Oct
20
BAM! | US Judge Takes $8.5 Bln BofA Deal from State Court in Bank of New York Mellon vs Walnut Place
US judge takes $8.5 bln BofA deal from state court * Consummation of proposed deal could be lengthened * Stake high for Bank of America’s potential liability NEW YORK, Oct 19 (Reuters) – A judge on Wednesday decided to keep a proposed $8.5 billion settlement over Bank of America Corp’s mortgage-backed securities in federal court, … Read more
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Oct
18
MERS Has Trouble, Right There in Ohio, With a Capital ‘T’…
Geauga County’s prosecuting attorney, David P. Joyce has filed a class action lawsuit on behalf of the county “and all other similarly situated counties in Ohio,” against MERS and everybody else who used the MERS “scheme,” alleging that they violated Ohio law requiring that, “each and every mortgage assignment must be recorded in the proper Ohio county recording office,” and that by doing so, they avoided paying the counties the attendant recording fees.
Former Ohio Attorney General Marc Dann says the case does accurately represent what he referred to as “black letter law” in the State of Ohio for the last 200 years. He also described the case as being fairly narrow in that it’s really going after the recording fees that were not paid to each county when the defendants used the MERS system, but in doing so, the case is also going to have to establish the problems with the over all MERS operation.
Attorney Marc Dann
According to Dann, “Ohio law requires that transfers of beneficial interest be recorded in the appropriate county, so either they avoided paying the fees to the counties for what was otherwise a valid transfer, or perhaps the transfers were invalid, in which case many, many foreclosures should not have been allowed to happen.”
Geauga County is a small, rural county near Cleveland, Ohio, and Dann, who has his law office in Cleveland, has been fighting for the rights of Ohio homeowners since serving as the state’s Attorney General in 2007-08. He says that if Geauga County’s prosecutor wins this case, he may be reopening thousands of foreclosures.
“This case asks court very directly whether the MERS system complies with state law. If it doesn’t then I’m going to go back and reopen all of the foreclosures alleging that the transfers were invalid,” says Dann without hesitation.
The class action lawsuit, however, is about damages, and they could be substantial. Dann says that the county recording fees are in the $30-$40 range, so in a state with over 80,000 foreclosures a year, and I have no idea how many mortgages that have been securitized over the last so many years, the amounts of fees avoided by easily reach into the millions.
The complaint alleges that the MERS system is a “scheme” designed to evade the required recording fees and the suit specifically seeks payment of those fees, saying that in the securitization process mortgages are assigned at least twice.
Also included in the complaint is the allegation that the defendants “systematically broke chains of land title throughout Ohio counties’ public land records by creating ‘gaps’ due to missing mortgage assignments they failed to record, or by recoding patently false and/or misleading mortgage assignments. Further the complaint states that the “defendants’ failure to record has eviscerated the accuracy of Ohio’s counties’ public land records, rendering them unreliable and unverifiable.”
I asked renowned consumer bankruptcy attorney Max Gardner what he thought would happen if the case were to be successful and he said it could put MERS out of business, or certainly make it a costly mistake for all involved.
O. Max Gardner III
“MERS INC. is a wholly owned subsidiary of MERSCORP and has no assets to speak of, and MERSCORP has some assets but it looks to me like a multi-million dollar judgment would be beyond their ability to pay,” Max said.
“So, I guess they’d need a bailout,” he quips. “If it even looks like the prosecutor is going to be able to win this case, it’ll definitely be time for MERS to make a call to Houston, you know to say, we’ve got a problem… and it’s a big problem,” Gardner adds.
Max says that, although this case is somewhat similar to a case previously filed in Minnesota, he’s not aware of “any other case alleging this theory filed by a state or county to-date.”
The complaint states that the “defendant’s purposeful failure” to record the mortgage assignments in compliance with state law has caused “far-reaching, devastating consequences for Ohio counties and their public land records.” And further, that those damages “may never be entirely remedied.” (Emphasis added.)
The lawsuit, which was filed on October 13, 2011, names as defendants: MERSCORP, INC. and Mortgage Electronic Registration System, Inc., but also names:
Home Savings and Loan Inc., Bank of America Corp, CCO Mortgage Corp, Chase Home Mortgage Corp, Citimortgage Inc, Corelogic, Corinthian Mortgage Corp, Everhome Mortgage Corp, GMAC, Guaranty Bank, HSBC Bank, MGIC Investors Services, Nationwide Advantage Mortgage, PMI Mortgage Services Company, Suntrust Mortgage, United Guaranty Corp, Wells Fargo Bank, and Doe Corporations – names and addresses unknown.
So, obviously this is one to watch, both for the homeowners in Ohio, and elsewhere. The ramifications, should the case be successful, could very well spread to other states, as the Ohio counties involved could receive hundreds of thousands or millions of much-needed dollars.
Once again, the arrogance of MERS and the industry that created it is astounding. I mean, to simply disregard out of hand, 200 years of Ohio state law, without a second thought, is remarkable. And when I read that it may never be entirely remedied, I can’t help but wonder what the ultimate cost of what was done will be and who will one day be forced to pay it.
From talking with Marc Dann and Max Gardner, it looks like this is a case that will cause great concern back at MERS headquarters, and all I can say is… it’s about time.
You can find a copy of the complaint below…
Mandelman out.
Sep
22
Dallas County v. Merscorp Inc | Merscorp Sued in Dallas With Bank of America Over Mortgage-Tracking System
Merscorp Sued in Dallas With Bank of America Over Mortgage-Tracking System Mortgage Electronic Registration Systems Inc., along with Bank of America Corp. (BAC), was sued by Dallas County District Attorney Craig Watkins over claims its mortgage-tracking system violates Texas law. Merscorp Inc.’s MERS, which runs an electronic registry of mortgages, cheated Dallas County out of … Read more
Sep
16
BofA, JPMorgan Fail to Make Fannie Mae Grade for Loan Servicing
BofA, JPMorgan Fail to Make Fannie Mae Grade for Loan Servicing Bank of America Corp. (BAC), the largest U.S. mortgage servicer, failed to make a list of companies doing a satisfactory job of assisting homeowners struggling to pay their mortgage, according to Fannie Mae. Of the 11 biggest servicers of Fannie Mae mortgages, Wells Fargo … Read more
Sep
15
BofA Told to Pay Fired Countrywide Whistleblower $930,000
BofA Told to Pay Fired Countrywide Whistleblower $930,000 Sept. 14 (Bloomberg) — Bank of America Corp. must pay $930,000 to an employee who uncovered fraud at Countrywide Financial Corp. and was fired in violation of whistleblower protections, the U.S. Department of Labor said. The employee was terminated soon after the Charlotte, North Carolina-based bank took … Read more
Sep
14
Banks May Fight Banks as Mortgage Investors Pursue Class Status
Banks May Fight Banks as Mortgage Investors Pursue Class Status Bank of America Corp. (BAC), JPMorgan Chase & Co. (JPM) and other banks may pay more to resolve claims over their alleged roles in the collapse of a $2.3 trillion mortgage- backed securities market if sophisticated investors are allowed to sue as a group along … Read more
Aug
31
WSJ | Bank of America to Exit Correspondent Mortgage Business
Bank of America to Exit Another Line Bank of America Corp. intends to sell its correspondent mortgage business, as the troubled lender looks to narrow its focus and bolster its financial strength, said people familiar with the situation. Employees could be notified as soon as Wednesday that the lender has decided to exit the correspondent … Read more
Aug
22
Wall Street Aristocracy Got $1.2 Trillion in Secret Fed Loans
Wall Street Aristocracy Got $1.2 Trillion in Secret Fed Loans Citigroup Inc. (C) and Bank of America Corp. (BAC) were the reigning champions of finance in 2006 as home prices peaked, leading the 10 biggest U.S. banks and brokerage firms to their best year ever with $104 billion of profits. By 2008, the housing market’s … Read more
Aug
22
WSJ | Foreclosure Talks Snag on Bank Liability
Foreclosure Talks Snag on Bank Liability Efforts to reach a settlement that would end the long-running probe of foreclosure practices are snagged over whether banks will get broad legal immunity from state officials for mortgage-related claims. Federal and state officials are seeking penalties of $20 billion to $25 billion from Bank of America Corp., J.P. … Read more
Aug
22
WSJ | Foreclosure Talks Snag on Bank Liability
Foreclosure Talks Snag on Bank Liability Efforts to reach a settlement that would end the long-running probe of foreclosure practices are snagged over whether banks will get broad legal immunity from state officials for mortgage-related claims. Federal and state officials are seeking penalties of $20 billion to $25 billion from Bank of America Corp., J.P. … Read more
Aug
13
Fraudclosure | BofA’s Moynihan Said to Press Geithner on Foreclosure Agreement
A settlement among banks, state attorneys general and the Department of Justice would enable lenders to resolve delinquent loans and in turn allow the U.S. housing market to recover, Moynihan told the officials. ~ BofA’s Moynihan Said to Press Geithner on Foreclosure Agreement Aug. 12 (Bloomberg) — Bank of America Corp. Chief Executive Officer Brian … Read more
Feb
17
Federal Regulators to Bring Enforcement Actions Against Banks… May Get Rid of Hot Towels in Washroom
After lawyers deposing bank personnel uncovered “robo-signers” fraudulently signing thousands of lost note affidavits and other documents the serivcers were required to have in order to foreclose on a home, but apparently didn’t, a regulatory review of mortgage servicer practices was initiated by the federal banking agencies.
Well, the magazine, American Banker (“AB”) is now reporting that formal enforcement actions against most, if not all, of the 14 mortgage servicers reviewed are expected soon.
AB says that Bank of America Corp., JPMorgan Chase & Co., Wells Fargo & Co., and Ally Financial Inc. — are likely to face the toughest requirements, due to the sheer number of issues being addressed. Expectations are that the enforcement actions will include civil monetary penalties.
The regulators are still in discussions over the specific terms and state attorneys general, the Justice Department, the Department of Housing and Urban Development, the Treasury Department and the Consumer Financial Protection Bureau are all involved. According to prepared testimony of Acting Comptroller of the Currency John Walsh, which was obtained by American Banker and scheduled for Thursday in front of the Senate Banking Committee:
“The OCC and the other federal banking agencies with relevant jurisdiction are in the process of finalizing actions that will incorporate appropriate remedial requirements and sanctions with respect to the servicers within their respective jurisdictions. We expect that our actions will comprehensively address servicers’ identified deficiencies and will hold servicers to standards that require effective and proactive risk management of servicing operations, and appropriate remediation for customers who have been financially harmed by defects in servicers’ standards and procedures. We also intend to leverage our findings and lessons learned in this examination of enforcement process to contribute to the development of national servicing standards.”
