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Interesting Timing on the DocX Founder’s Guilty Plea

11:25 am in Uncategorized by Cynthia Kouril

Were they hiding this news behind the turkey?

Yesterday, Lorraine Brown, the founder of DocX/LPS, was scheduled to plead guilty to conspiracy to commit mail and wire fraud at 1 PM EST. I found out about it around 2 PM from the wonderful Lynn Szymoniak who has nagged and noodled the US Attorney’s Office about this case 4-evah (she really is the unsung hero of this development, but Lanny Bruer managed to leave her out of his self congratulatory press release).

So, I start making calls to the press liaison at United States Attorney’s Office Middle District of Florida and the Office of Public Affairs at Main Justice. No one would confirm that she had in fact completed her guilty plea and that the judge had accepted it. What most of the non-lawyer press does not realize is that a plea agreement is only a contract of intent between the USAO and defendant, it is not binding until the defendant actually goes into a courtroom and pleads guilty in front of a judge – and the judge makes a ruling that the allocution (confession of the specifics of the crime) is legally sufficient to support the guilty plea, that it seems credible, and that it is not coerced or the result of some physical or mental impairment (such as being stoned).

So she could have changed her mind at the last minute, I’ve seen it happen. Or the judge could have found fault with the plea allocution, I’ve seen that happen, too. Then you have to reschedule and have a do-over on another day.

So you can understand that despite having read the Plea Agreement and Criminal Information, as well as the written version of The Facts she would be giving in her allocution, I was loath to hit “publish” on my backstage draft until I had confirmed that it had actually completed.

So I called, and I called back and I called back some more. Oh, “OPA is working on a press release.” “ No, I can’t confirm that her court appearance has concluded.” “No, I can’t confirm that her court appearance even initiated.” “Don’t worry, press release will be emailed to you any minute.” This went on for hours until that magic moment at 5:01 PM EST when the press release arrived and there was not one word on it that could not have been written in advance of the plea appearance with “send” hit once the judge banged the gavel.

Soooo, why would it take so long to get out this simple plain vanilla press release? Let me put on my tinfoil hat for a minute. You know how they dump news that is bad for the stock markets late on a Friday afternoon, so there is time to digest the news and not cause a sell off panic? What’s even a deader time to do that? Right before Thanksgiving. A lot of newspapers have a 5 PM deadline for getting a story into the next morning’s print edition. Yes, if you have a story in draft and are just waiting for some last little detail, they will let you file late, but if you first learn about a thing after 5 PM, it’s doubtful you can get it in unless it’s so momentous at to rate a “stop the presses” moment.

Most reporters have filed their pieces for the day and are closing up, heading out. Many will not see that press release until they get to work this morning, which means they will write their stories to file by 5 PM today, after the markets close at noon for the holiday. Holders of big bank stock who desire to engage in a panic sell off will need to do so via foreign exchanges. Of course most won’t even know about it in time to panic because Thanksgiving is hardly a day for reading the newspapers, especially the financial news. So, maybe I’m reading too much into the timing of this press release, but I do know that the DOJ press operation is more than sophisticated enough to understand story deadlines and timing of news releases, so it sure looks to me as if they were afraid the news would spark a panic selloff of bank stock and were trying to avoid that. Read the rest of this entry →

The First Bank Has Been Criminally Indicted for Mortgage Fraud

9:51 am in Uncategorized by Cynthia Kouril

Manhattan DA Cy Vance has indicted a bank, a very small bank, for mortgage fraud. The first bank to be indicted in the foreclosure crisis is Abacus Bank, along with some of its executives.

From the press release:

Manhattan District Attorney Cyrus R. Vance, Jr., today announced the indictment of ABACUS FEDERAL SAVINGS BANK (“ABACUS” or the “Bank”) and eleven of its former employees in a false document mortgage fraud scheme resulting in the sale of hundreds of millions of dollars worth of fraudulent loans to the Federal National Mortgage Association, commonly known as “Fannie Mae.” The District Attorney also announced that an additional eight former employees have already waived indictment and admitted their guilt in connection with this conspiracy.

FINALLY, we get a prosecutor with a working set of gonads. You can watch the press conference here.

