That incredible shrinking foreclosure settlement

I checked in with Citibank the other day to see how they were doing on their promise to reduce principal on loans for qualified underwater borrowers.

The bank had made that promise as part of a highly touted national settlement of foreclosure fraud charges with state attorneys general back in February.

One thing the bank did not agree to, apparently, was any sense of urgency.

A bank representative told me they had taken a couple of months to get set up and were now in the process of reviewing their borrowers’ files.

He said he thought they would be done by mid-August.

One thing we know for certain: without a tough independent monitor to track what the banks are doing, and not doing, they’ll take their time to produce little help for troubled borrowers.

We know that from the banks’ past poor performance in the administration’s various foreclosure aid programs.

But now state politicians are threatening to grab the cash that banks paid as part of the settlement – money that was supposed to be used to pay monitors to oversee the banks’ compliance with the settlement, along with hiring more housing counselors that could guide homeowners to assistance where it was available and providing legal advice.

At issue is the relatively small amount of cash penalties the banks actually had to turn over in the $25 billion settlement– about $5 billion– with half of that supposed to go to state attorneys general for new foreclosure assistance.

Another $20 billion consists of a dubious and highly complex system of credits given to the banks for taking actions to help homeowners, some of which they were already supposed to be doing.

The national mortgage settlement has always been mainly a PR stunt for the state attorneys general and the Obama administration, to try to make up for their shameful collective failures to protect homeowners from the bankers’ continuing fraud and sloppiness in the foreclosure process, or to hold bankers accountable.

The investigative outfit Pro Publica delved into what they called the “billion-dollar bait and switch,” with states planning to divert $974 million from the settlement to their general funds to cover serious budge deficits arising, ironically, from the Great Recession, which was caused by the bankers’ out of control speculation.

Among those that are looting money that was supposed to be targeted at helping those facing foreclosure are states that have been particularly hard hit by foreclosures, including California and Arizona. Those states got more money from the settlement to compensate for their residents’ victimization by the biggest banks in the foreclosure process.

In California, Governor Jerry Brown now intends to use the state’s $411 million settlement proceeds to help plug a severe budget gap, in particular to pay for existing housing programs, but no new foreclosure assistance initiatives.

You would think diverting the proceeds of a legal settlement would be illegal. But apparently states have the power to raid the settlement funds, having done so in 2003 with fancy financing schemes to get state officials’ hands on funds that were supposed to be targeted for health care costs from a 1998 settlement with tobacco companies, the San Francisco Chronicle reported.

State budget problems brought on by the 2008 financial collapse are enormous, but no more compelling than the continuing failure of our elected officials to grapple with the foreclosure crisis. That failure is now underscored by the hollow ring of the state AGs’ promises, and compounded by governors’ betrayal of  those promises.

 

 

Homeowners' rights face tough fight

California’s bankers have decided that the state’s homeowners don’t need any bill of rights after all, and state legislators show signs of going along with the banks.

In February, California’s attorney general, Kamala Harris, garnered publicity for packaging several modest foreclosure reform measures together as a homeowners’ bill of rights.

Harris was attempting to get state legislators to permanently outlaw several of the most noxious of the banks’ practices during the foreclosure process, which about a half a million Californians now face.

Among the measures was one that would have outlawed the widespread practice of “double-tracking,” in which banks foreclose on homeowners while they are in the process of working out loan modifications. Another measure would have banned the widespread practice of “robo-signing,” in which the bankers hired low-level employees to sign off on stacks of key foreclosure documents without reading them or verifying their accuracy – a practice which the big bankers have supposedly already agreed to stop as part of a 49-state settlement of foreclosure fraud charges against the biggest banks.

But the settlement apparently only requires the biggest bankers to quit their robo-signing ways for three years; Harris’ proposal would make the ban on robo-signing permanent and apply it to other financial institutions not covered by the settlement.

Other parts of the “bill of rights” package would have imposed a $25 fee on banks when they file a default and required banks to establish a single point of contact for homeowners seeking a loan modification.

Harris, a close ally of President Obama, has even been touted as a possible choice for a U.S. Supreme Court. But she’s been overmatched by the combined forces of the California Bankers’ Association and the California Chamber of Commerce, which has labeled some parts of the package “job killers.” They’ve also spread a lot of cash around the legislature over the past 5 years, more than $33 million, so they’ve got legislators pretty well trained.

