The following is an excellent excerpt from the book “CHAIN OF TITLE: How Three Ordinary Americans Uncovered Wall Street’s Great Foreclosure Fraud” by David Dayen from Chapter 4: “The Originator” on page 57 and I quote: “Instead of documenting chain of title on each mortgage transfer and keeping assignments and notes in the individual loan file, they had foreclosure mills fill in the blanks with the necessary names and signatures. They couldn’t really do it any other way: if the rules of evidence for all other trials also held in foreclosure cases, the cost of litigation would be enormous. You would need original promissory notes and assignments from every link in the securitization chain, along with certified testimony from each document custodian. But nobody preserved the records. Nobody tracked or verified evidence. One industry hand told Nye [Lavalle] it was like taking a criminal suspect’s lab specimen from the evidence room and letting someone else pee in the bottle. From a legal point of view, the chain of custody of hundreds of thousands if not millions of loans was fatally corrupted. And Nye’s family trust had numerous investments in mortgage-backed securities through mutual fund holdings. He was helping fund this mess.
When you combine the spoilation of the data with servicers driving borrowers into default, anyone with a loan, current or not, could find themselves wrongly evicted with false documents. But the Great Foreclosure Machine was sloppy; you could uncover its traces. And Nye wasn’t just willing to look. He wanted to expose it to the world.
As someone frequently quoted in the press, Nye knew how to get media attention. He presented his findings under the names of Pew Mortgage Investigations and Americans Against Mortgage Abuse, two nonprofit organizations that consisted mainly of Nye Lavalle, in long reports with provocative titles. “Predatory Grizzly ‘Bear’ Attacks Innocent, Elderly, Poor, Minorities, Disabled and Disadvantaged!” excruciatingly detailed the schemes of Savings of America, EMC, and Bear Stearns that led to foreclosure on the family home in Dallas. The next report, “21st Century Loan Sharks,” took as its modest goal “to defend and protect Americans and the American dream of homeownership from unlawful, fraudulent, criminal, unethical and illegal acts.” In that report, Nye described the modern financial industry as a white-collar mafia, using software and lawyers instead of guns and knives. “Well-known banks and mortgage companies in Florida,” Nye wrote, “are providing perjured testimony, false affidavits and frivolous pleadings in cases involving mortgage foreclosure.” Nye described a litany of false affidavits entered into courts by Florida foreclosure law firms, where they claimed control of documents the trusts never received, claimed ownership over notes when the entity merely serviced them, or claimed “to support knowledge of facts not known by the affiant.”
This was a novel finding, that signatories on foreclosure documents had no understanding of the evidence they claimed to authenticate. Nye came to this realization while going through affidavits in public records. The same names kept coming up over and over again, at a pace that suggested little or no examination of the loan files. Plus they signed multiple affidavits swearing to be vice presidents of different banks in different parts of the country. They were often the witness in one document and vice president in another. Finally, the signatures were inconsistent, with initials on one affidavit and full names on another. Signatures sometimes looked so different from one another, it seemed impossible for them to spring from the same hand.
Nye reckoned these were entry-level employees signing as bank officers–the lowest-paid vice presidents in history–with a corporate title rented by a foreclosure mill or document processor. He suspected that they lacked the personal knowledge of the facts of the case file, as required by law. Nye later published an entire report in 2008 about one of these document executors, Scott Anderson, who worked for Ocwen, a specialized non-bank servicer that dealt with distressed loans. Nye demonstrated that Anderson adopted the position of vice president for dozens of different banks and lenders, signing with initials or “squiggle marks” that looked different across multiple documents, possibly signed by other employees on his behalf. While Nye was more exercised by double-pledging notes and concealing rip-offs inside servicer computing platforms, he included these dodgy signing practices in his reports as a way to reach nonexperts with something they could easily understand. High-priced attorneys can explain away complicated securities maneuvers, but what about the physical documents that govern real estate transactions?
Nye intended to get reports in front of anyone who could stop the abuse, from homeowners who could challenge their foreclosures to the highest levels of government. The effects of institutionalized fraud, Nye warned, would lead to drastic devaluations of securities derived from mortgages, widespread failures of major banks and a mass sell-off in the stock market, not to mention millions of foreclosures, job losses, vacant homes, and emotional distress. He predicted the financial crisis and Great Recession eight years in advance.
For years Nye was under a gag order imposed by the judge in his foreclosure case. When it was lifted in 2000 he sent his reports to top executives at practically every major financial institution: BancOne, Countrywide, Merrrill Lynch, Washington Mutual. Nye not only contacted Bear Stearns but created several websites with names like EMCMortgageFrauds.com, BearStearnsCriminals.com, and BearstearnsShareholders.com. On these sites he listed numerous criticisms against Bear Stearns and EMC. Bear Stearns sued to get the sites taken down because they created customer confusion. A judge forced the closure of some, while allowing those whose addresses were “unmistakably critical” to remain up.
