SEC TO Mozilo: Fraud Pays

The SEC is at it again. They’re bragging that the agency nailed the largest penalty of its kind in history against the king of the subprime lenders for defrauding his shareholders.

And no doubt, $65 million dollars sounds like a lot of money.

But when you remember how much money Angelo Mozilo raked in during his reign, and when you break down the details of the SEC fine, it doesn’t add up.

It certainly doesn’t add up to much in the way of punishing Mozilo.

As usual when the SEC settles the civil charges it files, Mozilo and his two former colleagues admitted no wrongdoing as part of their settlement.

The SEC accused Mozilo, the butcher’s son who rose to be the president of Countrywide, of keeping from shareholders his fears that his collection of subprime loans was trash while reassuring his stockholders that everything was hunky-dory.

Federal prosecutors are still poking around in the ashes of Countrywide, and maybe they will come up with something.

But so far here’s the scorecard on Mozilo: the SEC said he received $141.7 million as a result of fraud and insider trading. They fined him $22.5 million.

As the Center for Public Integrity points out, that means he has give back just 16 cents of every ill-gotten dollar he got.

In addition, the SEC touts the $45 million that Mozilo will have to turn over to Bank of America shareholders, though that money won’t come out of Mozilo’s very deep pockets. That will come from his insurer and the company that bought Countrywide, Bank of America.

The fines seem even slighter when you contemplate what Mozilo was paid in his days as master of the universe.

In his time as executive chairman of Countrywide between 1999 and 2008, he was paid a total of $410 million in salary, bonuses and stock options.

In 2007, when the company’s stock tanked, dropping from $40 to under $10, Mozilo had an off-year too. He was only paid $10.8 million.

In perspective, this doesn’t seem like much for the SEC to brag about. Sixteen cents on the dollar certainly isn’t going to strike fear into the heart of any business titan.

Fumbling the Foreclosure Crisis

Remember when former President Bush landed on an aircraft carrier less than 2 months after the Iraq invasion while a banner unfurled to declare, “Mission Accomplished?”

President Obama hasn’t surrounded himself with the dramatic props, but he reminds me of his predecessor when he brags about how he and his administration have reformed the recklessness and lack of accountability of a seriously out of whack financial system.

Unfortunately for all of us, the bombs going off in the middle of what’s supposed to be a budding economic recovery keep reminding us that the system is as broken as ever.

We still have a system where the big banks play by one set of rules (that favor them) while the rest of us have to live by another set of rules.

The latest proof are the big banks' foreclosure follies, now unfolding across the country after it was revealed that bank officials were improperly submitting key documents in foreclosure cases without actually reading them in what has been labeled “robo-signing.”

Among the widespread irregularities: bank officials who claim to have verified how much borrowers owe when in fact they hadn’t determined the amount, documents related to the foreclosures with signatures that appeared to be forgeries and documents that were improperly notarized.

Lawyers who challenge foreclosures say this is not just a technical problem.

Because of the way mortgages were sliced and diced in the securitization process, these lawyers have uncovered a variety of problems in the foreclosure paperwork – most importantly. the inability to determine who exactly owns the mortgage at issue in a particular foreclosure. Banks, overwhelmed by the flood of foreclosures, have made serious mistakes – including illegally foreclosing on homes. In Florida, for example, a man paid cash for his house, but then Bank of America foreclosed on it anyway.

In the wake of the latest disclosures, a number of big banks have now halted some, but not all, foreclosures while they sort the mess out. There’s no help for those in some of the worst-hit states in the foreclosure crisis, such as California, which is known as a non-judicial foreclosure state.

Basically that means that under state law, lenders can foreclose on your property without going to court. So if you want to challenge your foreclosure you have to sue. But the laws are tough and lawyers in California have had little success in getting judges to block foreclosures. Judges have been reluctant to challenge the way big banks do their business on behalf of distressed borrowers behind on their mortgage payments.

The foreclosure fiasco points out the failure of the Obama administration to come up with a robust remedy, in part because banks have resisted government interference that would force them to acknowledge how much value their real estate holdings have lost. The administration’s foreclosure program, which offers meager incentives for banks to reduce payments for borrowers who are about to lose their homes, has been a dismal failure. President Obama failed to fight for his own proposal to give bankruptcy judges the power to adjust mortgage payments, which could have encouraged judges to modify more mortgages on their own. That proposal was defeated last year in the Senate in the face of bank opposition.

So we’re left with the spectacle of the banks that made their own rules in the real estate bubble continuing to make their own rules in how to deal with the collapse, still largely unaccountable to government officials or courts.

Now would be a good time for the president to get the message: asking nicely has not worked. Pretending to solve the problem hasn’t worked. It’s time to make the big banks play by the same rules everybody else has to play by.

If the president chooses not to get the message he won’t have the Republicans to blame. He’ll have nobody to blame but himself.

Letting Go Of Principals

After more than a year of ineffective attempts to stem the foreclosure crisis, the Obama administration this week may be edging toward acknowledging reality.

This sick housing market isn’t going to heal itself, and won’t get better with the band-aids they’ve applied so far. The stakes are high not just for the homeowners: without some stability in housing, the rest of the economy can’t heal either.

The administration announced today that it would begin to encourage banks to write down the principal when modifying borrower’s underwater mortgages. Bank of America also said this week it would tiptoe into principal reduction.

Time, and follow-through will tell whether the administration intends the principal write-downs as another band-aid or something more substantial. Time will also tell whether the administration will fight for write-downs or wilt in the face of the inevitable backlash. It’s also important to note that all of the administration’s foreclosure initiatives rely on the voluntary cooperation of lenders, with modest incentives paid by the government.

There is every reason for healthy skepticism of the administration and the banks’ ability to tackle the problem. As John Taylor, president of the National Reinvestment Coalition testified before a congressional panel this week: “We rush to give banks tax breaks, but we dawdle to help homeowners who through no fault of their own lost their jobs because of the economic crisis or bought defective loans that caused the economic crisis.”