there was the appearance of fraud or misrepresentation in almost every file.
[F]raud was not only present, but, in most cases, could have been identified with adequate underwriting, quality control and fraud prevention tools prior to the loan funding. Fitch believes that this targeted sampling of files was sufficient to determine that inadequate underwriting controls and, therefore, fraud is a factor in the defaults and losses on recent vintage pools.
[F]raud was not only present, but, in most cases, could have been identified with adequate underwriting, quality control and fraud prevention tools prior to the loan funding. Fitch believes that this targeted sampling of files was sufficient to determine that inadequate underwriting controls and, therefore, fraud is a factor in the defaults and losses on recent vintage pools.
The tool for doing this was the so-called robo-signers, in which midlevel bank executives would sign thousands of affidavits a month attesting that they had personal knowledge that the facts of the case were as presented. The affidavits were prepared by lawyers who were paid a flat fee, which also placed a premium on volume.
When defense lawyers started deposing these robo-signers, they acknowledged that they could not possibly have knowledge of all the cases. The banks say this is a technicality.
Real markets, however, became perverse -- "due diligence" and "private market discipline" became oxymoronic. These are enough to begin to understand:
- the FBI accurately described mortgage fraud as "epidemic"
- nonprime lenders are overwhelmingly responsible for the epidemic
- the fraud was so endemic that it would have been easy to spot if anyone looked
- the lenders, the banks that created nonprime derivatives, the rating agencies, and the buyers all operated on a "don't ask; don't tell" policy
- willful blindness was essential to originate, sell, pool and resell the loans
- willful blindness was the pretext for not posting loss reserves
- both forms of blindness made high (fictional) profits certain when the bubble was expanding rapidly and massive (real) losses certain when it collapsed
- the worse the nonprime loan quality the higher the fees and interest rates, and the faster the growth in nonprime lending and pooling the greater the immediate fictional profits and (eventual) real losses
- the greater the destruction of wealth, the greater the (fictional) profits, bonuses, and stock appreciation
- many of the big banks are deeply insolvent due to severe credit losses
- those big banks and Treasury don't know how insolvent they are because they didn't even have the loan files
- a "stress test" can't remedy the banks' problem -- they do not have the loan files
Bill Black's quotes from: http://www.huffingtonpost.com/willia..._b_169813.html
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