The federal regulators have said that they hope the enforcement orders have the effect of sending a message to the rest of the servicing industry. I love it when federal banking regulators “hope” stuff will happen.
The details are still being finalized, but are likely to require servicers to increase staffing levels, establish a single point of contact for borrowers, and “conduct a comprehensive look back at their servicing portfolio to detect and correct problems,” whatever the hell that means.
AB says that the FDIC and other government officials are pushing for “servicers to offer enhanced, streamlined modifications to troubled borrowers in exchange for a clearer path to foreclosure if re-default occurs after the workout.”
But the AB story says: “It remains unclear, however, if regulators will take such a step.”
Okay, just wait a damn minute here.
When I started writing this article I thought I was going to be telling people that finally… finally… after being allowed to abuse literally millions of American homeowners in the worst ways and at the worst time imaginable, finally the federal banking regulators were going take steps to punish servicers for their crimes against homeowners, investors, and our society as a whole.
But, that’s not what’s happening here at all is it. What did that last paragraph say?
“… servicers to offer enhanced, streamlined modifications to troubled borrowers in exchange for a clearer path to foreclosure if re-default occurs after the workout.”
You know what… go to hell. How about the servicers offer “enhanced, streamlined modifications to troubled borrowers” just because it’s the right thing to do? How about the servicers do it because although they can never come close to making amends for what they’ve done, under your watchful eye, federal regulators, I might add… they start doing the right thing now because they owe it to the American citizenry? How about they do it because it’s their job… because it’s in the best interests of the nation… how about any of those reasons, you disingenuous pack of regulating clowns?
How about the servicers… and you guys that call yourselves banking regulators, although I would like to point out that clearly you have regulated nothing in the banking industry for perhaps 30 and certainly 20 years… how about if you all start to realize that it’s your bankers that have caused our economy to fall off a cliff and caused the pain that will no doubt be with us for decade or decades, and that if people re-default it’s your fault for not properly modifying the loan, or because of yet another economically induced hardship, and that you don’t get to foreclose quicker next time because you did such a lousy job the first time around?
How about if the servicers are never permitted to punish anyone else for anything because they lost that privilege when they proved themselves capable of being nothing short of sadistic, unfeeling monsters, unfit to socialize with the rest of humanity? How about something like that?
And the story goes on to say that although several banks were expecting the enforcement actions to come out this week, but that “the timeline appears to be slipping.”
Yeah, I’ll be the timeline is slipping. Something in Washington’s slipping, that’s for damn sure.
Now, sources are apparently saying that they hope to issue whatever milquetoast enforcement action orders the traveling sycophants finally agree on sometime in March, and that there’s going to be something called a “global settlement” that comes as part of the package.
“After the orders are released, regulators will follow up with a report on the findings of their review and further recommendations,” the AB story says.
Oh and guess what? “There appear to be differences among the agencies in how tough to make the enforcement orders and how high the monetary penalty should be.”
No kidding? Now that’s hard to believe, don’t you think? Reports say that Elizabeth Warren’s Consumer Financial Protection Bureau, or CFPB, is “pushing for steep fines to be assessed on servicers, coupled with stringent remedial actions.” Go Liz… you are the bomb.
The FDIC is also supposed to be in favor of tough enforcement measures. (Like what, do you suppose… a stern talking to?) The OCC… or, Office of the Comptroller of the Currency, however, is “concerned about taking overly harsh actions.”
Let me guess, the OCC wants to get tough on servicers that have violated whatever it is they’ve violated by offering back rubs, blow jobs and a buck ninety-five as a fine. I can’t take this much longer… why the hell did I start writing about this in the first place?
It seems that this past Monday, the regulators… and I use that term extremely loosely… met with Tim “Transparency” Geithner, along with representatives from the Federal Housing Finance Agency (“FHFA”), HUD and CFPB in order to consider the pending actions.
The AB story then says the following:
“Although the orders will effectively establish standards for the largest servicers, they are not expected to supplant efforts already underway for regulators to issue their own formal set of rules.”
What in the world does that mean? Why can’t these people talk like… I don’t know… people? I’ll tell you what… I wasn’t in favor of it before, but I’m starting to be pro-torture over here. Let’s waterboard these inconceivable wastes-of-space and then see how bright eyed and bushy tailed they are at work the next day.
Want more? Try this sentence on for size:
“Regulators are still divided on where and how to set such standards, with the FDIC pushing to include them as part of a risk-retention rule while the OCC wants to craft a stand-alone measure.”
Gee, which side of that pressing issue are you on, pray tell? Are you a risk-retention kind of person, or do you favor a stand-alone measure? Don’t answer that, damn it, I’ll have to hurt you.
There’s more and then I’m done with this topic forever… you want to read about crap like this, read someone else’s blog because I’d rather chop off all eight of my fingers than have to write about this kind of drool again. Here goes…
“Regulators have been hinting for weeks that they may take enforcement actions against servicers, and Walsh sought to reassure Congress everyone’s on top of the issue.”
“We are directing banks to take corrective action where we find errors or deficiencies, and we have an array of informal and formal enforcement actions and penalties that we will impose if warranted These range from informal memoranda of understanding to civil money penalties, removals from banking, and criminal referrals.”
Sheila Bair over at FDIC says that any solution “must result in industry-wide standards.” In her January 19th speech to the Mortgage Bankers Association. Bair said:
“In order to remedy failures endemic to the largest mortgage servicers, I hope to see enforceable requirements that will significantly improve opportunities for homeowners to avoid foreclosure.”
Wait a minute… what damn year is this? 2011? Yeah, fine… I was just checking. I’ll bet you anything that if I go back two years, I can find Sheila saying that same sentence.
Then the AB story says that it would have been better if the servicers had taken remedial steps on their own before regulators were forced to take action. Oh for crying out loud… yeah, I suppose it would have been better for Pablo Escobar to check himself into a drug rehabilitation center too, but that wasn’t very likely, now was it?
Then from the AB story:
“It’s unfortunate it had to get this point,” said William Longbrake, an executive-in-residence at the University of Maryland. “It would have been better if the industry had done these things without the federal government.”
What in the Sam Hill is an “executive in residence”? And what kind of distorted perspective looks at what the servicers have done her… these last three years… and says… gee, it would have been better if they wouldn’t have done those things. Mr. Longbrake, are you aware that people have committed suicide because of that these servicers have done to them? Marriages have ended. Entire communities destroyed. Damage to children that is inestimable. How about asking… where the hell has the federal government been for the last three years?
The AB story wraps up with talk about the “global settlement” claptrap, and I don’t know what the hell it means, but I sure don’t like the sound of it. Here’s what the AB story says:
“While the settlement is likely to be bad public relations for the servicers involved, Jaret Seiberg, a policy analyst at MF Global Inc.’s Washington Research Group, said a global settlement may still be positive news for the industry.”
“A global settlement should be extremely positive for banks by putting this issue to rest and letting the industry move past the paperwork snafus,” Seiberg said.
“Bad public relations?” “Paperwork snafus?” Jaret, Jaret, Jaret… my boy… you are such an asshat. And you’re a policy analyst at MF Global Inc.’s Washington Research Group? If there’s a God, someday you or someone you love will lose your home to foreclosure.
Jaret was also quite intrigued by “the potential for streamlined modifications.” It’s true… Jaret says that requiring streamlined modifications could have an impact. Maybe… he’s not sure, but they could… according to Jaret… it’s a possibility… according to Jaret… they might… have an impact… of some kind… who knows, but it’s a distinct possibility… says Jaret.
Here’s Jaret’s big finishing quote… pay attention, he’s a policy analyst remember… at MF Global Inc.’s Washington Research Group. Go Jaret… it’s your birthday… Go Jaret…
“The easier you make the modification the more likely you are to get a modification, so the concept makes a lot of sense. For the industry, where there is an automatic modification and then foreclosure if the borrower goes delinquent a second time, you could end up benefiting the banks because it’s going to eliminate a lot of uncertainty now about the ability of financial firms to foreclose on borrowers behind on payments. Right now there are so many programs out there, it difficult to know when banks can foreclose. This would set up a streamlined model.”
What? Yeah right… like I’m the only one thinking about how much fun it would be to kick the shite out of Jaret in a parking lot after a couple of beers and maybe a shot of Patron. Don’t punish yourself… It’s okay to dream.
And I’m going to have to watch this stupid story develop, you want to know why?
Well, believe it or not, a producer from KNX/KFWB, which are CBS Radio stations out here in Los Angeles, just called me a few minutes ago, as I was writing this unbelievably annoying story, and asked me if I would be on Bob McCormick’s Money Radio Show again this coming Monday morning starting at 9:00 AM.
It seems that they just saw this story come across the wire and want me to come on the show and discuss it. At 9:00 AM Monday morning. And I’m going to be in Las Vegas at the Paris Hotel and Casino attending Max Gardner’s Operation Strike Back attorney training event, so it’s really quite a problem.
I mean, I can do the show from the phone in my room, but how in the world am I going to have time to get drunk enough by 9:00 AM so that after I talk about this insipid drivel I don’t hurl myself from the top of the Vegas version of the Eifel Tower?
Mandelman out.
Jan
19
Investors Suing Banks Are On The Same Side As Homeowners In Foreclosure
It’s next to impossible to get any information while you’re in foreclosure from the servicer or trustee. Reasonable discovery requests for basic information are objected to and almost never complied with. It’s not just homeowners receiving the cold shoulder…the investors are as well….JUST WHAT ARE THEY HIDING?
JPMorgan Chase & Co.’s EMC Mortgage, facing homeowner lawsuits over foreclosures, was sued by the trustee of a mortgage portfolio for refusing to turn over documents detailing the quality of loans bought by the trust.
Wells Fargo & Co., the trustee, is seeking access to files for more than 2,000 underlying mortgages in the Bear Stearns Mortgage Funding Trust 2007-AR2, according to the complaint filed today in Delaware Chancery Court in Wilmington.
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Dec
16
Bank of America Foreclosures To Regain Speed- OVER MY DEAD BODY!
ARE YOU READY FOR WAR? ARE YOU ATTORNEYS, CONSUMERS AND ACTIVISTS PREPARING FOR BATTLE?
I AM!
NEWS FLASH- THE PROBLEMS THAT PLAGUE THE FORECLOSURE INDUSTRY HAVE NOT BEEN CORRECTED. THE SYSTEMIC DISINCENTIVES TO COME TO REASONABLE TERMS OF SETTLEMENT THAT MAKE ECONOMIC SENSE FOR THE INSTITUTIONAL AND INDIVIDUAL INVESTORS HAVE NOT BEEN ADDRESSED–THEIR LITIGATION RAGES ON.
HOMEOWNERS HAVE YET TO RECEIVE ANY REAL RELIEF, SHORT SALES OR REASONABLE MODIFICATIONS ACROSS THIS INDUSTRY.