It would hardly be the first time that California’s legislators have balked at enacting sensible measures to protect homeowners, as well as taxpayers, from bearing the costs of bankers’ misdeeds during the state’s foreclosure crisis. In recent years, legislators also failed to enact proposals that would have required bankers to mediate with homeowners before foreclosure, and another that would have required banks to post a $20,000 for each foreclosure they file, to cover the costs to communities of abandoned, bank-owned property.

Harris was scheduled to testify before a legislative committee on the bills earlier this week when the head of the committee, Assemblyman Mike Eng, a Democrat, withdrew the bills.

The Sacramento Bee reports that the legislation is now headed for a conference committee made up of legislators from the state Assembly and Senate.

According to the Bee, this is a maneuver to get a vote on the legislation without having to go through Eng’s committee, Assembly Banking and Finance, which is apparently split on it.

If you live in California, now would be a good time to call your legislator and remind them that they don’t work for the bankers and the chamber. They work for you.

 

 

 

 

 

A "landmark" we still can't see

For the most part, the big media and housing nonprofits have bought the government’s hype on the recent foreclosure fraud settlement, lauding it with great fanfare as a historic landmark.

It’s a good thing that not all our national landmarks are as phony as that settlement has turned out to be.

If they were, none of them would still be standing.

If big media had taken a more objective view, rather than just copying the authorities’ press releases, they might have chosen another, much less dramatic description, such as “yet to be released.”

The best description might take a few more words: “designed to make the Obama administration and state attorneys general look like they’re doing something while letting banks off the hook and leaving homeowners out in the cold and taxpayers and investors holding the bag.”

The settlement continues to raise more questions than it answers. For example, California’s attorney general Kamala Harris announced that the state would get $18 billion in foreclosure relief from the national settlement.

But then a couple of days later, Jeff Collins of the Orange County Register reported that Harris hadn’t offered a complete explanation.

As it turns out, the state might get only $12 billion.

The amount, Harris’ people explained to Collins, depends on which of two methods you used to calculate it.

“There are two sets of numbers,” said Linda Gledhill, a Harris spokeswoman told Collins.

Hah! Who knew?

One method calculates the cost of the settlement to banks, which as explained in the settlement’s “executive summary” are required to provide $25.2 billion in a variety of forms of assistance to borrowers. But providing that assistance doesn’t actually cost them $25 billion.

Apparently the settlement only requires the banks to pay out $5 billion in cash, with the balance consisting of a yet to be released complex system of credits that the the government will give the banks credit for offering the assistance, with details yet to be announced.

Meanwhile, the Financial Times (registration required) has been parsing the sparse publicly available details about the settlement. Their prognosis: The settlement shifts the costs of modifying mortgages from the banks to the taxpayers and to investors who bought securitized mortgages. As a result, it resembles another bailout more than it does a settlement.

Neil Barofsky, the former Inspector-General of the Troubled Asset Relief Program told the FT:

“If the banks are doing something under this settlement, and cash flows from taxpayers to the banks, that is fundamentally an upside-down result.”

And keep in mind that the actual settlement agreement still hasn’t been released yet, more than ten days after it was announced. What exactly is the hangup?

Do the authorities really expect us to take their word for it? How gullible do they think we are?

Remember how the 2008 bank bailout started: a three-page document submitted by the treasury secretary.

As my colleague Harvey Rosenfield warned when the President first announced the settlement, we’ll be in for a lot of surprises when the actual settlement is actually released, whenever that will be.

And something tells me they won’t be the good kind of surprises.

Second-Half Score Depends on Who Calls the Plays

Clint Eastwood’s Chrysler ad during the Super Bowl knocked me out.

It was stunningly effective piece of work. It resonated deeply with me as a skillfully crafted message – even as I knew it wasn’t telling the whole truth about the comeback of Detroit, my hometown.

Still, I wanted to believe, if only for a few minutes, that we could work together to confront our national problems, and millions of other Super Bowl watchers joined me in that yearning.

