I don’t need a source to tell me that there will be no criminal charges arising from the Residential Mortgage Backed Securities working group, the task force set up to “hold accountable” those financial institutions who crashed the economy through misdeeds in the securitization process. Take only this piece of evidence: all of the subpoenas so far issued by the RMBS working group have been civil in nature, not criminal. That’s about all the evidence I need.
Barring a “hail mary pass,” said the source, who spoke on the condition of anonymity because the investigation is still ongoing, the members of a task force President Barack Obama formed in January to investigate fraud in the residential mortgage bond industry will instead most likely bring civil lawsuits against some of the banks involved, though it isn’t clear when these cases might come.
That means any penalties for those accused of fraud or other misconduct would be measured in dollars, not jail terms.
The statutes of limitations have expired in most of these cases not pursued under FIRREA, which extends the statutes out to ten years. In addition, the prosecutors can enter into tolling agreements with the banks to extend the time frame in exchange for a lighter penalty, but given the fact that the banks already know that they’re virtually immunized from any consequences for their crimes, they have little impetus to engage in those agreements.
The Bear Stearns case will be looked back at as a turning point in the Justice Department’s pursuit of financial fraud. They lost that case against two traders, and that may have created a tendency against criminal prosecution, for fear of losing. However, this is more logically a convenient cover for a Justice Department disinterested in making moves against a powerful set of colleagues on Wall Street. They ran a terrible case against Bear Stearns, and may not even have the expertise to know how to prosecute at this level. But that absolves them of approximately nothing.
So the roughly $2.2 billion collected by the SEC in a string of mortgage backed securities cases looks like the high-water mark for accountability for the crisis. And the hopes of further justice being served by the RMBS working group – even at the civil level – has to be seen at this point as a broken promise.
Meanwhile, state attorneys general are taking the same flawed foreclosure fraud settlement reached with the big five mortgage servicers, and have offered them to smaller servicers.
State attorneys general are pressing four banks to accept a legal settlement over botched foreclosures similar to a deal reached with larger competitors this year, according to three people briefed on the matter.
U.S. Bancorp, PNC Financial Services Group, SunTrust Banks and HSBC Holdings have held talks with state and federal officials who investigated claims that loan servicers mishandled foreclosure documents, according to the people, who spoke on condition of anonymity because the talks are private.
The first round of data from the settlement showed that most of the consumer relief came in the form of short sales, where the individual loses their house anyway.