YOUR FEDERAL HAS PUMPED BILLIONS OF DOLLARS INTO THESE SERVICERS AND THEY’VE NOW ADMITTED SYSTEMIC MISTAKES AND ABUSES, YET THEY’RE BEING PERMITTED TO CONTINUE WITH IMPROPER ACTIONS AGAINST CONSUMERS, BUSINESS AS USUAL, AS IF NOTHING IS STILL WRONG.
I DON’T LIKE WIKI LEAKS ONE BIT BUT GOD HELP US ALL IF BANK OF AMERICA IS THE SOURCE OF THE NEXT DOCUMENT DROP.
And now, read the story that’s causing my head to explode today…..
CHARLOTTE, N.C., Dec 15 (Reuters) – Bank of America Corp’s foreclosure process will regain speed in January after being stalled for nearly three months over allegations the industry cut corners on home repossessions, the bank’s home loans chief said on Wednesday.
“We feel comfortable with the results we’re getting, so starting in January you will see a ramp” up in foreclosure filings, Barbara Desoer, president of Bank of America’s home loans business, told Reuters in an interview.
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Dec
02
Notes Never Made It To the Trusts – BIG Problem for the BIG Banks
Editors Comment
Lane Houk
12/2/2010
The article below published on Bloomberg.com a few days ago is focused on the root of a really big problem for the banks. The greed of the big banks is going to ultimately lead to their demise. I mean this seriously, not figuratively. They are going to be consumed by their greed – and their sloppy arrogance.
The big banks own all the major servicers. They are subsidiaries of the banks or the bank holding companies.
The big banks own a number of the major loan originators. They are subsidiaries of the banks or bank holding companies.
The big banks own or operate a number of the largest investment banks and trustee divisions. They are subsidiaries of the banks or bank holding companies.
The players in the Mortgage Backed Securities world are largely controlled by the big banks. A loan/note when being securitized is supposed to pass through several conveyances on its way to being converted to a security. These transactions were supposed to be true purchase and sales from one entity to the next. The Pooling, Trust and/or Servicing Agreeement(s) spell this out in crystal clarity.
The big banks failed to follow their own agreements. The investors that got screwed years ago when big banks were selling shit to them might not get so screwed after all if they all get together and sue shit out of big banks.
Homeowners should find a plethora of ways to use these issues to reveal major issues of fact in their case. Clear title is a huge problem on millions of already foreclosed homes. Some title insurers already changing policies and not writing title insurance on a foreclosed home.
News Flash: Big Banks Swallowed by Their Own Greed – Coming Soon to a city near you… Also coming to every American Citizen… Government-Run or Government-Backed Title Insurance. Mark my words… it’s coming.
BofA Mortgage Morass Deepens After Employee Says Notes Not Sent
By Prashant Gopal and Jody Shenn – Nov 30, 2010
Testimony by a Bank of America Corp. employee in a New Jersey personal bankruptcy case may give more ammunition to homeowners and investors in their legal battles over defaulted mortgages.
Linda DeMartini, a team leader in the company’s mortgage- litigation management division, said during a U.S. Bankruptcy Court hearing in Camden last year that it was routine for the lender to keep mortgage promissory notes even after loans were bundled by the thousands into bonds and sold to investors, according to a transcript. Contracts for such securitizations usually require the documents to be transferred to the trustee for mortgage bondholders.
In the case, U.S. Bankruptcy Judge Judith H. Wizmur on Nov. 16 rejected a claim on the home of John T. Kemp, ruling his mortgage company, now owned by Bank of America, had failed to deliver the note to the trustee. That could leave the trustee with no standing to take the property, and raises the question of whether other foreclosures could similarly be blocked.
Following the decision, the bank disavowed the statements by DeMartini, whom it had flown in from California to testify. It was the policy of Countrywide Financial Corp., acquired by Bank of America in July 2008, to deliver notes as called for in its securitization contracts, according to Larry Platt, an attorney at K&L Gates LLP in Washington designated by the bank to answer questions about the case.
“This particular employee was mistaken in what she said,” Platt said in a telephone interview.
Attorney Analysis
Wizmur’s ruling is being scrutinized by lawyers for borrowers seeking to stall repossessions as a way to press lenders to modify their debt. Attorneys for homeowners have already won cases by calling into doubt the legitimacy of affidavits used to take back properties.
“If this is correct, many, many, many foreclosures already occurred in which this plaintiff didn’t have the note,” said Bruce Levitt, the South Orange, New Jersey, attorney representing Kemp. “This could affect thousands or hundreds of thousands of loans.”
Companies that service loans, including Bank of America, temporarily halted home seizures in the wake of disclosures that they relied on employees to sign thousands of affidavits without reading them, a practice that has become known as robo-signing. The attorneys general of all 50 states are jointly investigating foreclosure practices of servicers.
Bank of America, based in Charlotte, North Carolina, is the largest U.S. mortgage servicer, overseeing $2.09 trillion of loans as of Sept. 30, according to industry newsletter Inside Mortgage Finance.
Investor Impact
The Kemp case is also being examined by lawyers for investors in mortgage-backed securities. Owners of the bonds have been cooperating in an effort to force sellers to take back loans, saying they were misled about their quality. The Wizmur ruling may give investors an additional opportunity to push for mortgage buybacks on grounds that the bonds weren’t created in keeping with securitization contracts.
“It may mean investors who think they bought mortgage- backed securities bought securities that aren’t backed by anything,” said Kurt Eggert, a professor at Chapman University School of Law in Orange, California.
The potential impact of DeMartini’s testimony may depend on the outcome of a broader dispute between homeowner and industry lawyers about whether missing or incomplete paperwork subsequently can be fixed, Eggert said.
‘Not Customary’
Wizmur, chief judge of the U.S. Bankruptcy Court for the District of New Jersey, said during hearings that the Countrywide securitization contract covering Kemp’s loan called for a trustee to take possession of the promissory notes, which represent the borrowers’ obligation to repay their loans.
The judge asked DeMartini whether the notes ever move to follow the transfer of ownership, according to the transcript of the August 2009 hearing.
“I can’t say that they’re never moved because, I mean, with this many millions of loans as we have I wouldn’t presume to say that, but it is not customary for them to move,” DeMartini said.
“This is something that would concern investors,” said Talcott Franklin, a Dallas-based lawyer whose firm is helping owners of more than $600 billion of mortgage bonds as they consider ways to limit their losses.
DeMartini held management and training positions since joining Countrywide Home Loans about a decade ago, according to her testimony. She said she has been involved in every aspect of servicing and “had to know about everything in order to do that.”
Beyond DeMartini’s Knowledge
Platt, the lawyer for Bank of America, said DeMartini was wrong, as was the bank’s local attorney in the case, who argued in court that notes weren’t moved in part because of the risk of losing them. The transfer of mortgage notes was outside the scope of DeMartini’s knowledge because she doesn’t deal with the sale of loans, Platt said.
DeMartini, who at one point said she wasn’t “comfortable” testifying about the extent to which notes were transferred before continuing to do so, couldn’t be reached for comment. Jerry Dubrowski, a spokesman for the bank, said that she remains an employee.
Banks including JPMorgan Chase & Co. and Washington Mutual Inc. said in prospectuses for some mortgage-bond deals that they would hold onto notes for the trusts. They were empowered to act in custodial roles on behalf of trustees, according to the pooling and servicing agreements that govern the transactions.
Countrywide Deals
The securitization contracts related to the Kemp loan, and at least two other Countrywide mortgage-bond transactions, didn’t assign the company the additional role of document custodian for the trust. Countrywide, as the servicer, can take back the notes from the trustee when needed to manage foreclosure actions and mortgage payoffs, according to the contracts.
One risk to investors when notes remain with sellers acting as custodian is that an acquirer or creditor of those companies could walk in and take the notes, the banks that disclosed the practice in mortgage-bond prospectuses warned. Typically, trustees or custodians also are charged with checking that either all the necessary documents get delivered or letting sellers know about missing paperwork.
“If Countrywide had a special agreement to act as a stand- in for the trustee, given the inherent conflicts involved, one would have thought that would have been material and disclosed to investors,” said Joshua Rosner, an analyst at New York-based Graham Fisher & Co.
He said that the possibility that Countrywide retained documents raises questions about whether Bank of New York Mellon Corp., which serves as the trustee for the securitization of the Kemp loan, fulfilled its obligation to review loan files.
Stress-Tested System
“We have an established, clearly defined document review process,” said Kevin Heine, a spokesman for New York-based BNY Mellon. “It is a controlled and well-documented system that has been stress-tested and audited. We are comfortable that it works well.”
Heine declined to comment on the Kemp case or Countrywide’s policies.
Mortgage-bond contracts require that loan sellers deliver certain files to trustees, or other companies acting on their behalf, typically within a few months. “Material” missing paperwork can require sellers to take back loans for their full face value, according to the agreements.
“If the notes weren’t properly transferred to the trusts, then investors have the mother of all put-back claims,” Adam J. Levitin, an associate professor at Georgetown University Law Center in Washington, wrote on a blog four days after citing the Wizmur ruling during a hearing by a House Financial Services subcommittee.
Trust Law
Giving notes to the trustees after the fact isn’t a solution because the rules governing trusts, enforced by New York trust law, require that assets are in place by a specified closing date, said O. Max Gardner III, a Shelby, North Carolina, bankruptcy litigator. The notes also can’t be transferred to the trust without first being conveyed through a chain of interim entities, he said.
“If they do an end run and directly deliver it to the trust, that would violate all the documents they filed with the SEC under oath as to what they did,” Gardner said.
Industry lawyers said trust law isn’t relevant in this instance. Based on other legal codes, loans have already been transferred into the mortgage-bond trusts, making a clean-up of paperwork permissible, they said.
Refuted Attack Strategies
“Those who seek to attack the integrity of securitizations have taken a number of approaches that have been refuted, so now they’re focusing on New York trust law,” said Karen B. Gelernt, a lawyer in New York at Cadwalader, Wickersham & Taft LLP who works for banks.
The part of the law they cite relates to “actions taken by the trustee after the trust is formed; it’s nonsensical to apply this provision to the creation of the trust,” she said. “There doesn’t appear to be any case law that supports their interpretation.”
Platt, the Bank of America lawyer, said that any bank that failed to initially deliver all the documents required in contracts may be required to refund investors only in cases in which foreclosures actually get blocked.
“The judges may decide it’s better for the system to allow everyone to” send missing paperwork to trustees, said Rosner, the Graham Fisher analyst. “It’s too early to really answer question about the implications” if the Bank of America testimony is true.