It reminded me of another inspired piece of highly distilled corn-pone football-inspired poetry: what Coach told his players on `Friday Night Lights,’ “Clear eyes, full hearts, can’t lose.”

With its irresistibly simple pep-talk pitch, the ad stirred up strong feelings, both for what it said and what it left unsaid about what’s actually going on in Detroit and the U.S.

It showed once again the power of plain language, delivered in Eastwood’s classic growl.

It reminded me how ineffective those of us who oppose corporate power have often been in claiming for our cause our deeply rooted patriotism and our pride in how every-day Americans have fought again and again, against terrible obstacles, to build a democracy that would work for everyone.

It also provoked deep feelings about Clint Eastwood, the ever-evolving artist.

He's been a great champion of Detroit. He made one of his finest films, “Gran Torino,” in the city. Released in 2008 in the wake of the financial collapse, it tells the story of the redemption of a retired autoworker, recently widowed and deeply racist.

Reviewing the film, Manohla Dargis wrote in the New York Times: “Melancholy is etched in every long shot of Detroit’s decimated, emptied streets and in the faces of those who remain to still walk in them. Made in the 1960s and `70s, the Gran Torino was never a great symbol of American automotive might, which makes Walt [Eastwood’s character’s] love for the car more poignant. It was made by an industry that now barely makes cars, in a city that hardly works, in a country that too often has felt recently as if it can’t do anything right anymore except, every so often, make a movie like this one.”

Eastwood made `Gran Torino’ under the generous tax breaks of a program designed to encourage filmmaking in Detroit, a program that has since been limited by the state’s current Republican governor, eroding the promise of the nascent film industry.

For the Chrysler ad, the auto company enlisted not only Eastwood, but hired a top ad agency, Wieden-Kennedy; the director of several terrific films, David Gordon Green; and two top-notch writers: Oregon-based poet Matthew Dickman and Texas-based fiction writer, Smith Henderson.

Even so, it’s an ad, meant to sell cars by inspiring hope and pride in Americans’ ability to get up and come back after a hard punch.

So the ad doesn’t quite tell you the real score at the end of the first half, nor does it come entirely clean on who's been playing on which team.

If the 99 percent were writing the script, not Chrysler, Eastwood might have something very different to say about our game plan as the second half gets underway.

It doesn’t mention that the majority owner of Chrysler is now Fiat, an Italian auto firm, or that Chrysler, newly profitable after it $12.5 billion taxpayer bailout, now pays new employees $14-$16 an hour, about half of what Chrysler employees used to be paid.

“The gratitude that many Detroit workers felt just after the bailout,” Reuters reported last October, “has given way to a frustrated sense that blue-collar workers have not shared equally in the industry's comeback.”

I wonder what Clint Eastwood’s characters might say about our current predicament.

Something tells me Eastwood’s iconic Dirty Harry character wouldn’t think much of our state attorneys general’s settlement with the big banks, which lets the bankers off the hook for fraud in the foreclosure process in exchange for ineffective and inadequate assistance for homeowners.

Describing the $26 billion settlement, the Times acknowledges it would “help

a relatively small portion of the millions of borrowers who are delinquent and facing foreclosure.”

Meanwhile, while it will be good for the banks to get the foreclosure fraud charges behind them, it remains unclear how much the settlement will help the “moribund” housing market, the Times reports.

The $26 million will be distributed to states according to a complex formula. Actual victims of foreclosure fraud are supposed to get about $1,500 apiece. An undetermined number of underwater homeowners will get their principals written down by about $20,000. Some funding will also go to further investigation into banker fraud and consumer education.

Unfortunately neither the Obama Administration nor the AGs’ credibility is very good in living up to previous promises to help homeowners. Previous administration efforts, as well as previous AG settlements, have delivered much less than they initially promised, plagued by inadequate oversight and relying on voluntary bank participation. For more details, check Naked Capitalism; for more critique, Firedoglake.

What would Eastwood’s Dirty Harry think?

Just another day at the office, with the thugs getting away with their crimes in a world gone awry.

I couldn’t help wondering: would Dirty Harry negotiate with an intruder who robbed your house? Would he suggest to the intruder, “OK, just give back 30 percent of what you took and clean out the rain gutters and we’ll call it even?”