I realize that this is a teeny tiny bank so you may be asking yourself, “What’s the big deal?” Let me explain: By bringing this case, the Manhattan DA’s Office (actually New York County DA’s Office) is demonstrating that all that bullshit nonsense that POTUS and Geithner have been spouting about “sloppy paperwork” and non criminal lack of best practices is a lie. It also shows up the Preet Bharara excuse that intent is too hard to prove.

Knowing how small the investigative staff at the NYC DA’s office is, I think it is very prudent of them to take on a small bank that cannot overwhelm them with truckloads of paper and armies of lawyers. This is closer to an even fight, though the bank still has many more resources than the DA’s Office. I think it is also telling that the bank is literally a neighbor of the DA’s office, so investigators and DA’s can walk to their target.

The indictment, representing the culmination of a two-and-a-half-year investigation, charges that ABACUS, its employees, and its managers engaged in a conspiracy involving the regular and systematic falsification of residential mortgage application documents. The defendants falsified these documents so that they could earn commissions and fees by ensuring that otherwise unqualified borrowers would receive loans, which ABACUS then sold to Fannie Mae pursuant to an ongoing agreement. After purchasing these fraudulent mortgages, Fannie Mae repackaged them into mortgage-backed securities and sold them to outside investors. As a result of the hundreds of millions of dollars in charged fraudulent loans, ABACUS earned many millions of dollars in loan origination, purchasing, and servicing fees over the five-year period covered by the indictment.

They were aided in this investigation by two agencies you might not expect: FHFA, the Federal Housing Finance Agency and, of all folks, the IRS.

Where is the FBI? Well actually under resourced according to Bill Black, the man who cleaned up the Savings & Loan mess. He blames the bank regulators most of all for failing to do the preliminary work and for failing to file criminal referrals. According to Black, Office of Thrift Supervision has made zero referrals, the Comptroller of the Currency has made zero referrals, the Federal Reserve has made zero or 3 referrals, depending on which spokesperson you talk to, and the FDIC refuses to even answer the question.

You MUST watch this amazing Bloomberg news interview with Bill Black who does the best job I’ve seen so far of explaining why DOJ is not bringing criminal cases.  He explains all the institutional wheels and cogs that are not turning in the bank regulatory system and in the criminal justice system. It’s 15 minutes of “must know” information.

Big Empty Bag of Nothing

1:20 pm in Justice Department, Mortgage crisis, Uncategorized by Cynthia Kouril

Empty. (photo: SuziJane, flickr)

It has finally happened. Investors in a Residential Mortgage Backed Security {RMBS) have finally sued that the mortgages were never properly transferred into the trust.

The lawsuit was filed in the New York Supreme Court, New York County (that’s Manhattan to you off-islanders) on Monday. The Plaintiff is German Bank HSH Nordbank and it accuses Barclays of selling securities based on trusts that were supposed to have mortgages in them, but were actually empty.

You know, empty because the mortgages were never properly transferred, which led to all that forgery and perjury that the 50, erm 49, state AGs so cluelessly tried to immunize as “sloppy paperwork”?

The Financial Times is reporting

According to the lawsuit, none of the 2,000 mortgage loans sampled by bank-hired investigators was assigned into the trusts before it was sold to investors. The investors say they would not have bought the securities because the lack of paperwork would make it hard to take action against homeowners who failed to pay their mortgages and could call into question the securities’ tax-exempt status

The Wall Street Journal has a somewhat snarky, but chillingly accurate quote from the Plaintiff, which I’ve bolded below:

In its complaint Monday, HSH Nordbank also alleged that all of the mortgages weren’t assigned to trusts backing the securities as promised. By not doing so, it hinders the ability of the trusts to foreclose on the mortgaged properties, according to the lawsuit.

“Indeed, without such assignment of the mortgages into the trusts, these so-called ‘mortgage-backed securities’ were not actually backed by mortgages,” HSH Nordbank said. “Plaintiffs would not have purchased these certificates had they known they were not backed by collateral or the notes.”

Yes! Finally the lawsuit that rips the scab off the festering wound of our foreclosure crisis. This is the lawsuit or even criminal prosecution that DOJ should have brought long before this. This is the easy to prove or disprove low hanging fruit lawsuit.

