Why No Investigation?

Here's a bombshell: the San Francisco City Assessor commissioned a serious audit of foreclosure documentation filed in the past few years. The audit examined 400 foreclosures.  It found problems with 85% of them, often multiple problems. What's more, some of the problems are pretty serious as they implicate not only borrowers' rights, but the integrity of mortgage-backed securities and the property title system.  

The San Francisco City Assessor's audit also serves as a benchmark for evaluating the Federal-State servicing settlement.  The San Francisco City Assessor managed to accomplish in a few months what the Federal government and state Attorneys General weren't able to do in nearly a year and a half with far greater resources at their disposal:  perform a credible investigation of foreclosure documentation with serious implications about the securitization process in general.  That's a lot of egg on the face of Shaun Donovan, Eric Holder, Tom Miller, et al.  The SF City Assessor report shows that it really wasn't so hard for a motivated party to undertake a serious investigation. And that raises the question of why the largest consumer fraud settlement in history proceeded with virtually no investigation. 

The lack of investigation was the compelling criticism that led the NY and DE AGs to stay out of the settlement for quite a while. I've never heard an answer as to why no serious investigation. As the SF City Assessor's audit shows, the documentation is all a matter of public record.  It's not that hard to do, especially if you have the resources of the federal government.  So the resources were there. The capability was there. So why no investigation?  The answer has to lie with lack of motivation. Were the Feds and AGs scared of what they would find if they delved too deeply into the issue? 

I hope that members of Congress will question the Attorney General and HUD Secretary the next time they show up to testify on the Hill.  The issue is also worthy of a GAO or IG examination.  

Now to be fair, there was a federal bank regulator review of some 2800 foreclosures and state banking supervisers did some sort of audit of Ally Financial's practices (the results of which are not public). But these audits are only as good as what they were looking for.  If the focus was on narrow robosigning--the mindless signing of documents without verify the statements therein--that's a really different audit from what the SF City Assessor did.  

The robosigning itself and similar lack of internal controls are the small potatoes. There are much more serious things in the SF City Assessor report.  

First, the SFCA audit compared assignments in the public record with those that were represented to MBS investors in SEC filings. Anyone who's been following this blog knows that this is the securitization fail problem. And the SFCA audit finds evidence aplenty of this. Curiously, the OCC foreclosure review protocols don't include this sort of examination. Hmmmm.  Wouldn't want to find out that we've got a massive securitization fail problem. That could trigger another financial crisis. So let's not look into it. If we ignore it, then Levitin and Yves Smith and others can just keep howling into the wind. 

Similarly, the SFCA audit does a cross check between MERS records and foreclosure filings.  As alleged in the DE AG suit against MERS, these records often don't match. That's a problem. Let me rephrase that:  this is a HUGE problem. MERS is a self-privatization of part of a real property title system. Whatever one thinks of self-privatization of property records (reversing an Anglo-American tradition of government recordation that goes back to at least Richard I in 1194), the unreliability of the MERS system is just disasterous for real property title.  As Judge Young said, MERS is the "wikipedia of land registration systems". The SFCA audit makes that seem like a generous comparison, as Wikipedia is often more accurate. Pretending the problem doesn't exist isn't going to make it go away.    

The SF City Assessor report is yet another indication of how thoroughly rotten the Federal-state settlement is. While I'm on the topic, though, let me add in another one:  the Federal-state settlement has folded into it a settlement between HUD and Bank of America for BoA embezzling from the FHA. The price tag for this was $1B, which seems to be double counted as part of BoA's contribution.  That's appalling. Lee Farkas went to jail for a smaller fraud on the FHA. Think anyone from BoA is going to be in the pokey?

Let me suggest this: when a federally-chartered entity commits insurance fraud on the federal government, it should lose its charter and FDIC insurance. National banks exist by the grace of the federal government.  That grace can be removed.  Oh wait, we can't do that to BoA--it's too big to fail!  Stripping BoA of its charter for defrauding the government just does not compute in the bank regulator mindset, which ignores that a federal banking charter is a privilege, not a right.

So there we have it. Once again, the federal government is held captive by the banks. The Too Big to Fail problem isn't a financial risk problem--it's a political problem, as too-big-to-fail means too big to regulate.  The administration has had three chances to deal with too-big-to-fail:  the bailouts, Dodd-Frank, and now the mortgage crisis, and it has shyed away every time. It's hard to think of a greater failing of this Administration.  

Yes, the Administration did pass Dodd-Frank, which has important reforms in it, like the CFPB. But on what is really the most important financial regulatory issue--the need to end the political power of the banks, which will otherwise always be used to stymie effective financial regulation (or the administration of justice as we see here). Successful financial reform requires political reform, and breaking up the large banks is the only way we will see that political reform happen.  