The case is In the Matter of John T. Kemp, Kemp v. Countrywide Home Loans Inc., 08-02448, U.S. bankruptcy Court for the District of New Jersey (Camden).
To contact the reporters on this story: Prashant Gopal in New York at pgopal2@bloomberg.net; Jody Shenn in New York at jshenn@bloomberg.net
To contact the editors responsible for this story: Kara Wetzel at kwetzel@bloomberg.net; Alan Goldstein at agoldstein5@bloomberg.net
Oct
18
Bank of America to resume some foreclosures
Bank will lift halt on sales in 23 U.S. states requiring a judge’s approval
By ALAN ZIBEL
The Associated Press 
“WASHINGTON — Bank of America plans to resume foreclosures on more than 100,000 homes in 23 states next week, saying Monday it has a legal right to seize them.Bank of America Corp., the country’s largest bank, began halting foreclosures on Oct. 2 amid questions of faulty paperwork.
The company on Monday said it plans to resubmit documents with new signatures in states that require a judge’s approval to restart the foreclosure process.
It will continue delaying foreclosures in 27 states that do not require a judge’s approval.”
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Oct
13
Florida’s 30-Second Foreclosure Dash Hits Wall of Fraud Claims
By David McLaughlin
“Oct. 13 (Bloomberg) — Home to more foreclosures than 47 U.S. states, Florida sought to clear out its backlog with a system of special court hearings that dispensed with cases quickly, sometimes in less than a minute.
Homeowners like Nicole West now threaten to slow that system, Florida’s so-called rocket docket, to a crawl. West, who has been fighting to save her Jensen Beach house from foreclosure, has leveled a new allegation in her three-year battle: the entire process is based on fraud.
West said her case is rife with the kind of flawed mortgage documents that have caused lenders including Bank of America Corp. and JPMorgan Chase & Co. to stop the process of foreclosures and evictions across the country. The banks said they are investigating homeowner charges like West’s that signatures were forged and documents were backdated.
“It’s not right,” said West, 40, who lives about an hour’s drive north of West Palm Beach. “It’s like lying to the judge. It’s like lying about what’s really going on.”
The bank moratoriums are already thwarting the initiative by Florida officials to clear jammed court dockets. Now, efforts by homeowners such as West to bring claims of fraud to the attention of judges are further prolonging evictions, and in turn slowing purchases of foreclosed properties.
Third-Highest Rate
Florida has the third-highest foreclosure rate in the U.S. behind Nevada and Arizona. One in every 34 housing units — double the U.S. average — was in the foreclosure process or bank-owned as of Sept. 1, data vendor RealtyTrac Inc. said.
Florida’s legislature appropriated $9.6 million this year to pay semi-retired judges and case managers to clear the backlog of foreclosures. Some judges have been churning through cases at a rapid clip, such as those last week in Tampa who considered dozens of foreclosures per day, sometimes in as little as 30 seconds.
The goal is to clear 62 percent of the backlog by next July, according to Craig Waters, a spokesman for the Florida Supreme Court. J. Thomas McGrady, chief judge of Florida’s Sixth Judicial Circuit, said he once thought that was achievable. Now that Charlotte, North Carolina-based Bank of America, New York- based JPMorgan and Detroit-based Ally Financial Inc. have put the brakes on foreclosures or evictions to look for irregularities, he said he’s “very doubtful” his courts can resolve that many cases. The circuit, which covers the area around Clearwater and St. Petersburg, has a backlog of 33,000 foreclosure cases, he said.
More Backlog
“All of a sudden all of these issues pop up with the lenders,” McGrady said in an interview at his Clearwater office. “It’s going to slow down the whole process because there will be more backlog. We’re still getting 1,000 cases a month.”
At the Clearwater court, lenders as of yesterday had canceled more than half of the 84 hearings to approve foreclosures that were scheduled for today, according to Ron Stuart, a court spokesman. Half of the 110 hearings originally set to take place tomorrow were canceled as well.
Among the alleged defects the banks are examining are lender affidavits signed by people, often described as “robo signers,” who repeatedly failed to verify the accuracy of the information in the documents.
In December, an employee at Ally’s GMAC Mortgage unit said his team of 13 people signed about 10,000 documents a month without verifying their accuracy, according to a deposition taken in a foreclosure case filed in West Palm Beach.
False Affidavits
Ally has been accused of committing fraud by submitting hundreds of false affidavits in foreclosure cases, according to a lawsuit filed last week by Ohio Attorney General Richard Cordray. Ally said in a statement that it “believes there was nothing fraudulent or deceitful about its foreclosure practices.”
“Every homeowner that’s in foreclosure now should be questioning,” said Matthew Weidner, an attorney in St. Petersburg who defends homeowners in foreclosure cases. “Every homeowner that’s already been foreclosed and lost their home should be questioning. Anybody who’s behind in their mortgage should be questioning. This entire system is now a great big question mark.”
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Jun
02
BofA reaches out to troubled homeowners
Bank of America Corp. said Wednesday it has contacted 10,000 of its most troubled mortgage borrowers about its new loan forgiveness program.
Mortgage – Bank of America – Business – United States – Financial Services
May
21
AND the indictments start
“This will go on for a long time and a lot of people will be indicted,”
“The government continues to show that it simply doesn’t understand how this market operated,”
Editor’s Note: If you read this carefully, you get a flavor of how the derivative scam adventure involved everyone except its victims. Mind you, there is nothing wrong and probably everything right about derivatives. The problem is not the instrument, it is how it was used and who used it. Banks shouldn’t be allowed to underwrite, sell, trade and take investment positions contrary to the interests of the clients who buy those securities. No trading in derivatives should be subject to the description “opaque debt investment. All trading needs to be transparent when it comes to underwriters. And complex derivatives should not be used as a cover for fraud.
Conspiracy of Banks Rigging States Came With Crash (Update1)
By Martin Z. Braun and William Selway
May 18 (Bloomberg) — A telephone call between a financial adviser in Beverly Hills and a trader in New York was all it took to fleece taxpayers on a water-and-sewer financing deal in West Virginia. The secret conversation was part of a conspiracy stretching across the U.S. by Wall Street banks in the $2.8 trillion municipal bond market.
The call came less than two hours before bids were due for contracts to manage $90 million raised with the sale of West Virginia bonds. On one end of the line was Steven Goldberg, a trader with Financial Security Assurance Holdings Ltd. On the other was Zevi Wolmark, of advisory firm CDR Financial Products Inc. Goldberg arranged to pay a kickback to CDR to land the deal, according to government records filed in connection with a U.S. Justice Department indictment of CDR and Wolmark.
West Virginia was just one stop in a nationwide conspiracy in which financial advisers to municipalities colluded with Bank of America Corp., Citigroup Inc., JPMorgan Chase & Co., Lehman Brothers Holdings Inc., Wachovia Corp. and 11 other banks.
They rigged bids on auctions for so-called guaranteed investment contracts, known as GICs, according to a Justice Department list that was filed in U.S. District Court in Manhattan on March 24 and then put under seal. Those contracts hold tens of billions of taxpayer money.
California to Pennsylvania
The workings of the conspiracy — which stretched from California to Pennsylvania and included more than 200 deals involving about 160 state agencies, local governments and non- profits — can be pieced together from the Justice Department’s indictment of CDR, civil lawsuits by governments around the country, e-mails obtained by Bloomberg News and interviews with current and former bankers and public officials.
“The whole investment process was rigged across the board,” said Charlie Anderson, who retired in 2007 as head of field operations for the Internal Revenue Service’s tax-exempt bond division. “It was so commonplace that people talked about it on the phones of their employers and ignored the fact that they were being recorded.”
Anderson said he referred scores of cases to the Justice Department when he was with the IRS. He estimates that bid rigging cost taxpayers billions of dollars. Anderson said prosecutors are lining up conspirators to plead guilty and name names.
“This will go on for a long time and a lot of people will be indicted,” he said in a telephone interview.
Bidding Encouraged
The U.S. Treasury Department encourages public bidding for GIC contracts to ensure that localities are paid proper market rates. Banks that conspired in the bid rigging for GICs paid kickbacks to CDR ranging from $4,500 to $475,000 per deal in at least 10 different transactions, government court-filed documents say.
A GIC is similar to a certificate of deposit, but its rates aren’t advertised publicly. Instead, towns rely on advisory firms such as CDR to solicit competing offers.
In the bid-rigging deals, CDR gave false information to municipalities and fed information to bankers allowing them to win with lower interest rates than they were otherwise willing to pay, the indictment says. Banks took their illegal gains from the additional returns and paid CDR kickbacks, according to the indictment.
Not Guilty Plea
Wolmark, 54, who was indicted by a federal grand jury in Manhattan on antitrust, conspiracy and wire fraud charges, to which he pleaded not guilty, declined to comment when reached by telephone at CDR’s office. Goldberg, who hasn’t been charged, declined to comment, says his attorney, John Siffert.
Court records in the broadest-ever criminal investigation of public finance shed new light on how Wall Street’s biggest banks were cheating cities and towns during the same decade in which they were setting the stage for a global economic collapse.
As the banks were steering the world’s financial system to the brink of catastrophe by loading more than $1 trillion of subprime mortgage loans into opaque debt investments, they were also duping public officials across the U.S.
Many of the same bankers and advisers who sold public officials interest-rate swap deals that backfired for taxpayers are now subjects of the criminal antitrust investigation involving GICs.
The swaps are derivatives designed to keep monthly interest payments low as lending rates change. Municipal- derivative units of the largest U.S. banks also sold the contracts, public records across the nation show.
Key Witness
Derivatives are financial instruments used to hedge risks or for speculation. They’re derived from stocks, bonds, loans, currencies and commodities, or linked to specific events like changes in the weather or interest rates. Options and futures are the most common types of derivatives.
A key witness in the government’s case is a former banker whom the government hasn’t named, according to a civil lawsuit filed by Baltimore, Maryland, and six other municipal borrowers against Bank of America, JPMorgan and nine other banks. The banker is providing evidence against his peers.
The witness, who was employed by Bank of America Corp. starting in 1999, has laid out the inner workings of the scheme in confidential meetings with investigators, according to the civil lawsuit.
Bank of America, based in Charlotte, North Carolina, has also been providing prosecutors with evidence since at least 2007. The bank voluntarily reported its own illegal activity and agreed to cooperate with the Justice Department’s antitrust division, according to a press release from the company.
Amnesty Agreement
In exchange, the government promised in an amnesty agreement not to prosecute the bank. Bank of America spokeswoman Shirley Norton in San Francisco said in an e-mail the firm is continuing to cooperate.
The banker who has been cooperating with the Justice Department said he overheard his colleagues change Bank of America’s bids after coaching from brokers or other banks bidding on the same deal, according to information that the firm provided to plaintiffs in the civil case filed by seven municipalities.
