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July 21, 2011

Weak Settlements Over Mortgage Abuses Should Give State AGs Pause

Posted in: Uncategorized

Two settlements came down yesterday on mortgage-related issues that detail the expected inadequacy of a global settlement among state Attorneys General. First, Countrywide, now part of Bank of America, has finally figured out how to divy up $108 million among borrowers they screwed over.

More than 450,000 borrowers who were charged excessive fees by Countrywide Home Loans when they fell behind on their mortgages will finally begin receiving the $108 million the company agreed to pay in a settlement struck with the Federal Trade Commission in June 2010, the agency said Wednesday.

The number of consumers recovering money in the settlement is the biggest in the F.T.C.’s history and wound up being double what the commission had estimated. Most will get $500 or less, but 5 percent will receive $5,000 or more, the trade commission said.

“It is astonishing that one single company could be responsible for overcharging more than 450,000 homeowners, which is more than 1 percent of all the mortgages in the United States,” Jon Leibowitz, chairman of the trade commission, said in an interview. Countrywide’s “was a business model based on deceit and corruption, and the harm they caused to American consumers is absolutely massive and extraordinary.”

Almost as astonishing is that it took them a year to determine the settlement terms. Now that we see it for what it is, you’re talking about hundreds of dollars per borrower, not thousands, on systemic abuses. Remember, Countrywide’s CEO Angelo Mozilo isn’t going to jail for any of this.

Now, at the other end of a settlement, the Federal Reserve issued a consent order against Wells Fargo for similarly systematic overcharging, this time on steering borrowers into higher-risk loans. But once again, Wells does not have to admit wrongdoing, and once again, the cost of the settlement itself is paltry.

The Federal Reserve Board on Wednesday issued a consent cease and desist order and assessed an $85 million civil money penalty against Wells Fargo & Company of San Francisco, a registered bank holding company, and Wells Fargo Financial, Inc., of Des Moines. The order addresses allegations that Wells Fargo Financial employees steered potential prime borrowers into more costly subprime loans and separately falsified income information in mortgage applications. In addition to the civil money penalty, the order requires that Wells Fargo compensate affected borrowers.

This is mortgage fraud that includes falsifying documents. But Wells Fargo will not have to admit any responsibility, and the head of their home loan division will get to keep his job. Meanwhile, $85 million is almost what Wells makes in a week.

Jeff Merkley actually got into Dodd-Frank an amendment that banned steering payments (banks would pay mortgage brokers to steer people into these higher-risk loans, because they could get more for them in securitization), so there is the potential for stiffer regulatory action in the future. But that’s only if you have regulators willing to do it.

These actions come as the state AGs are trying to bargain away their right to sue over consumer protection violations and fraud upon state courts.

State attorneys general are negotiating to give major banks wide immunity over irregularities in handling foreclosures, even as evidence has emerged that banks are continuing to file questionable documents.

A coalition of all 50 states’ attorneys general has been negotiating settlements with five of the biggest U.S. banks that would include payment of up to $25 billion in penalties and commitments to follow new rules. In exchange, the banks would get immunity from civil lawsuits by the states, as well as similar guarantees by the Justice Department and Department of Housing and Urban Development, which have participated in the talks.

State and federal officials declined to say if any form of immunity from criminal prosecution also is under discussion. The banks involved in the talks are Bank of America, Wells Fargo, CitiGroup, JPMorgan Chase and Ally Financial.

There are at least 10 AGs who won’t take this deal on the Republican side because it dares to do anything to the banks, and there are at least 5-10 on the Democratic side, particularly Eric Schneiderman in New York, who has to be on the deal to make it work (so much of the securitization claims run through New York trust law, immunity is meaningless without NY), who won’t take this deal because it would force them to give immunity. The ones who want this done, including the Justice Department and the White House, are leaning on the Dems and trying to sell it as some kind of help for the housing market.

But this is absurd in light of how little other federal agencies have gotten out of settlements, and how meaningless they are, given the fact that the banks are already breaking the law with regard to robo-signing, and haven’t stopped even though they’ve signed consent decrees and testified in Congress that they would end the practice. What makes anyone think that there will be any kind of enforcement on the settlement, when there isn’t any enforcement currently?

You have registers of deeds who have blown the lid off of this mess. John O’Brien attended a MoveOn house party to get the word out, so insistent is he on finding every avenue to explain the systemic fraud at the heart of the mortgage industry. More registers are coming aboard every day; Illinois registers are aided with the state investigation into robo-signing. They have the physical evidence. Before any settlement is inked, the principals should at least take a look at what they’re settling.


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