The investors in RMBS have bought a big empty bag of nothing that was misrepresented to them as being a chock full of mortgages. This is fraud in its most basic form, a classic bait and switch.

Pity the Poor Judges

8:22 am in Judiciary, Mortgage crisis by Cynthia Kouril

(image: safari_vacation/flickr)

(photo: safari_vacation/flickr)

Now that the 49 State AG settlement has immunized manufacturing evidence, forgery and perjury, it’s going to be a lot tougher to be a judge. After all, how can you ever rule on a motion based upon affidavits and documentary evidence if it’s now OK to lie and to manufacture phony documents?

Will judges need to take courses in document forensics in order to rule on simple motions? Or will courts become even more clogged, because each affiant must be made to appear and confirm their own knowledge of the evidence in their affidavits or even that their own signature appears on the document? Will every motion now necessitate a mini trial?

This settlement corrupts the court system completely. That or it bogs it down to a point where the cost of litigation, no bargain to begin with, will become out of reach of all but the billionaires.

Think about it, if every bit of testimony on every matter, including pre-trial motions, must be had live and in court to avoid perjured and forged documents; the costs of litigation increases by orders of magnitude.

In that case, this settlement screws the banks themselves. Honest judges will no longer be able to accept their motions for Summary Judgment in foreclosure cases and will be forced to make the banks produce the affiants in court to testify from their own knowledge. Since these affiants are usually nowhere near the states where their affidavits are used, the travel costs alone will make the cost of foreclosing on an average house prohibitive.

No, I don’t think the formerly hold out AGs are playing eleventy dimensional chess. They sold out, got played, whatever. Yet most judges didn’t become judges because they wanted to deliberately mete out injustice. Most judges don’t want to give a verdict to a party that lacks standing. Most judges don’t want to see the judicial branch held in the same dismal light as Congress and many of the state legislatures. Read the rest of this entry →

85% of Mortgage Transfers Were No Good

12:46 pm in Financial Crisis, Mortgage crisis, State Government, Uncategorized by Cynthia Kouril

A Truckload of FAIL (photo: beatefirlinger, flickr)

A Truckload of FAIL (photo: beatefirlinger, flickr)

That’s a pretty startling headline, isn’t it? Yet, that was the conclusion reached by study of 400 foreclosure files commissioned by San Francisco County assessor-recorder Phil Ting. You can read the data in a report authored by the auditors called “Foreclosure in California- A Crisis in Compliance.” It’s only 21 pages long and written in plain language. You should read it, if only for common sense language like this:

Given these well-documented and widespread origination and servicing issues, it is not implausible that there are homeowners who are alleged to have defaulted on loans to which they never fully agreed to and, further, are being foreclosed upon by lenders that might not even own such loans. The fact that these homeowners borrowed something, on some terms, from someone should not be enough to rob them of their due process right.

Gretchen Morgenstern at the NYTimes is all over this story. She writes:

In a significant number of cases — 85 percent — documents recording the transfer of a defaulted property to a new trustee were not filed properly or on time, the report found. And in 45 percent of the foreclosures, properties were sold at auction to entities improperly claiming to be the beneficiary of the deeds of trust. In other words, the report said, “a ‘stranger’ to the deed of trust,” gained ownership of the property; as a result, the sale may be invalid, it said.

Wow, let that sink in for a minute, “a stranger to the deed of trust gained ownership of the property.” Maybe I should have used that for the headline.

This is not the first time an audit has produced these kinds of results. Law Professor Katherine Porter conducted a similar survey of 1700 mortgage foreclosures in the context of bankruptcy court proceedings. She published her findings in a law review article in the University of Texas Law Review back in 2008. She found: Read the rest of this entry →

Robosigning = Smoking Gun

9:53 am in Business, Economy, Executive Branch, Financial Crisis, Government, Justice Department, Mortgage crisis, State Government by Cynthia Kouril

Robot. Wants. Immunity. Or Else. (photo: lameazoid, flickr)

Robot. Wants. Immunity. Or Else. (photo: lameazoid, flickr)

There are a few voices emerging suggesting that the current iteration of the “50 AG settlement” is somehow wonderful, or at least OK, because it only immunizes robosigning. “Only,” as if robosigning was some relatively benign peccadillo, instead of a massive conspiracy to commit forgery and perjury that is systematically driving our population into homelessness AND continuing to drive down the value of our homes.