At least five former bankers with New York-based JPMorgan, the second-biggest U.S. bank by assets, conspired with CDR to rig bidding on investment deals sold to local governments, according to the Justice Department list now under seal.
At least three other former JPMorgan bankers are targets of the investigation, according to filings with the Financial Industry Regulatory Authority. Six bankers with Bank of America, the biggest U.S. lender, are also named in the sealed Justice Department list as participants.
16 Companies
Eighteen employees at 16 other companies, including units of General Electric Co., UBS AG and FSA, then a unit of Brussels lender Dexia SA, are also cited as co-conspirators by the Justice Department, according to the list under seal. None have been charged in the case.
Citigroup spokesman Alex Samuelson, Dexia spokesman Thierry Martiny, GE spokesman Ned Reynolds, JPMorgan spokesman Brian Marchiony, UBS spokesman Doug Morris, and Ferris Morrison, a spokeswoman for Wells Fargo & Co., which acquired Wachovia in 2008, declined to comment.
Former CDR employees Douglas Goldberg, Daniel Naeh and Matthew Rothman, pleaded guilty in federal court in Manhattan in February and March to wire fraud and conspiracy to rig bids.
In October, CDR was charged with criminal conspiracy and fraud, along with Chief Executive Officer David Rubin, 48, vice president Evan Zarefsky and Wolmark. They pleaded not guilty. Rubin, who was also charged with making fraudulent bank transactions, faces as much as $3 million in fines and more than 30 years in jail if convicted.
No Law Broken
Rubin declined to comment in a telephone call.
“Mr. Rubin doesn’t think that CDR broke the law in any of these transactions,” said Laura Hoguet, his attorney in New York.
Daniel Zelenko, a lawyer for Zarefsky in New York, said he was confident his client will prevail at trial.
“The government continues to show that it simply doesn’t understand how this market operated,” Zelenko said in an e- mail.
During more than three years of investigation, federal prosecutors amassed nearly 700,000 tape recordings and 125 million pages of documents and e-mails regarding public finance deals.
$400 Billion
Municipalities and states raise $400 billion a year by selling bonds. They invest much of those proceeds in GICs, sold by banks or insurance companies. Those accounts hold taxpayer money and earn interest before public agencies spend it.
Banks and advising firms illegally siphoned money from taxpayers by paying artificially low interest rates in the GICs, the CDR indictment says. The money was intended to build schools, hospitals, roads and sewers and refinance higher-cost debt.
The bid-rigging schemes were orchestrated by CDR and other advisory firms, according to the indictment and the civil suits. Advisers are unregulated private firms hired by local governments to consult on public finance deals — and are almost always paid by the banks that arrange the transactions or manage the GICs.
Wilshire Boulevard
CDR, which was located on Wilshire Boulevard in Beverly Hills, California, during the transactions under investigation, has provided advice on more than $158 billion in public transactions since it was founded in 1986, according to its website.
CDR helped arrange deals in which financial firms took millions of dollars in profits from GICs, Bloomberg News reported in October 2006. Almost all of the deals were shams: As much as $7 billion in bond-issue proceeds were invested in GICs but never spent for the intended purpose of providing services to taxpayers.
CDR signed off on interest-rate swaps to municipalities, as banks took hidden fees sometimes 10 times as much as they charged on fixed-rate bond deals, according to data compiled by Bloomberg. For the public, the swaps were fraught with risks.
In the past decade, banks have peddled swaps the world over, from Jefferson County, Alabama — which was forced to the brink of bankruptcy — to the hill towns of the Umbria region of Italy. Many of these swaps soured when the credit crisis began in 2007.
Getting Out
Dozens of municipalities have paid banks billions to get out of swap contracts. The agency that oversees the San Francisco-Oakland Bay Bridge said it spent $105 million to escape its deal in July 2009.
“They were gouging the municipalities,” said retired IRS investigator Anderson, 59. “Beside the excessive fees, some of the swap deals just didn’t work. It was just awful. The same people were involved in the GIC end of the market.”
Bid rigging not only cheated cities and towns, it also illegally denied the IRS required taxes from GIC income, Anderson said. The evidence is clear in telephone recordings made on GIC desks, he said. “We could hear people talking about how everyone knew who was going to win the bid. You could tell it was just everyday business.”
The Securities and Exchange Commission is conducting a probe of bid rigging from its Philadelphia office that’s parallel to the Justice Department investigation.
More Probes
State attorneys general in California, Connecticut and Florida are also investigating. Bank of America, JPMorgan, Fairfield, Connecticut-based GE, and Zurich-based UBS have disclosed in regulatory filings that they may be sued by the SEC.
The Federal Bureau of Investigation has raided at least two of CDR’s competitors, Pottstown, Pennsylvania-based Investment Management Advisory Group Inc., known as Image, and Eden Prairie, Minnesota-based Sound Capital Management. Neither has been charged.
Robert Jones, a managing director of Image, declined to comment, after answering a call to the firm’s office. Johan Rosenberg of Sound Capital didn’t return calls seeking comment.
Tape recordings cited in a letter by Justice Department prosecutor Rebecca Meiklejohn show how those deals worked. In two GIC bids for the Utah Housing Corp., CDR’s Zarefsky advised an unidentified trader that his firm could lower its offer by “a dime,” or 10 basis points (a basis point is 0.01 percentage point).
‘A Couple Bucks’
The West Valley City-based housing agency accepted contracts with GE’s FGIC Capital Market Services division for 5.15 percent and 3.41 percent in 2001, public records show. Zarefsky didn’t return calls seeking comment.
“I can actually probably save you a couple bucks here,” Zarefsky told the trader, according to the letter citing the tape recording.
The Utah agency, which finances mortgages for low-income residents, didn’t know that financial firms were cheating it out of money that could have been used to help home buyers, said Grant Whitaker, who runs the agency. “It sounds like somebody got a better deal than we did,” he said in a telephone interview.
Such deals could produce large illegal profits by banks, said Bartley Hildreth, public finance professor at the Andrew Young School of Policy Studies at Georgia State University in Atlanta.
A New Wrinkle
“Just a basis point on many of these deals is tens to hundreds of thousands of dollars,” he said.
This isn’t the first time Wall Street has faced accusations of reaping excessive fees on investment deals with public officials. Goldman Sachs Group Inc., Lehman Brothers, which filed for bankruptcy in 2008, Merrill Lynch & Co. and other securities firms agreed by 2000 to pay more than $170 million to settle SEC charges that they had sold overpriced Treasury bonds to municipalities.
The so-called yield burning drove down the returns that local governments earned and trimmed required payments to the IRS. The firms neither admitted nor denied wrongdoing.
Even as the banks were settling with regulators, they devised another way to burn yield, this time by skimming money from GICs, according to the indictment, which said the conspiracy went from 1998 to at least 2006.
In the lawsuit against Bank of America and JPMorgan filed in New York in June 2009, the city of Baltimore, two Mississippi universities and four other municipal borrowers say that bankers from those two companies colluded in bidding for GIC contracts in Pennsylvania.
Holiday Party
At a holiday party sponsored by advising firm Image at Sparks Steak House in Manhattan early in the past decade, the Pennsylvania deals were discussed by the Bank of America trader who is cooperating with prosecutors and Sam Gruer of JPMorgan, the civil antitrust lawsuit says.
The Bank of America trader told Gruer that he was happy that the two banks weren’t “kicking each other’s teeth out” on bidding for certificates of deposits for bond proceeds, the suit says. That information was provided by Bank of America to the plaintiffs.
Gruer, who was informed by prosecutors in 2007 that he was a target of the investigation, declined to comment.
Coaching a Bidder
The trader who is now a federal witness joined Bank of America after being recommended by Image, according to information that the bank turned over to the Baltimore-led plaintiffs. He was assigned by Phil Murphy, who headed the municipal trading desk, to be Bank of America’s point person for investment contracts bid by Image, the lawsuit says.
Image coached Bank of America in winning an investment contract in Pennsylvania, according to an internal e-mail exchange in May 2001 between Bank of America trader Dean Pinard and Image’s Peter Loughhead that was obtained by Bloomberg News. The e-mail was provided to Bloomberg by a person who got it from Bank of America and asked to remain unidentified.
Loughead, who ran bids for Image, advised Pinard on how much to offer for managing the cash fund for a $10 million bond issued by the sewer authority of Springfield Township, York County, 100 miles (161 kilometers) west of Philadelphia.
‘Don’t Fall on Any Swords’
Pinard said in the e-mail to Loughead that Bank of America was willing to pay the town as much as $40,000 upfront to win the deal. Loughead wrote that the bank didn’t need to pay that much.
“Don’t fall on any swords,” Loughead wrote to Pinard the day before bids were submitted. He suggested that the bank could win the contract with a bid of slightly more than $30,000. The next day, Bank of America offered $31,000. It won the bidding, authority records show.
Loughead didn’t return calls seeking comment. Pinard didn’t respond to telephone requests for an interview and no one responded to a knock on the door at his Charlotte home.
Image ensured that Bank of America would dominate GIC deals in Pennsylvania by soliciting sham bids from other banks to make the process look legitimate, according to testimony from the trader cooperating with the Justice Department.
Bank of America would return the favor to Image by submitting so-called courtesy bids at the adviser’s request, allowing JPMorgan to win some of the deals, according to information that Bank of America gave plaintiffs’ attorneys.
Switching Jobs
Bank of America has cooperated with the municipalities that were suing the bank as part of its 2007 amnesty agreement with the Justice Department.
Traders such as FSA’s Goldberg often had worked for several banks and insurance companies that had a role in GIC contracts, according to employment records with Finra, the self-regulator of U.S. securities firms. CDR employees went on to work in the derivative departments of Deutsche Bank AG and UBS, the records show.
Before joining Bank of America, Pinard, 40, worked at Wheat, First Securities Inc. in Philadelphia with two bankers who would later join Image, according to broker registration records.
“Few people understand this part of public finance,” Georgia State’s Hildreth said. “It is a very small band of brothers who know the market. So, of course, they are going to reap the benefits.”
34 States
For nearly a decade, CDR founder Rubin, Wolmark, and Zarefsky helped fix prices on investment deals that cheated taxpayers in at least 34 states, according to their indictments and records filed in the case.
FSA’s Goldberg, who received a bachelor’s degree in accounting from St. John’s University in Queens, New York, worked with CDR employees on GIC deals, according to the indictment and public records. Goldberg worked from 1999 to 2001 at GE, which gets 35 percent of its revenue from financial services.
Goldberg was referred to only as “Marketer A” in the CDR indictment. “Marketer A” was then later identified as FSA’s Steven Goldberg in the Justice Department list of co- conspirators.