Note by way of comparison how the Feds brought the hammer down on Milken and Drexel for creating a junk bond bubble through a daisy chain of S&Ls (and a corrupt life insurer) that financed the destructive corporate raiding of the 1980s (and resulted in the creation of the CDO!). Drexel wasn't Too Big to Fail, and Milken wasn't from the same social millieu as many of the regulators. He wasn't their classmate, he wasn't white shoe, his lawyers hadn't been the regulators previous, and the regulators weren't looking for future employment with DBL.  And he went to jail.  

Today TBTF is a get-out-of-jail free card.  But I want to emphasize that TBTF isn't the only thing going on here.  Part of the problem, I think is a social one, as our political leadership is part of the same social milieu as our financial leadership and unwilling to call out criminal acts by their peers. The white shoe firms who were having their lunch eaten by Milken had no such qualms.    

In the end, despite lack of investigation, 49 AGs signed onto the federal-state deal. Some of them signed on because they were able to narrow the scope of the release and get some level of federal buy-in and support for investigations on the securitization side of the bubble. In other words, for them, this settlement is conceived of as a first step, and signing on was part of a bargain. I hope it turns out to be a wise bargain, but thus far, the settlement seems an awful lot like Swiss cheese--it's got plenty of wholes and smells ever worse with time.  

Comments

[Tony DiCola]

Great post! I've been following a lot of what you've recently written about the mortgage settlement, housing crash, etc. and just want to say it's by far the best writing on the subject I've seen. I don't understand why people aren't more outraged about the settlement.

[Andre]

"On Wednesday, John O'Brien Jr., register of deeds in Salem, Mass., announced that he had sent 31,897 allegedly fraudulent foreclosure-related documents to Holder. O'Brien said he asked for a criminal investigation of servicers and their law firms that had filed the documents because they "show a pattern of fraud," forgery and false notarizations."
From this article:

http://www.reuters.com/article/2012/01/20/us-usa-holder-mortgage-idUSTRE80J0PH20120120

If you have ant doubt as to how serious the title mess is in this country. My deed is supposed to be registered in Salem MA, which gives me a great sense of security! Not!

!

[Dave]

I think delay heavily favors the banks and servicers, and not just on SOL issues, as early redemption and continuing foreclosures flushes bad paper out of the system. Given the average duration of a mortgage, there's a lot of incentive for banks to get to 2014 with minimum settlements or payouts. Low interest rates certainly help speed the process too.

[Angelo]

We all know the true reason professor, If they open up that can of worms, there is no real way of closing it. Why do you think the IRS doesn't want to start a meaningful investigation about the failure of the REMIC trusts?

Holder won't go near this topic with a 10 foot pole. Isn't his previous law firm the one that handed the opinion to MERS that what they were doing was perfectly legal?

[drinkof]

Why don't we suggest a crowd-sourced audit of every mortgage / securitization / chain and send results, not just to the holders and regulators, but (in simple language, charts, etc) to each and every home-owner / buyer / mortgagor?

[Tom Stone]

I sent the report to the Real Estate Reporters on the Santa Rosa press Democrat and the SF Chronicle. I wonder if it is important enough to be news. Or too important to be news...

[PL]

Cronyism resulting in social and political problems on a national scale. Well argued Professor Levitin.

[PENDINGLAWSUIT]

Posted on February 13, 2012 by Neil Garfield LIVINGLIES

Barry Fagan v Wells Fargo Bank re: Consumer Financial Protection Bureau Complaint

Information about the company
Wells Fargo Bank NA
United States

Wells Fargo Bank has fraudulently altered Barry Fagan’s Deed of Trust and the attached expert opinion dated 1/12/2012 from Forensic Document Examiner Dr. Laurie Hoeltzel specifically explains that the handwritten page 4 has been altered on two separate versions of that original Deed of Trust. Barry Fagan has recorded all 3 versions of the same deed of trust with the Los Angeles Registrar Recorders Office on November 29, 2011 as instrument no. 2011-1608398.

The recorded Notice of Pendency of Action showing three different versions of that same July 9, 2007 Deed of Trust as originally recorded under instrument no. 2007-1622100. Judge Tarle, of The Superior Court of California, West District has taken Judicial Notice of that Recorded Document. Barry Fagan has submitted credible evidence from a forensic document examiner with over 20 years of experience that multiple fraudulent alterations have occurred on the “Handwritten Number page 4” which is located on page 3/4 of the Deed of Trust. All of the Deeds of Trust now reflect an entirely different handwritten NUMBER 4, and one of the exhibits also has a snake like line drawn on it, which is not present on the other two exhibits.

C.P.A. Shawn P. Adamo stated: “It is my professional opinion that the altered deed of trust is concealing an irrevocable assignment, and explains why Wells Fargo is unable to produce loan level accounting concerning Mr. Fagan’s loan. Wells Fargo claims that any level of detail relating to Mr. Fagan’s mortgage is non- existent. As a result, CPA Shawn Adamo provided two expert opinions, (one an affidavit signed under penalty of perjury dated January 24, 2012 and the other is a Feb. 6, 2012 complaint letter sent to various regulatory agencies) from C.P.A Shawn Adamo explaining that Wells Fargo Bank has failed to provide a loan level balance sheet accounting and is concealing the fact that they do not own Barry Fagan’s loan.

