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.

 

 

 

 

 

Nice recovery, if you can afford it

According to economists and the media, in June 2009 we came out of the deepest recession since the Great Depression and we’ve been on the upswing since. Unemployment’s down, with corporate profits recouping their losses from the recession and hitting new highs along with the stock market.

But it really continues to be a tale of two economies: one that works for the 1 percent and another, in which the 99 percent are increasingly falling behind.

For some striking evidence, look at the recent study by a prominent economist reported in the New York Times.

As the recovery took hold in 2010, UC Berkeley economist Emmanuel Saenz reported, the top 1 percent captured 93 percent of the income gains.

Top incomes grew 11.6 percent in 2010, while the incomes of the 99 percent increased only 0.2 percent. That tiny gain followed a drop of nearly 12 percent over the previous two years – the largest two-year drop since the Depression.

Other signs on the economic landscape also show the wreckage for those not protected by wealth.

Despite a dip in unemployment and the most the most recent more optimistic job creation numbers, the economy isn’t producing enough jobs on a sustained basis to permanently reduce unemployment. And many of the jobs that have been created pay severely reduced wages. Under the two-tiered wage systems increasingly favored by U.S. corporations, new blue-collar jobs pay start at a steeply lower hourly wage than they did in the past – $12 to $19 an hour as opposed to $21 to $32.

One in seven Americans are on food stamps, while high gas prices put the squeeze on low-income and working people alike. Meanwhile, foreclosures are on the rise in the wake of the state attorneys general announcement of a settlement over foreclosure fraud charges with the biggest banks, though the details of the settlement still haven’t been released.

The Occupy movement has put the great divide between the 1 percent and the 99 percent on the political map, forcing President Obama to acknowledge income inequality in his state of the union speech as the “defining issue” of our time, while the Republican’s front-running presidential candidate, Mitt Romney has dismissed such concerns as “envy.”

Obama’s concern about inequality has yet to translate itself into effective action, and it’s unclear, given the strong ties he’s had to the big banks and corporate titans, whether he’s capable of delivering.

Occupy, after delivering a much-needed jolt to the public discourse, likewise, has also yet to show that it can go beyond influencing the debate to actually winning gains for the 99 percent and reducing the widening inequality gap.

It’s no coincidence that income inequality has accelerated as large corporations have grown more influential in our political system through the clout of their cash, encouraging deregulation, tax cuts, trade deals and a host of other policies that benefit the 1 percent and disadvantage the rest of us. The fight against income inequality and for a more fair economy inevitably leads to the fight to rid our government of toxic corporate donations. Find out about WheresOurMoney’s constitutional amendment to undo Citizens United, the U.S. Supreme Court’s terrible decision that unleashes unlimited, anonymous corporate political donations, here.

 

 

 

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.

 

 

Stop Forecclosuregate Bailout

Is President Obama going to try to sell us another bank bailout in his State of the Union address tonight?

Of course, he won't call it a bailout. He'll tout it as “the largest multi-state settlement of charges of wrongdoing against corporate malefactors in history;” something that sounds important and unprecedented.

But don’t be fooled, a bailout is exactly what Obama administration officials are scheming, under the guise of settling foreclosure fraud charges against the big banks.

The fraud stems from widespread robo-signing in which banks used forged documents or had employees sign off on documents they hadn’t read.

The Obama administration has been pressuring state attorneys general to end a joint federal-state investigation with a sweetheart deal that would amount to another bailout for the banks – rewarding them again for their bad behavior, this time with a light slap on the wrist.

Unlike in 2008, we know a lot more about how government officials under the influence of Wall Street misbehave. When administration officials met privately with state AGs Monday in Chicago, they were met with protestors, and a number of groups have been mobilizing phone calls to the White House and state AGs.

Let me give you some perspective: Banks have made hundreds of billions off the adjustable, high-interest loans they pawned off on borrowers, then sliced and diced and resold to investors until the bankers’ shenanigans sank our economy. Now the Obama administration wants to settle with them for between $19 and $25 billion in fines. Some of that money could be sent directly to 750,000 borrowers who were found to be victims of robo-signing. But there haven’t any thorough investigations to determine the full scope of that scandal or how many people were actually effected.  Part of the money could be used to reduce principal (by a piddling $20,000) for a small number of homeowners, and some could be used to pay housing counselors, who provide advice for people facing foreclosure.

But as in previous foreclosure reduction efforts and previous settlements with the banks, enforcement and accountability are completely lacking.

And while $19 to $25 billion may sound like a lot of money to us, to the bankers, it’s pocket change: It’s neither punitive nor a deterrent.

This foreclosure deal is so bad that Kamala Harris, the California AG who is a close ally of the president’s, walked away from it, promising instead to join with Nevada’s AG to scrutinize the bankers’ foreclosure practices more closely.

In doing so, Harris is behaving like real law enforcement official, not a bank apologist. Like any prosecutor, she knows she has to have solid evidence in hand before she talks about a plea bargain.

A  handful of other state AGs are expressing skepticism about the proposed settlement, but the Obama administration continues to pressure the AGs to settle before the banks’ behavior is fully investigated and understood.

As MIT economist and Baseline Scenario blogger Simon Johnson told Dave Dayen at Firedoglake, “Why go small when you have a strong case for fraud?”

Harris isn’t the only one who walked away from what she saw as a shabby deal for her constituents. The New York AG, Eric Schneiderman also balked, and when he started to question the deal, he was booted off the negotiating committee.  What particularly disturbed Schneiderman was the notion that as part of a proposed settlement, banks would get immunity from lawsuits, not only relating to robo-signing, but for other mortgage-related fraud as well.

“I wasn't willing to provide a release that ... released conduct that hadn't been investigated, essentially,” Schneiderman told National Public Radio. Schneiderman has started his own investigation.

Initially the joint state-federal investigation looked like it had teeth. Back in 2010 when the process began, Tom Miller, the Iowa AG who headed the multi-state task force, stated bluntly: “We will put people in jail.”

What happened?

Remember what Deep Throat told investigative reporters Woodward and Bernstein during Watergate: Follow the money.

After Miller launched that initial investigation of the banks’ foreclosure practices, he raised $261,445 from finance, insurance and real estate interests – more than 88 times as much as he’d raised before the investigation. Not all that much money in the scheme of things, but apparently enough to inspire him to back off. Now Miller is leading the settlement juggernaut.

Where we see fraud, our leaders see financial opportunity.

We can’t let Miller and the Obama administration let the banks off the hook again at our expense. We want thorough, transparent investigations and indictments where appropriate.

Please call the White House today and tell them that if it walks like a bailout and quacks like a bailout, we’ll know it’s a bailout, no matter how administration officials try to dress it up.

 

And we don't want any more bailouts.