At GE, Goldberg worked with Dominick Carollo, a senior investment officer for FGIC, and Peter Grimm, who worked there from 2000 until at least 2006, according to court documents and public records. GE sold FGIC in 2003 to a group led by mortgage insurer PMI Group Inc.
Funneling Kickbacks
Goldberg and Grimm worked with CDR to increase their gains on GIC deals, according to the CDR indictment and conspirator list. Carollo left GE in 2003, joining the derivatives unit of Royal Bank of Canada. Grimm and Carollo didn’t respond to telephone calls and e-mails seeking comment.
Goldberg continued to participate in the conspiracy after he left for FSA in 2001 and used swap deals with Toronto-based Royal Bank of Canada and UBS to funnel kickbacks to CDR, according to the indictments and the Justice Department list of conspirators. Royal spokesman Kevin Foster said the company is cooperating the government.
FSA, Royal Bank of Canada and UBS all worked on public finance deals in West Virginia that prosecutors say involved bid rigging.
At least three times, Goldberg conspired with CDR to pick up deals with West Virginia agencies, according to a guilty plea by former CDR employee Rothman and other records filed in federal court in Manhattan. Among them was a $147 million investment contract with the West Virginia School Building Authority.
‘Raw Greed’
That state’s schools need every penny they can get, said Mark Manchin, executive director of the school authority. With 17 percent of West Virginians below the poverty line in 2008, the state was 45th among the 50 U.S. states, according to a 2009 Census Bureau report. Manchin said some students study in dilapidated, century-old buildings.
“It’s just raw greed at the expense of the most vulnerable,” he said in a telephone interview. “With deteriorating facilities all over the state, that money is what we use to build schools.”
Bank of America’s municipal derivatives division, which was formed in 1998, worked on the 14th floor of the Hearst Tower in Charlotte. The space was so tight that the banker who’s cooperating with the Justice Department said he could hear others in the office change their bids when they got word from financial advisers, according to information Bank of America gave Baltimore.
Bank of America’s Murphy told the banker helping prosecutors that Image would use sham auctions to steer deals to Bank of America if the employee told Image that he “wanted to win” and “would work with” Image, according to the civil suit filed by Baltimore. Murphy declined to comment.
Verbal Cues
They would use verbal cues to communicate. The banker would ask whether the bid was a “good fit” to get information on competing bids from Image. Sometimes Image’s Martin Stallone said Bank of America’s bids were “aggressive,” or too high, and had to be reworked.
At other times, Stallone would ask the banker to bid a specific number, according to the civil suit.
Stallone didn’t respond to messages left for him at work or to a list of questions faxed and e-mailed to Image.
Like Financial Security Assurance, Bank of America also paid kickbacks to brokers for their help in getting deals, according to the Baltimore lawsuit, which based its allegations on information provided by Bank of America.
On June 28, 2002, Douglas Campbell, a former municipal derivatives salesman at Bank of America, wrote in an e-mail to his boss, then managing director Murphy, that he had paid $182,393 to banks and brokers not tied to any particular deals.
‘Better Relationship’
Three payments totaling $57,393 went to CDR, which played no role in any transaction connected to that amount. A copy of the e-mail was contained in a North Carolina lawsuit filed by Murphy against Bank of America in 2003.
“The CDR fees have been part of the ongoing attempt to develop a better relationship with our major brokers,” Campbell wrote.
The bid rigging in GIC contracts has reduced public funding for schools and housing across the U.S.
“If this was going on in a small state like West Virginia, it must have been huge elsewhere,” the state’s Assistant Attorney General Doug Davis said.
To contact the reporters on this story: William Selway in San Francisco at wselway@bloomberg.net; Martin Z. Braun in New York at mbraun6@bloomberg.net
Last Updated: May 18, 2010 08:55 EDT
Filed under: bubble, CASES, CORRUPTION, expert witness, foreclosure, foreclosure mill, Forensic Analysis Workshop, GTC | Honor, HERS, investment banking, Investor, Mortgage, Motion Practice and Discovery, securities fraud, Securitization Survey, STATUTES, trustee, workshop Tagged: amnesty agreement, Andrew Young School of Policy Studies at Georgia State University, Baltimore lawsuit, Bank of America, Bank of America’s municipal derivatives division, Bartley Hildreth, BLOOMBERG NEWS, CDR, CDR Financial Products Inc., Charlie Anderson, Citigroup Inc, co- conspirators., courtesy bids, David Rubin, Dean Pinard, derivatives, Deutsche Bank AG, Dexia SA, Dominick Carollo, Doug Davis, Eden Prairie, Evan Zarefsky, Federal Bureau of Investigation, FGIC, FGIC Capital Market Services, Financial Industry Regulatory Authority, Financial Security Assurance, Finra, funnel, futures, GE, General Electric Co., GICs, Grant Whitaker, Gruer, guaranteed investment contracts, HERS, Hildreth, Image, Image at Sparks Steak House, indictment, Investment Management Advisory Group Inc., Johan Rosenberg, John Siffert, JPMorgan, Justice Department, Kevin Foster, kickbacks, Laura Hoguet, Lehman Brothers, Loughead, Mark Manchin, Martin Z. Braun, Merrill Lynch & Co., municipal, opaque debt investments, Options, Peter Grimm, Peter Loughhead, Phil Murphy, Pinard, PMI Group Inc., regulators, Robert Jones, Royal Bank of Canada, Rubin, Sam Gruer, Securities and Exchange Commission, sewer authority, Shirley Norton, Sound Capital, Sound Capital Management, Stallone, Steven Goldberg, swaps, U.S. District Court in Manhattan, UBS, Wachovia Corp, West Virginia, West Virginia School Building Authority, William Selway, Wolmark, Zarefsky, Zevi Wolmark
Mar
25
BofA to reduce principal for at-risk mortgages
Bank of America Corp. is giving some of its most troubled mortgage borrowers relief from the threat of foreclosure.
Bank of America – Mortgage – Business – Financial Services – Banking Services
Mar
20
Goldman and JPM Still Playing with Other People’s Money
The five biggest U.S. commercial banks in the derivatives market — JPMorgan, Goldman Sachs, Bank of America Corp., Citigroup and Wells Fargo & Co. — account for 97 percent of the notional value of derivatives held in the banking industry [$605 trillion], according to the Office of the Comptroller of the Currency.
Goldman Sachs Demands Collateral It Won’t Dish Out
By Michael J. Moore and Christine Harper
March 15 (Bloomberg) — Goldman Sachs Group Inc. and JPMorgan Chase & Co., two of the biggest traders of over-the- counter derivatives, are exploiting their growing clout in that market to secure cheap funding in addition to billions in revenue from the business.
Both New York-based banks are demanding unequal arrangements with hedge-fund firms, forcing them to post more cash collateral to offset risks on trades while putting up less on their own wagers. At the end of December this imbalance furnished Goldman Sachs with $110 billion, according to a filing. That’s money it can reinvest in higher-yielding assets.
“If you’re seen as a major player and you have a product that people can’t get elsewhere, you have the negotiating power,” said Richard Lindsey, a former director of market regulation at the U.S. Securities and Exchange Commission who ran the prime brokerage unit at Bear Stearns Cos. from 1999 to 2006. “Goldman and a handful of other banks are the places where people can get over-the-counter products today.”
The collapse of American International Group Inc. in 2008 was hastened by the insurer’s inability to meet $20 billion in collateral demands after its credit-default swaps lost value and its credit rating was lowered, Treasury Secretary Timothy F. Geithner, president of the Federal Reserve Bank of New York at the time of the bailout, testified on Jan. 27. Goldman Sachs was among AIG’s biggest counterparties.
AIG Protection
Goldman Sachs Chief Financial Officer David Viniar has said that his firm’s stringent collateral agreements would have helped protect the firm against a default by AIG. Instead, a $182.3 billion taxpayer bailout of AIG ensured that Goldman Sachs and others were repaid in full.
Over the last three years, Goldman Sachs has extracted more collateral from counterparties in the $605 trillion over-the- counter derivatives markets, according to filings with the SEC.
The firm led by Chief Executive Officer Lloyd C. Blankfein collected cash collateral that represented 57 percent of outstanding over-the-counter derivatives assets as of December 2009, while it posted just 16 percent on liabilities, the firm said in a filing this month. That gap has widened from rates of 45 percent versus 18 percent in 2008 and 32 percent versus 19 percent in 2007, company filings show.
“That’s classic collateral arbitrage,” said Brad Hintz, an analyst at Sanford C. Bernstein & Co. in New York who previously worked as treasurer at Morgan Stanley and chief financial officer at Lehman Brothers Holdings Inc. “You always want to enter into something where you’re getting more collateral in than what you’re putting out.”
Using the Cash
The banks get to use the cash collateral, said Robert Claassen, a Palo Alto, California-based partner in the corporate and capital markets practice at law firm Paul, Hastings, Janofsky & Walker LLP.
“They do have to pay interest on it, usually at the fed funds rate, but that’s a low rate,” Claassen said.
Goldman Sachs’s $110 billion net collateral balance in December was almost three times the amount it had attracted from depositors at its regulated bank subsidiaries. The collateral could earn the bank an annual return of $439 million, assuming it’s financed at the current fed funds effective rate of 0.15 percent and that half is reinvested at the same rate and half in two-year Treasury notes yielding 0.948 percent.
“We manage our collateral arrangements as part of our overall risk-management discipline and not as a driver of profits,” said Michael DuVally, a spokesman for Goldman Sachs. He said that Bloomberg’s estimates of the firm’s potential returns on collateral were “flawed” and declined to provide further explanation.
JPMorgan, Citigroup
JPMorgan received cash collateral equal to 57 percent of the fair value of its derivatives receivables after accounting for offsetting positions, according to data contained in the firm’s most recent annual filing. It posted collateral equal to 45 percent of the comparable payables, leaving it with a $37 billion net cash collateral balance, the filing shows.
In 2008 the cash collateral received by JPMorgan made up 47 percent of derivative assets, while the amount posted was 37 percent of liabilities. The percentages were 47 percent and 26 percent in 2007, according to data in company filings.
“JPMorgan now requires more collateral from its counterparties” on derivatives, David Trone, an analyst at Macquarie Group Ltd., wrote in a note to investors following a meeting with Jes Staley, chief executive officer of JPMorgan’s investment bank.
Citigroup Collateral
By contrast, New York-based Citigroup Inc., a bank that’s 27 percent owned by the U.S. government, paid out $11 billion more in collateral on over-the-counter derivatives than it collected at the end of 2009, a company filing shows.
Brian Marchiony, a spokesman for JPMorgan, and Alexander Samuelson, a spokesman for Citigroup, both declined to comment.
