Monday, April 18, 2011
We cannot "win the future" by white-washing the past.
Yet that appears to be just exactly what U.S. banking regulators, led by the Federal Reserve, are preparing to do when it comes to resolving the robo-signing foreclosure scandal that implicates the nation's biggest banks.
For months, stories have appeared all over the country about homeowners fighting to keep their homes while mortgage servicers, acting on behalf of the banks, churned out reams of fraudulent documents that were the product of so-called robo-signing mills, where people forged names and attested or swore to things they knew nothing about.
Around the country, public interest lawyers are representing thousands of homeowners who may have been foreclosed upon illegally with the use of forged signatures on bogus legal documents.
This month in a press release, the Federal Reserve, the Office of the Comptroller of the Currency, the Federal Deposit Insurance Corporation (FDIC) and the Office of Thrift Supervision released the results of their probe into the mushrooming mortgage scandal part II. (Part 1, as you'll remember, brought us the Great Recession and had a big old "TARP" pulled over it.)
The Federal regulators wrote of Phase 2 that "the results elevated" their concern "that widespread risks maybe presented to consumers, communities, various market participants, and the overall mortgage market. The servicers included in this review represent more than two thirds of the servicing market." Gosh, this sounds familiar.
The ten banking organizations involved; Bank of America, Citigroup, Ally Financial Incm, HSBC North America Holding, JP Morgan Chase, MetLife, PNC, Sun Trust, US Bancorp., and Wells Fargo. Collectively they account for 65 percent of the nation's $6.8 trillion dollar mortgage market.
The Fed's press release called for the ten banks "to address a pattern of misconduct and negligence related to residential mortgage loan servicing and foreclosure processing. These deficiencies represent a significant and pervasive compliance failures and unsafe and unsound practices," said the Fed.
Bottom line: The "unsafe and unsound practices" were "violations of applicable federal and state law and requirements." No fines have been levied yet, but basically the banks will hire some compliance support and pledge to have an independent review of their foreclosure practices.
For my money I think the independent review should be by the FBI and the nearest U.S. Attorney's office. On the FBI website it defines mortgage fraud as involving "a material mistatement, misrepresentation, or omission". Ok, so it doesn't say robo-signing, but surely with repeat offenders we need to get creative.
It is a profound breakdown of law and order on such a scale that continues to victimize thousands of Americans, and this all started because the banks wanted to speed up the automation of the process of slicing their mortgages into securities they could peddle around the world. Why be bothered with the pesky details of recording the mortgage at the local county seat using people with an authentic link to the transaction?
Why there would be no local detours for these masters of the universe whose greed was their only driver.
Somehow if a Tony Soprano type forged somebody's name on a mortgage single document, that's a criminal act. If an army of hourly workers do it for mortgage servicing companies on behalf of our biggest banks eight hours a day, 40 hours a week, that's a systemic challenge that requires just a compliance seminar?
The same week the Feds tried to white-out robo-signing, the 650-page report from the Senate's Permanant Subcommittee on Investigations on the first phase of Wall Street's pillage of America and the world landed with a thud.
The Senate panel investigators looked at how the sausage was made for the years proceeding the global mortgage market meltdown at places like Washington Mutual (WAMU), which became the largest bank failure in U.S. history.
Evidently, from 2004 through 2008, the Office of Thrift Supervision found WAMU had 500 serious deficiencies, but incredibly the OTS rated WAMU "fiscally sound."
Senate investigators found internal WAMU documents dating back to 2005 that showed the bank's own compliance folks documented that out of a sampling of 129 lending transactions, 42 percent showed "suspect activity or fraud virtually all of it attributable to some sort of employee malfesance or failure to execute company policy."
And yet the toxic sausage kept on being sent out the door and around the world to trusting investors not hip to Wall Street's balance sheet version of an improvised explosive device.
The report details the role of compliant regulators and a de-regulating Congress that stripped the nation of post Depression regulations like Glass-Steagall. Also included were the rating agencies, which blessed bond offerings that were toxic, and Wall Street firms that sold them while concealing to their trusting customer that the firm was covertly betting on the assets blowing up. Of course these smartest guys would not be in the room.
"This report tells the inside story of an economic assualt that cost millions of Americans their jobs and homes, while wiping out investors, good businesses and markets," wrote Senate Committee Chair Senator Carl Levin on the reports release. The report documents "high risk lending, regulatory failures, inflated credit ratings," and Wall Street firms engaging in "massive conflicts of interests."
In Ron Chernow's seminal biography of Alexander Hamilton, his chapter entitled "Of Avarice and Enterprise," he quotes John Adams saying "every bank is an enormous tax upon the people for profit of individuals, swindlers, and thieves."
But most succinct and apropos for our current moment was Thomas Jefferson's assessment of the banking sector as "an infinity of successive felonious larcenies."
And evidently, almost 250 years later, our Federal government has become their enablers.