Unlikely. Dirty Harry would track down the crooks, scowl and start blasting away with his trademark .44 Magnum.

One of our previous presidents, Ronald Reagan, understood the visceral power of Dirty Harry and evoked him in a fight with Congress, when it was threatening to raise taxes. Reagan said he would veto any tax increase. “Go ahead,” the former president said, quoting the Dirty Harry character, “make my day.”

You’ll find very little of that spirit among the Obama administration officials and lawmen and law women assigned to the big bank beat.

Walt, the character in  `Gran Torino,’ and Dirty Harry are very different characters, separated by age and experience. They both live in broken worlds, filled with violence and cynicism. But confronted with today’s bankers, they would recognize them for what they are: shameless bullies, terrifying our neighborhood. And they would recognize the Obama administration and the state AGS who negotiated with them rather than investigated them for what they have become: cowards.

 

 

Task Force Deja Vu

MoveOn.org and other groups are declaring President Obama’s announcement of a new task force to investigate foreclosure fraud a significant victory.

These groups deserve credit and thanks for mobilizing people to call the White House and state attorneys general and organizing protests to push back against a weak proposed settlement of foreclosure fraud charges against big banks, without having first fully investigated the allegations.

But before we get too carried away with the celebrations, I think it’s worth examining the president’s announcement with a healthy dose of skepticism.

Because we’ve heard it all before.

In 2009, the Obama administration convened, with great fanfare, the “”Financial Fraud Enforcement Task Force,” which included officials from the Justice Department, Treasury, Housing and Urban Development, and the Securities and Exchange Commission.

Announcing the task force, U.S. Attorney General Eric H. Holder said it mission was to the mission was to prosecute the financial fraud that led to the 2008 economic collapse.

“Mortgages, securities and corporate fraud schemes have eroded the public's confidence in the nation's financial markets and have led to a growing sentiment that Wall Street does not play by the same rules as Main Street,” Holder said.

State attorneys general then formed their own mortgage fraud working group to work with federal authorities.

These previous efforts haven’t produced noteworthy results – no criminal charges have been brought against major bank executives, and no major policy changes have been put in place to force banks to help homeowners.

The 2009 task force was not exactly targeting the titans of Wall Street. As these high-profile task forces like to do, this one gave its “operations” hokey names like Operation Stolen Dreams and Operation Broken Trust that make everybody but the prosecutors cringe.

Touting Operation Broken Dreams in 2010, prosecutors bragged that it had netted 330 convictions related to mortgage fraud  – but it focused on borrower, not bank fraud. While Operation Broken Trust focused on investment fraud, among its 343 criminal cases, it focused on lower-level fraudsters.

There was not a single case against a Wall Street banker.

While prosecutors often build cases against higher-ups using those lower in the food chain, that doesn’t seem to be the case with the 2009 task force.

In other words, the 2009 task force hasn’t done anything that would interfere with the flow of political contributions from Wall Street.

Evaluating the task force’s work, the Columbia Journalism Review found it more publicity stunt that real prosecution effort.

Meanwhile, the state AG’s efforts stirred MoveOn.org and other organizations to action. A handful of state AGs are balking at the inadequate proposed settlement, and California’s attorney general, Kamala Harris has joined with Nevada’s attorney general in walking away from the proposed settlement and pledging a real investigation into the foreclosure mess.

There are plenty of other reasons to be skeptical of the President’s newly- anointed task force, rounded up here by Dave Dayen on Firedoglake. While one of its co-chairs, New York Attorney General Eric Schneiderman, appears to be the genuine deal in his intention to crack down on financial crime, he’s being babysat (co-chaired) by two administration lawyers with dubious backgrounds when it comes to getting tough on bankers.

Robert Khuzami, head of enforcement at the SEC, used to be general counsel at Deutsche Bank, overseeing its huge risky investments in mortgages. Shouldn’t Deutsch Bank be a prime target of the task force?

At the SEC, he’s presided over several settlements that appeared to be overly generous to banks. Another other co-chair is the head of Justice’s criminal division, Lanny Breuer, who has been apologist in chief for the agency’s lack of aggressiveness in going after too big to fail bankers.

