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The Justice Department has confirmed that they have received criminal referrals from the Financial Crisis Inquiry Commission, but would not confirm how many referrals, how they will handle them, or what the timeline would be for any future actions. Justice Department Spokeswoman Elisa Spinelli said that the agency generally is not able to confirm or deny the existence of an investigation, but said that they take any information regarding potential violations seriously, and will subject them to a review.
Shahien Nasiripour suggests that the referrals from FCIC probably have something to do with securitization:
Wall Street firms that sold mortgage-backed securities appear to have violated federal securities laws by misleading investors on the quality of the underlying mortgages, a bipartisan panel created by Congress to investigate the root causes of the financial crisis concluded.
Banks that sold home loan bonds often didn’t disclose key details that would have helped investors accurately judge the quality of the investments. For example, investors were rarely told whether the mortgages failed to meet the banks’ own standards.
That failure raises “the question of whether the disclosures were materially misleading, in violation of the securities laws,” the panel said.
While Nasiripour hints that this aspect of the crisis has been largely ignored, it certainly has not by investors, who have been putting together teams to force repurchases of the bad securities for well over a year. And ever since the FCIC revealed the experience of Clayton Holdings, the third-party due diligence shop which found large percentages of mortgages they sampled for MBS deals to be inadequate, which the too big to fail banks ignored and still placed in their deals, the angry investors have been growing in numbers.
As Adam Levitin notes, the mother of all of these lawsuits was just dropped recently:
And so it begins. We’re about to witness the main event in financial institution internecine warefare: investment funds (MBS buyers) vs. banks (MBS sellers) [...]
And now we have the first A-list litigation. We have TIAA-CREF, New York Life, and Dexia suing Countrywide (and assorted other defendants). And it alleges invalid chain of title–the mortgage-backed securities are actually non-mortgage backed securities!
The complaint only alleges chain of title problems based on Kemp v. Countrywide, really as a tag-on, and doesn’t show a lot of thought on the issue, but that’s enough for the genie to be out of the bottle. Yup. They went there.
As I’ve blogged previously, there are a variety of potential chain of title problems. Some relate to the mortgage, some to the note. Some are generic legal problems, while others are execution problems. What is alleged in this suit is an execution problem, albeit one that seems to be the case for all Countrywide deals.
I don’t think we’ll ever see the banks admit that there’s a problem on chain of title until the whole thing blows up (and why would they admit to such a thing), but as this suit makes clear, it’s not just wild-eyed law professors and consumer attorneys (and the Massachusetts Supreme Judicial Court) that think there’s a problem. The Street is starting to think so too, and the momentum in this area is only like to pick up.
Levitin adds that trustees are finally starting to sue the servicers to hand over the loan files.
The FCIC report may or may not help the investors in their efforts, but the evidence uncovered falls along a continuum, which future investigations and discovery will only enhance.
This is where the action will happen. I don’t have a whole lot of trust that the Justice Department referrals will end with criminal sanctions, and even the civil cases would be settled for pennies on the dollar. The FCIC doesn’t use the word crime, and I don’t see the Justice Department using it either. They are part of the same family of elites who believe that the system can fix itself, rather than the idea that they need to rid the system of the bad actors who committed crimes.
But whether the investors believe in crimes or not, they definitely want their money. And they have a claim, more credible every day, to do so. It’s a claim which could set the financial system into chaos. Still.
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Finally, some action which looks like actual oversight and law enforcement. Wish I wasn’t suspicious of USAG Eric Holder’s ability to actually go after law-breaking banksters.
Lack of control of the title to the property is one thing
fraud as to the content of the mortgage pool is another
but it seems a “pool” you do not have title to is a slam dunk – but one that the Congress will fix with a new law.
But fraud as to content of the pool post the new law will still be open to fraud charges – tough ones to prove since the 1940 act will apply for sophisticated investors – but still a possible win.
I see few “put backs” – but a lot of lawyer fees – in the future. This will not help foreclosures all that much beyond delaying them, but it will hold down the value of bank stock for a year or two.
Yup. The Holder Justice Department. On the other hand,
So is BofA going to wind up being the sacrificial lamb?
What? Is fraud no longer a crime? It took years but here in CA we have (I hope we still have) something called the ‘lemon law’ which makes it a crime to knowingly sell a junk-car while representing it as a real ‘cherry.’ Boiled down, the buyer is protected.
That said, where was everybody when 4 years ago 30% of mortgagees were not even able to make their 1st house payment.
Does this mean it was dropped and the plaintiffs are no longer suing?
Followed the link and couldn’t discern what the above statement meant.
Gregg Levine has his new column available: The Party Line – January 28, 2011
While we’re at it, here is something else for fredo holder to ignore.
http://www.zerohedge.com/article/has-joe-cassano-commited-perjury-aig-took-subordinated-pieces-cdos-it-insured
If there is a financial crisis brewing – where the Banks’ solvency could be called into question if they have to buy back Big $$ loans Wall St. will demand Washington fix the problem either by assuming $ liability or passing laws that retroactively inure the banks from responsibility thus passing on the true cost to ‘public’ investors.
Much ado about nothing. The rule of law is history. Nobody big will ever be prosecuted, nor will any of the TBTF banks ever be allowed to suffer, much less topple.
At least not until Cairo comes to Manhattan and D.C.
According to Alexis de Tocqueville, sooner or later, it all ends up in a court room. If I were a manager of a bond fund (like the alaska teachers union), I would be pissed about losing my teachers’ nest egg during the downturn due to fraud.
Obama/Greenspan wants us to accept buyer beware without accountability due to fraud. The only way the system will work is if the top puts pressure on the bottom to accept teh cram-down.