Peter Henning writing for NYTimes Dealbook thinks

Narrowing the investigative focus to the creation and sale of residential mortgage-backed securities may help push cases forward because the government will not spread itself too thinly by chasing every firm that somehow contributed to the financial crisis. Much like the focus of the Enron Task Force a decade ago, looking at a single target may allow investigators to master the intricacies of a slice of the market to determine whether there is evidence of fraud

Wrong.  The better analogy is to the Savings and Loan crisis in the 1980’s. Back then there were hundreds of government lawyers and plenty of criminal cases to send a message along with the civil cases to try to recoup some of the money. THAT’s how you do it. Henning thinks that most of the bad guys will get off for lack of evidence.

Could there be a “smoking gun” that would somehow implicate firms or executives in fraudulent practices that has gone undiscovered so far? The short answer is “no,”….

Wrong again; there certainly is a smoking gun, thousands of them, actually. They are the robo signed documents forged after the fact to try to create the false impression that the mortgages and notes were transferred to MERS and into securitization trusts/REMICs in a timely fashion. Add to that the formation documents for MERS and the Pooling and Servicing agreements for the REMICs and you have a case that is VERY easy for a judge and jury to understand.

Even the normally laser visioned Matt Taibbi doesn’t get it. He thinks that robosigning immunization will only hurt the homeowners trying to stave off foreclosure from an entity that has no standing to foreclose, as if that wasn’t enough all by itself.

Robosigning had a profound and immediate impact on large numbers of actual human beings, and I don’t want people to think I’m dismissing it as unimportant. I probably also shouldn’t celebrate news like this until I see how the actual deal looks, what wording is used to narrow the deal’s purview, how homeowners and other victims will be compensated, what will be done to prevent it in the future, and so on.

But my point was that, while a gross crime and one of the more obvious (and easily provable) parts of the criminal scheme common during the mortgage bubble years, robosigning is really an ancillary part of an even more enormous fraud that went on, and is still going on, in securitization/origination. Many homeowners were victimized by robosigning, but your more common victim of bank fraud during this time was an investor in MBS — maybe even another Wall Street entity like a hedge fund or a bond insurer, maybe a foreign trade union, maybe a state worker whose pension fund lost 40% of its value because it was sold bad bonds by a too-big-to-fail bank. And the hook that snared those victims was securitization. Read the rest of this entry →

The 99% Choir goes Christmas Caroling

11:24 am in Economy, Financial Crisis, Mortgage crisis, Uncategorized by Cynthia Kouril

OK, this is so charming, so pithy, so spot and so non-violent that even BMAZ can’t hate on this direct action {watch he’ll find something to nitpick and make a liar out of me ;-)}.

The Backbone Campaign, longtime source of witty direct action protests, partnered up with the Other 98%, the Seattle Labor Chorus and the Washington Community Action Network to produce a Christmas caroling event at Bank of America and at Wells Fargo. Donned in their Santa hats and other gay apparel, including a Ghost of Christmas Present, the 99% Choir serenaded the staff and customers at branches in Seattle area.

Enjoy those holiday classics such as “We’ll Foreclose, We’ll Foreclose, We’ll Foreclose” and “Deck the Jails with Wall Street Bankers”. If you want to get involved in something similar where you live, check out their Credit Union Community Organizer kit or their Occupy Our Homes podcast.

More of this, please.

Also, anyone who knows about some similar direct action that took place over the holidays, or who is planning one and wants to get the words out, please let everyone know in the comments thread.

Victims of BofA Mortgage and Foreclosure Actions Leave BofA’s Trash on Exec’s Doorstep

2:35 am in Economy, Financial Crisis by Cynthia Kouril

"Trash House" by malingering on flickr

"Trash House" by malingering on flickr

The Beacon Hill Patch is reporting that a group of frustrated local residents staged a protest at the home of Robert Gallery, President of Bank of America Massachusetts.