The five biggest U.S. commercial banks in the derivatives market — JPMorgan, Goldman Sachs, Bank of America Corp., Citigroup and Wells Fargo & Co. — account for 97 percent of the notional value of derivatives held in the banking industry, according to the Office of the Comptroller of the Currency.
In credit-default swaps, the world’s five biggest dealers are JPMorgan, Goldman Sachs, Morgan Stanley, Frankfurt-based Deutsche Bank AG and London-based Barclays Plc, according to a report by Deutsche Bank Research that cited the European Central Bank and filings with the SEC.
Goldman Sachs
Goldman Sachs and JPMorgan had combined revenue of $29.1 billion from trading derivatives and cash securities in the first nine months of 2009, according to Federal Reserve reports.
The U.S. Congress is considering bills that would require more derivatives deals be processed through clearinghouses, privately owned third parties that guarantee transactions and keep track of collateral and margin. A clearinghouse that includes both banks and hedge funds would erode the banks’ collateral balances, said Kevin McPartland, a senior analyst at research firm Tabb Group in New York.
When contracts are negotiated between two parties, collateral arrangements are determined by the relative credit ratings of the two companies and other factors in the relationship, such as how much trading a fund does with a bank, McPartland said. When trades are cleared, the requirements have “nothing to do with credit so much as the mark-to-market value of your current net position.”
“Once you’re able to use a clearinghouse, presumably everyone’s on a level playing field,” he said.
Dimon, Blankfein
Still, banks may maintain their advantage in parts of the market that aren’t standardized or liquid enough for clearing, McPartland said. JPMorgan CEO Jamie Dimon and Goldman Sachs’s Blankfein both told the Financial Crisis Inquiry Commission in January that they support central clearing for all standardized over-the-counter derivatives.
“The percentage of products that are suitable for central clearing is relatively small in comparison to the entire OTC derivatives market,” McPartland said.
A report this month by the New York-based International Swaps & Derivatives Association found that 84 percent of collateral agreements are bilateral, meaning collateral is exchanged in two directions.
Banks have an advantage in dealing with asset managers because they can require collateral when initiating a trade, sometimes amounting to as much as 20 percent of the notional value, said Craig Stein, a partner at law firm Schulte Roth & Zabel LLP in New York who represents hedge-fund clients.
JPMorgan Collateral
JPMorgan’s filing shows that these initiation amounts provided the firm with about $11 billion of its $37.4 billion net collateral balance at the end of December, down from about $22 billion a year earlier and $17 billion at the end of 2007. Goldman Sachs doesn’t break out that category.
A bank’s net collateral balance doesn’t get included in its capital calculations and has to be held in liquid products because it can change quickly, according to an executive at one of the biggest U.S. banks who declined to be identified because he wasn’t authorized to speak publicly.
Counterparties demanding collateral helped speed the collapse of Bear Stearns and Lehman Brothers, according to a New York Fed report published in January. Those that had posted collateral with Lehman were often in the same position as unsecured creditors when they tried to recover funds from the bankrupt firm, the report said.
“When the collateral is posted to a derivatives dealer like Goldman or any of the others, those funds are not segregated, which means that the dealer bank gets to use them to finance itself,” said Darrell Duffie, a professor of finance at Stanford University in Palo Alto. “That’s all fine until a crisis comes along and counterparties pull back and the money that dealer banks thought they had disappears.”
‘Greater Push Back’
While some hedge-fund firms have pushed for banks to put up more cash after the collapse of Lehman Brothers, Goldman Sachs and other survivors of the credit crisis have benefited from the drop in competition.
“When the crisis started developing, I definitely thought it was going to be an opportunity for our fund clients to make some headway in negotiating, and actually the exact opposite has happened,” said Schulte Roth’s Stein. “Post-financial crisis, I’ve definitely seen a greater push back on their side.”
Hedge-fund firms that don’t have the negotiating power to strike two-way collateral agreements with banks have more to gain from a clearinghouse than those that do, said Stein.
Regulators should encourage banks to post more collateral to their counterparties to lower the impact of a single bank’s failure, according to the January New York Fed report. Pressure from regulators and a move to greater use of clearinghouses may mean the banks’ advantage has peaked.
“Before the financial crisis, collateral was very unevenly demanded and somewhat insufficiently demanded,” Stanford’s Duffie said. A clearinghouse “should reduce the asymmetry and raise the total amount of collateral.”
To contact the reporters on this story: Michael J. Moore in New York at mmoore55@bloomberg.net; Christine Harper in New York at charper@bloomberg.net.
Filed under: bubble, CDO, CORRUPTION, currency, Mortgage, securities fraud Tagged: AIG, Alexander Samuelson, Bank of America, BEAR STEARNS, Blankfein, Bloomberg, Brad Hintz, Brian Marchiony, Chistine Harper, Citigroup, collateral arbitrage, Craig Stein, Darrell Duffie, David Viniar, derivatives, Financial Crisis Inquiry Commission, Goldman Sachs, International Swaps and Derivatives Association, ISDA, Jamie Dimon, JPMorgan, Kevin McPartland, Lehman, Michael DuVally, Michael J. Moore, Morgan Stanley, New York Fed report, Paul Hastings Janofsky & Walker, Richard Lindsey, Robert Claasen, Schulte Roth and Zabel LLP, Stanford University, Tabb Group, Wells Fargo
Mar
10
Obama Moves Closer to Principal Reduction Mandate
Editor’s note: This is red meat for investors and borrowers seeking restitution for losses caused by improper appraisals, ratings and representations concerning loan and property values, loan viability, securities fraud, deceptive lending practices, TILA violations etc.
Obama Bank Policy Signals $1 Trillion in Writedowns
April 3 (Bloomberg) — U.S. regulators may force Bank of America Corp., Citigroup Inc. and at least a dozen of the nation’s biggest financial institutions to write down as much as $1 trillion in loans, twice what they’ve already recorded, based on Federal Deposit Insurance Corp. auction data compiled by Bloomberg.
Banks failing Federal Reserve evaluations of loans this month may be ordered to make sales worth as little as 32 cents on the dollar, according to FDIC data. That would be less than half of the 84 cents on the dollar the Treasury Department suggested was a possible purchase price. Some of the bank- insurance agency’s auctions brought 0.02 cent on the dollar.
Lower valuations would lead to new writedowns and capital injections from the $134.5 billion remaining in the Troubled Asset Relief Program, Nobel Prize-winning economist Joseph Stiglitz said.
“The only way banks will sell is under duress,” the 66- year-old professor at Columbia University in New York said in a phone interview.
Asset sales are the latest step in President Barack Obama’s effort to restart the U.S. economy through the most costly rescue of the financial system in history. Treasury Secretary Timothy Geithner’s Legacy Loan Program and Legacy Securities Program together are targeted to start at $500 billion and may expand to $1 trillion.
Auctioning Assets
Geithner’s plan will purchase loans and be overseen by the FDIC, which will offer debt guarantees while the Treasury invests capital alongside investors.
The FDIC would auction assets after the Office of the Comptroller of the Currency, Office of Thrift Supervision or the Fed signals that a bank is in danger of failing.
“If we thought that was the right decision to address their situation, we would certainly tell an institution to move in that direction,” said William Ruberry, an OTS spokesman in Washington.
Geithner’s plan to buy loans and securities “can be very useful,” Comptroller of the Currency John Dugan said in a Bloomberg Television interview today. “It’s one more arrow in the quiver to address problems with assets on banks’ balance sheets.”
Treasury spokesman Isaac Baker said in an e-mail that the program is voluntary and the government expects banks will want to sell assets to clean their balance sheets and make it easier to raise capital from investors, he said.
Financing Help
“Past auctions cannot reliably predict asset prices in the Public Private Investment Program, as we are creating a new market that has not previously existed to help value these assets, and offering financing to help investors purchase them,” Baker said.
Setting up a facility to purchase distressed loans will allow the FDIC to put a bank into “a silent resolution,” said Joshua Rosner, a managing director at investment-research firm Graham Fisher & Co. in New York.
“This is a way to functionally wind down a bank as big as Citi without the world realizing that they’re essentially in resolution,” he said. “The real value of this is a tool to resolve a too-big-to-fail institution.”
The FDIC is considering allowing banks to share in future profits on loans sold to public-private partnerships to encourage healthier lenders to participate, according to Jim Wigand, the agency’s deputy director for resolutions and receiverships. The regulator is seeking comments through April 10 on the program, said spokesman David Barr.
Assets sold under the Legacy Loans Program may be worth an average of 56.3 cents on the dollar, based on the results of FDIC auctions at failed banks over the past 15 months.
‘Large Amounts’
Writedowns would total $1 trillion if the program buys $500 billion in loans at 32 cents on the dollar, the average for non- performing commercial loans in the FDIC sales.
Geithner said March 29 that some financial institutions will need “large amounts of assistance.” He’s trying to avoid bank nationalizations by wooing investors to purchase loans with taxpayer-guaranteed financing to protect them against loss. The U.S. move to clear away distressed assets contrasts with Japanese financial authorities’ reluctance to do so in a 1990s financial crisis, which led to a decade of economic stagnation.
“This is going to be our Yucca Mountain right here,” said Joseph Mason, an associate professor at Louisiana State University in Baton Rouge and former FDIC visiting scholar, referring to the proposed radioactive-waste storage site in Nevada.
Half-Life
“You can put it in a train car and ship it across the country. The half-life of this stuff is real long, but it has to burn off,” he said.
The FDIC’s average auction value of 56.3 cents on the dollar for residential and commercial loans is based on 312 sales worth $1.1 billion since Jan. 1, 2008, according to the FDIC. The average for 348 commercial loans for which borrowers stopped paying was 32 cents on the dollar. Auction prices ranged from 0.02 cent to 101.2 cents on the dollar, according to the FDIC.
In announcing its loan-sale program last week, the Treasury provided an example of a purchase price of 84 cents on the dollar, with taxpayers putting up 6 cents, investors 6 cents and the FDIC guaranteeing 72 cents in financing.
“Eighty-four cents is just laughable” because the market value for loans is much lower, said Barry Ritholtz, chief executive officer of New York-based FusionIQ, an independent research firm.
The U.S. is structuring the loan purchases to leave the government with most of the risk, while investors stand to gain most of any profit, economist Stiglitz said.
‘Almost No Upside’
“There’s almost no upside for the taxpayer,” he said. “The government is giving a 110 percent bailout.”
How much investors offer for assets is “going to be the key” determinant of Bank of America’s participation in the government’s two asset-purchase programs, CEO Kenneth Lewis said in a Bloomberg Television interview March 27.
“If there’s an issue with the program, it’s going to be trying to get banks to sell assets,” FDIC Chairman Sheila Bair said in a speech the same day at the Isenberg School of Management of the University of Massachusetts in Amherst.
“If I have concern, it’s the pricing may not be where seller and buyer are willing to meet,” she said.