As a private lawyer, Breuer worked at the Washington D.C. law firm Covington & Burling, which represented too big to fail banks Bank of America, Well Fargo, Citgroup and JPMorgan Chase as well as MERS, the Mortgage Electronic Registration Service, a concoction of the real estate finance industry that runs a vast computerized registry of mortgages that has been at the center of complaints about false and fraudulent documents in the foreclosure process.

Breuer and Khuzami both played prominent roles in the president’s previous financial fraud task force, as members of its securities and commodities fraud working group.

The bottom line is that the new task force is only needed because of the abject failure of the administration’s previous efforts to prosecute the fraud at the heart of the financial meltdown.

According to statistics gathered by Syracuse University’s Transactional Records Access Clearinghouse, despite all the prosecutors’ puffery about their inanely named operations, financial fraud prosecutions fell to a 20-year low in 2011, continuing a decade-long downward trend.

If this new task force is not going to be a fraud itself, Khuzami and Breuer have to go. They should be replaced by real prosecutors without close ties to the big bankers.

Though you wouldn’t know it from the Obama administration, people like that do exist.

Blogger Abigail Field nominates two crackerjacks – Neil Barofsky, the tough former inspector general of the bailout, and Patrick Fitzgerald, U.S. attorney for the northern district of Illinois, who has successfully pursued several high-profile cases, including the perjury conviction of Scooter Libby, former VP Dick Cheney’s chief of staff.

So after you finish that glass of champagne celebrating the new task force, it’s time to get back on the phone. Here’s the president’s number.

Tell the president we don’t need another task force. We need prosecutors who aren’t compromised and who aren’t afraid to do their jobs.

 

 

An Enforcer For the 99 Percent?

 California’s attorney general, Kamala Harris, has staked out the high ground in promising to hold bankers accountable and protect borrowers in the continuing foreclosure crisis.

So far she’s formed a mortgage fraud task force and walked away from the weak settlement with the banks over mortgage servicing fraud that the Obama administration and the majority of state attorney generals have been trying to foist on the public.

Then earlier this week she told the executive who oversees Fannie Mae and Freddie Mac, the federally bailed out quasi-public agencies, he should quit if he won’t consider principal reduction as a tool to help underwater homeowners.

Here’s hoping that Harris can build on the foundation she’s laid.

She has a real opportunity to set herself apart from other Democratic Party politicians, from the president to the congressional leadership and others who have opted for strong PR rather than real enforcement.

But she has her challenges ahead of her.

An ambitious politician who chaired the president’s campaign in California in 2008, Harris will have to go against the political grain if she really wants to hold bankers accountable and fight for homeowners.

Prosecuting bankers is never easy. Her agency, the state attorney general’s office, has had a woeful record on consumer protection. It’s been a long time since John Van de Kamp, when he was attorney general, launched his aggressive antitrust campaign.

As we know, bankers have been lubricating the political system to protect themselves against the consequences of the excesses. They spare no expense in hiring legal talent and defend themselves with a self-righteous fury. The legal system has had an unfortunate tendency to show great deference when the lords of the universe show up.

But as William Black, the former bank regulator turned law professor, has pointed out, it can be done. Bankers can be held accountable. It was done after the savings and loan debacle in the 1980s.

If prosecutors have the tenacity, the resources and the chops, they can go after bankers like they do gang members. First you go after the less powerful, more vulnerable players, squeezing them to gain information, and find documents to gradually build cases against the higher-ups.

Harris will be at a disadvantage without federal help – when prosecutors decide to take out a gang, they form a multiagency task forces, using all the agencies of federal, state and local officials.

We’ve seen just how disinterested the feds are in going after bankers. Local prosecutors around the country haven’t shown much stomach for the job either.

But if she is pursues her task in a determined and savvy way she will find wide and enthusiastic support among a crucial group that have become disenchanted with other politicians – the 99 percent.

If you’re in the Los Angeles and you want to hear more about this from William Black himself, he’s scheduled to participate in a stellar panel at Occupy LA at City Hall moderated by Truthdig’s Robert Scheer. Black, a law professor at University of Missouri-Kansas City, will be joined by Michael Hudson, Joel Rogers, a professor of law, political science and economics at the University of Wisconsin, and via live stream, Michael Hudson, a financial analyst who also teaches economics at UM-KC.