Volunteers cleaned up and bagged trash that had accumulated at a home where BofA foreclosed on and evicted a young family over a year ago. The home has been vacant and fallen into disrepair since, accumulating fines.

After cleaning up the eyesore, the group took the bags of trash to the local BofA branch, but they were turned away. So they went to Mr. Gallery’s home in the very posh section of Boston known as Beacon Hill and dumped them there, along with their demands.

Demands include that the bank:

  • Halt all foreclosures and evictions until underwater mortgages can be renegotiated.
  • Stop the crackdown on small business lending.
  • Rescind its proposed mass layoffs and take steps to protect and create Massachusetts jobs.
  • End its board members’ policies that exclude Bay State families from key programs like weatherization.
  • BTW, how cool is it that we have avenues for micro journalism that allow a story like this to be reported? Considering the underwhelming coverage of the Wall Street occupation protest, if it were not for citizen journalist we might not even know that average Americans are rising up in protest and taking to the streets.

    There is going to be a huge financial story next week

    9:12 am in Economy, Financial Crisis by Cynthia Kouril

    On page B7 of today’s WSJ there is a public notice of upcoming auction. Sorry for no link, but I cannot figure out how to get their website to display print ads.
    There are two HUGE lists of RMBS pools that are going to be sold at auction next week.
    The current par shows huge losses in value for many of them, but more significant will be what the actual sale prices turn out to be.
    This may allow us a model to reset the value of loans.
    If the pools sell for 10 cents on the dollar of the original face value, should not homeowner’s be forgiven principal amounts in the same proportions?
    Some of these show current par at only 20-25% of original face value.
    There is going to be a HUGE financial story next week.
    We are finally going to have an idea of the actual loss numbers.
    I am so nervous.

    Some hopeful signs and portents on the foreclosure fraud front

    10:35 am in Economy, Financial Crisis by Cynthia Kouril

    1) The LATimes reports that California AG Kamala Harris has created a task force to investigate

    •Corporate fraud, including instances in which bundled mortgages were sold as securities to the state or its pension funds under false pretenses. Harris said her office plans to prosecute some cases under California’s False Claims Act, which she described as “one of those very powerful tools that California uniquely has … to pursue, in essence, what are false claims that are submitted to the state.”

    •Scams, including instances in which consultants, lawyers and others took fees from people in foreclosure, saying they would help the homeowners get loan modifications or other remedies, but delivered nothing.

    •Fraudulent lending practices, including deceptive marketing, failure to fully disclose loan terms and qualifying people for loans who couldn’t afford the terms.

    She is also looking into the work of a Florida document mill to see if any of the robo-signing took place in California.

    She’s assigned 17 lawyers and 8 investigators to this, which is a pretty big commitment of resources. I am waiting with baited breath to see if any criminal cases come out of this. I don’t know if California has the necessary laws to make that happen, so if anybody reading this thread knows much about Cal. Finance or consumer laws, please de-lurk and educate the rest of us.

    2) Meanwhile a recent court ruling in Michigan, which has a hybrid system with both non judicial and judicial foreclosures, disallows MERS from using the non judicial foreclosure option—because MERS has no standing to collect the debt. Ahhhhhhh, I like the sound of that.

    3) Elijah Cummings tried to get information from the 10 biggest mortgage servicers and got limited cooperation from 4 and outright refusal from 6, so he has now sent a letter to House Oversight Committee Chair Darryl Issa asking for committee subpoenas to get the info from the reluctant 6. If Issa wants to become a populist hero, he will issue the subpoenas and the Oversight Committee can have a whale of a hearing. I am still waiting for that Pecora moment when a foreclosure fraud hearing captures the attention of the entire nation and focuses everyone on both the problem and on implementing the solution.

    4) As you probably already know NYS AG Eric Schneiderman has already sent out subpoenas to several banks. He has previously gone on record as refusing to enter into any 50 state agreement which precludes his ability to bring criminal prosecutions of the banksters. NY State has the very broadly written Martin Webb Act. The case law interpreting that Act construes it even more broadly, so I know that NY has the tools to bring these cases. Right now he appears to be working on the securitization phase of the mortgage pipeline. I am waiting to see if Eric can get the job done. I hope so.