Any standoff between investors and banks over loan prices may scuttle Geithner’s plan to segregate non-performing assets and restart lending, said Bob Eisenbeis, chief monetary economist with Vineland, New Jersey-based Cumberland Advisors and a former Atlanta Federal Reserve Bank research director.
‘Really Bad Stuff’
“It’s hard to believe that the really bad stuff that’s causing all the problems are going to be offered for sale,” Eisenbeis said. “The institutions won’t want to sell them if they get a true price, because their capital would take too much of a hit.”
With preparations for auctions under way, U.S. banks are being put through so-called stress tests, which Geithner said last month are a comprehensive set of standards for the financial system’s most important lenders. The examinations of loans and their collateral and payment histories are scheduled to be completed by April 30.
Banks have almost $4.7 trillion of mortgages and $3 trillion of other loans that aren’t packaged into bonds, according to the Fed. The vast majority are carried at full value because they don’t need to be written down until they default, according to Daniel Alpert, managing director of New York-based investment bank Westwood Capital LLC.
“Just because it’s being held at full value doesn’t mean it’s not bad,” Alpert said.
Obama Effort
While regulators don’t intend to publish the details of their stress tests, the results will effectively become known once banks announce how much capital they need to raise. Regulators will then give lenders six months to obtain funds from investors or taxpayers as a last resort.
The tests are designed to mesh with Obama’s effort to remove banks’ distressed mortgage assets that have hampered lending to consumers and businesses. Officials aim to have the first loan purchases by private investors financed by the government within weeks of the conclusion of the stress tests, according to the Treasury.
Including TARP, the U.S. government and the Fed have spent, lent or guaranteed $12.8 trillion to combat the financial collapse and a recession that began in December 2007. The amount approaches the $14.2 trillion U.S. gross domestic product last year.
‘Constructive Plan’
Obama met with the CEOs of the nation’s 12 biggest banks on March 27 at the White House to enlist their support to thaw a 20-month freeze in bank lending.
Lenders undergoing stress tests include New York-based Citigroup, which has received three rounds of capital infusions valued at $60 billion, including $45 billion from TARP, according to Bloomberg data.
“The administration has put forth a constructive plan to address the critical issues facing the financial services industry, and we are committed to working together with the industry to help achieve the goals of the plan,” CEO Vikram Pandit said in a statement before meeting with Obama.
Citigroup spokesman Stephen Cohen declined to comment.
The U.S. tests also involve Charlotte, North Carolina-based Bank of America, which also received $45 billion from TARP. It bought Merrill Lynch & Co. — the largest underwriter of failed collateralized debt obligations, according to Standard & Poor’s — and home-lender Countrywide Financial Corp.
Bank of America spokesman Scott Silvestri declined to comment.
Option ARMs
San Francisco-based Wells Fargo purchased Wachovia Corp., the nation’s biggest provider of option adjustable-rate mortgages, for $15 billion. In doing so, it took responsibility for about $122 billion of option ARMs sold by the Charlotte bank.
Option ARM loans allow borrowers to defer part of their interest payments and add it to their principal. When housing collapsed, many holders of the mortgages were left owing more than the value of their homes.
Wachovia issued more than half its option ARMs in California, according to bank filings. Wells Fargo was already the biggest lender in the state.
“Wells Fargo supports any plan by the Treasury that helps financial institutions efficiently sell troubled assets while still providing an investment return to the U.S. taxpayer,” spokeswoman Janis Smith said in an e-mail.
Web Distribution
The ability to distribute loan information over the Internet will also support prices by expanding the number of buyers and allowing for sales as small as $100,000, said Stephen Emery, a managing director at New York-based Mission Capital Advisors, which brokered $3 billion of real-estate loan sales last year.
Terms offered under the Legacy Loans Program, including government-backed financing, will also help boost demand and selling prices by as much as 20 percent, he said.
“The leverage will allow buyers to bump their price a little bit,” Emery said. “But that still doesn’t mean that something that was worth 30 is now worth 60. What’s going to happen is now it’s worth 35 or 36 cents.”
To contact the reporter on this story: Mark Pittman in New York at mpittman@bloomberg.net;
Filed under: bubble, CDO, CORRUPTION, currency, Eviction, foreclosure, GTC | Honor, Investor, Mortgage, securities fraud Tagged: appraisals, Bank of America, Bloomberg, Citigroup, deceptive lending, foreclosure defense, property values, ratings, securities fraud, TILA violations, Writedowns
Dec
07
BofA says it has modified 600,000 mortgages
Bank of America Corp. said Monday it has provided mortgage relief through loan modifications for more than 600,000 homeowners since January 2008.
Mortgage – Bank of America – Business – Loan – Financial Services
Aug
20
Bank of America loses in Federal Ruling – Judge says investors own the loans
The report of the ruling below by this Federal Judge has several implications:
- Mortgage modifications may come to a halt again
- Attorney’s and anyone supposedly “helping” with modifications should be very, very wary
- The federal court in Manhattan is recognizing a couple very important issues:
- Servicers are NOT the owners of the loans (in the case of a securitized loan)
- Investors own the loans
- Servicers MAY be liable to buy back modified loans (subject to the terms of the PSA)
This ruling could ultimately end up being the demise of ALL foreclosure actions involving securitized loans. One thing is clear in that the federal court identifies the investors as the owners of the loan and is so doing the court also recognizes that the servicer/intermediaries/pretender lender have no authority to do ANYTHING in the way of enforcement, modification, collection through legal means such as a foreclosure action because they simply have no standing (the alleged debt is not owed to anyone other than the investors).
Just because a secret deal between Wall Street, servicers, banks and MERS occurred to obscure the ownership and the transfers of mortgages doesn’t mean their deal will hold up under the careful eye of diligent judge who understands AND cares about the law being upheld.
Source: Reuters
BofA’s Countrywide loses court ruling on mortgages
Thu Aug 20, 2009 7:37am EDT
* Federal judge lacks jurisdiction, moves case to states
* Loan modifications can hurt mortgage investors
NEW YORK, Aug 20 (Reuters) – A federal judge has ruled that Bank of America Corp (BAC.N: Quote, Profile, Research, Stock Buzz) cannot have a lawsuit by investors seeking to force it to buy back mortgages heard in federal court, saying he lacks jurisdiction to decide the case.
Tuesday’s ruling by Judge Richard Holwell of the U.S. District Court in Manhattan means the case will move to state court. Holwell did not decide the merits of the case.
“Congress passed two statutes within a year of each other to address the mortgage crisis,” the judge wrote. “In neither of these statutes did Congress federalize the case.”
The ruling is a win for investors, to the extent that Holwell rejected a claim by the bank’s Countrywide Financial Corp unit that new federal laws to encourage loan modifications to help struggling borrowers stay in their homes govern this case.
Countrywide had argued that the laws negated obligations it might have had to buy back modified loans. In 2008, Countrywide agreed with some 11 state attorneys general to modify $8.4 billion of loans made to roughly 400,000 borrowers.
Investors who own mortgage securities typically receive interest and principal payments. If servicers modified the underlying loans to reduce borrower obligations, investors would be harmed because they would receive lower payments.
Holwell did rule that investors bear the burden of showing that pooling and servicing agreements for their loans, taken “as a whole,” require Countrywide to buy back the loans.
Bank of America could not immediately be reached for comment. A published report said a spokeswoman agreed that the court did not rule on the merits of the plaintiffs’ claims.
The current case was brought by two investment funds holding Countrywide mortgages, Greenwich Financial Services Distressed Mortgage Fund 3 LLC and QED LLC.
These investors complained they would be harmed if Countrywide shifted the burdens of loan modifications to 374 trusts into which loans had been repackaged and securitized.
These investors would rather Countrywide repurchase modified loans for the full unpaid amounts.
Countrywide had been the largest U.S. mortgage lender before Bank of America acquired it last July for $2.5 billion.
The case is Greenwich Financial Services Distressed Mortgage Fund 3 LLC and QED LLC v. Countrywide Financial Corp, U.S. District Court, Southern District of New York (Manhattan), No. 08-11343. (Reporting by Jonathan Stempel, with additional reporting by John Tilak in Bangalore)
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Aug
04
Taylor Bean Suspended From FHA Lending
This is no surprise. These guys were horrible to deal with and they’ve treated customers terribly. TBW is going down… Colonial Bank looks to be next along with Guaranty Bank. We’ll be on top of it for you… Check back frequently for automatic updates.
From the Wall Street Journal
By JAMES R. HAGERTY and LINGLING WEI
The Federal Housing Administration Tuesday suspended Taylor, Bean & Whitaker Mortgage Corp. from making loans insured by the federal agency, knocking out one of the biggest FHA lenders at least temporarily.
The FHA said the Ocala, Fla.-based lender failed to submit a required annual financial report and to disclose to the FHA “certain irregular transactions that raised concerns of fraud.” Taylor Bean has 30 days to appeal the suspension.
Taylor Bean was the 12th largest U.S. mortgage lender in the first six months of this year, according to Inside Mortgage Finance, a trade publication. Among originators of FHA loans, Taylor Bean was the third largest in May, with a market share of 4%, according to the publication. Only Bank of America Corp. and Wells Fargo & Co. were larger.
Taylor Bean’s woes are a major blow for hundreds of brokers and smaller mortgage banks that sell the loans they originate to the privately owned company. Those small mortgage companies will have to scramble to find new partners if they are to remain in the booming FHA lending business.
FHA loans have surged in popularity over the past two years as other sources of mortgage funding have dried up.
Lee B. Farkas, chairman of Taylor Bean, said in response to questions that he was unaware of the FHA action.
Ginnie Mae, a government agency that guarantees payments to holders of securities backed by FHA loans, said Taylor Bean is also barred from issuing securities backed by Ginnie. Ginnie said it will take control of nearly $25 billion of mortgage securities issued by Taylor Bean.
The moves came a day after federal agents raided the Florida offices of Colonial BancGroup Inc. and Taylor Bean. Taylor had been leading a group of investors that proposed to shore up Colonial by taking a stake in the Alabama-based bank but that transaction fell through last week amid heavy losses at Colonial.
Write to James R. Hagerty at bob.hagerty@wsj.com and Lingling Wei at lingling.wei@dowjones.com
Aug
04
Bank of America Among Worst for Loan Modifications
“Bank of America Corp. and Wells Fargo & Co. were the worst performers among the biggest U.S. banks in modifying loans for struggling homeowners, according to a Treasury Department report.”
Aug
03
BofA pays $33M SEC fine over Merrill bonuses
” Bank of America Corp. has agreed to pay a $33 million penalty to settle government charges that it misled investors about Merrill Lynch’s plans to pay bonuses to its employees, regulators said Monday.”