Additionally, forensic document Expert Dr. Laurie Hoeltzel has declared under penalty of perjury on January 2, 2012 that Wells Fargo Bank is robo-signing Discovery Responses by using multiple authors of the name Rhonda Bernard Thomas.(see attached declaration from Dr. Laurie Hoeltzel) I have also attached an affidavit from from forensic loan analyst/expert Javiar Taboas dated July 14, 2011 who is specifically stating that Wells Fargo securitized/sold Barry Fagan’s note and is fraudulently claiming continued ownership without any proof whatsoever.(See attached affidavit of Expert Javiar Taboas) Also attached is an illegally prepared Declaration of Default which is not actually signed by a natural person, but is signed by Wells Fargo Bank NA. This is a blatant California Civil Code Section 2923.5 and 2924 violation in that this illegally prepared document set in motion the entire illegal Non-Judicial Foreclosure.

Also attached is a letter from Wells Fargo Bank dated December 5, 2011 and states that Wells Fargo Bank is reviewing Barry Fagan’s file and will respond on December 15, 2016 (THAT’S 5 YEARS FROM NOW!). Barry Fagan claims that this was a form of retaliatory contact. Wells Fargo is a criminal enterprise that is attempting to illegally foreclose on my primary residence by way of fraudulently altered documents, robo-signed discovery responses, invalid Declaration of Default, no loan level accounting and Barry Fagan’s loan file needs to be investigated at the highest level within your organization to see that a crime has actually occurred! The law offices of Kutak Rock LLP located in Irvine, California needs to have Barry Fagan’s NOTE and Deed of Trust subpoenaed so that your own CFPB organization can inspect those documents to see that they have indeed been fraudulently altered and photo-shopped. Please also visit http://www.fedup99.com/following-barry-fagan/ to see that even Barry Fagan’s loan application was fraudulently prepared by Wells Fargo private banker Dalia Warren.

Complaint history

A Consumer Financial Protection Bureau specialist is reviewing your complaint and may contact you and Wells Fargo Bank NA to collect additional information. This could be a lengthy process, so we ask for your patience.

Thank you,

Consumer Financial Protection Bureau
http://www.consumerfinance.gov
(855) 411-CFPB (2372)

[cindy]

Neil, are you there? from Living lies? I have the exact same thing with my loan and I am trying desperately to get an attorney. I don't want to be a whisteblower, but I discovered (miraculously from a fax one of the kids at the "bank" sent me when I requested to see the "assignment." Oh my goodness!!!!! They sent the first fabricated document that they received from a reputable company that gets documentation needed by mortgage companies. They got my original assignment of deed of trust when I bought the house years ago and then they photoshopped or just plain ole deleted the old names and put in the new names and left the most important lines....who conveyed to and where and when" blank. It's absolutely unreal. And it's dated 3 months prior to this bank receiving my loan. Also, they say where it is securitized in a REMIC, and guess what? It's not there. I have done my own audit and my loan/note still exists with the original creditor but I guess they recycled it and gave it to someone else (and I know the name). I discovered, after over 140 hours staring and clicking through the SEC that my loan is currently in 3 different trusts with 3 different loan numbers (as they changed them as it bounced from bank to bank, servicer to servicer. The servicing was transferred and the loan was sold. But the 2 "banks" prior never recorded it and then the current bank that created the deed of trust themselves recorded it as buying it from a bank that didn't own the loan for over 3 years. They put in their assignment deed of trust that it was conveyed to them. I have put my entire life and family on hold getting to the bottom of this after they screwed me royally and were obviously up to no good. I can't believe what I have found during the past 3 months and have been living in a total state of shock which has landed me in the hospital, doctors and i've lost 30 pounds. My daughter says to give up, it's just a house and money (I put $140k down on this house and never refinanced or took money out when I could have and now the house isn't even worth $140k. When I bought it in 2004 it was $424k). Should I give up? Are the judges, OCC, HUD, HAMP, and all of the banks and lawyers in on this? I have spoken only to 3 lawyers, but they say they have never seen something like this and that the judges will always believe the banks. If the bank says they own your loan, then by golly they own your loan. Hmmmm, why can't people just "make" fake money? Why isn't that ok? Why isn't it ok to steal someones car if you can steal their house? This is just really scary and whatever happened to following the laws? Why are the laws there? I am afraid to tell OCC because they are obviously in bed with all the banks. I don't even want to tell you what they told me, it's really scary. I was going to contact my Attorney General in January, but then I didn't know if I could trust her either. They don't need watchdogs after what I found and what has been found, but I guess they think, "what you don't know won't hurt you" and they don't want to know and they don't want their pocketbooks to be hurt." I hope I can get a word of wisdom from you or someone.

[NoLongerAnonymous]

This appears to be the answer to the article's question. It wasn't in mainstream news (naturally), so please overlook the "socialist" aspect of the news site: http://www.wsws.org/articles/2012/feb2012/bank-f20.shtml