In 2000 Nye helped sponsor a conference of the National Consumer Law Center in Broomfield, Colorado. With his Italian suit standing out among the collared shirts and jeans of five hundred legal aid attorneys and housing counselors, Nye released his findings. “You’re wrong if you call these errors,” he told the assembly. “This is intentional and premeditated. Servicers want their customers in default, it’s designed to increase revenues.” Almost all of the lawyers thought he was nuts. Maybe they resented being lectured about their profession by a nonlawyer; maybe they just didn’t like this guy with the fancy suit and brusque self-confidence. “Why is he wasting our time like this?” was the general reaction. “We’re here to learn the law!”
The same year, Nye got to spend fifteen minutes with Arthur Levitt, chairman of the Securities and Exchange Commission at the end of the Clinton administration. He was in south Florida for a speech and Nye somehow secured a meeting. Levitt listened intently and agreed with Nye on virtually every point. But when Nye finished, Levitt leaned back and said, “I have as many lawyers at the entire SEC as one major law firm representing the banks.” Levitt described a ten-year lag between identifying a financial fraud scheme and its ultimate exposure to the nation. “It won’t come out for ten years, and the banks know it. By then they’re already on to the next scam,” Levitt sighed.
Undaunted and completely obsessed, Nye kept making his case. He published rants and critiques of the mortgage industry on consumer websites like RipoffReport and on a primitive blog documenting these issues, Mortgages Servicing Fraud (msfraud.org), run by another foreclosure victim-turned-evangelist named Jack Wright. Nye infiltrated the corporate message board for MERS, the private database for mortgage transfers, accusing them of fraudulent activity. (The company’s CEO, R.K. Arnold, personally responded in the comments, writing, “There’s nothing sinister about who we are and what we do.”)
But Nye’s masterstroke was to purchase a piece of the companies he wanted to confront. He bought single shares of stock in several banks, mortgage servicing companies, and even the quasi-governmental entities Fannie Mae and Freddie Mac. Then he attended shareholder meetings and listed his grievances about pervasive mortgage misconduct and threats to the financial system. Nye studied every subsection of corporate shareholder rules, strategizing how to make himself heard.
In 2001 Nye and his parents flew to Seattle for Washington Mutual’s annual meeting. Company bylaws stipulated that all shareholders had the right to inspect accounting books and shareholder lists fourteen days in advance. Washington Mutual didn’t really make that information available. Nye found the woman who handled investor relations and asked to see the books. “I’ve been here sixteen years and nobody has ever made this request,” she said.
“Well, guess what–today’s your lucky day,” Nye replied.
“But we just don’t have this information!”
Nye smiled. “You’d better get it, because if not, that little party you’re planning tomorrow won’t go forward. I’ll go to the Superior court of King County and shut down your shareholder meeting!”
The woman turned white and left the room, returning a couple of hours later with William Lynch, Washington Mutual’s corporate secretary, whom she pulled out of a board meeting. Nye handed Lynch one of his reports and reiterated his desire to see the shareholder lists and the books. Lynch pulled out his own file about the Pew family’s long battle with Washington Mutual’s predecessor, Savings of America. “You’re crying sour grapes because we foreclosed on you,” Lynch said, smirking.
The smugness set Nye off. “You can wipe that fucking grin off your face before I knock it off,” he said, banging the table in the conference room.
The startled head of investor relations rose. “How dare you speak to the corporate secretary that way! He took time out of his day to address your concerns!”
“The reason he’s here,” Nye replied, shooting her a look, “Is because he knows I can shut down your meeting in a second. So you’re going to listen to everything I have to say and take me seriously. This isn’t a fucking joke.”
Nye’s parents thought security would haul their son out of the room. But William Lynch stayed there until eight o’clock at night going over Nye’s reports. And the next day Nye met for hours with the company’s head of mortgage servicing while the annual meeting went forward across the street. But while Nye forced Washington Mutual to be respectful, nothing really changed.
In fact, while major banks, accounting firms, and mortgage servicers accepted Nye’s comments and vowed to address them, only one company, the mortgage giant Fannie Mae, took it a step further. Fannie did business with enough lenders, servicers, and law firms that changes to their practices would have ripple effects throughout the industry. Nye corresponded with several Fannie Mae executives, including CEO Franklin Raines. Eventually Fannie Mae hired an outside law firm, Baker Hostetler, to verify Nye’s claims. Baker Hostetler conducted seventeen separate interviews with Nye over a six-month period. The deal for his participation was that Nye could get to review the final report and make comments, but when the time came, Baker Hostetler asserted attorney-client privilege and shielded it. Nye was blocked from reading a study based on his own work.
Years later, the New York Times‘s Gretchen Morgenson published the 147-page report, which was authored in May 2006, at the housing bubble’s peak. With the saccharine title “Report to Fannie Mae Regarding Shareholder Complaints by Mr. Nye Lavalle,” Baker Hostetler corroborated most of Nye’s allegations. The author, Mark Cymrot, distanced himself by noting, “Mr. Lavalle is partial to extreme analogies that undermine his credibility.” But he agreed that Fannie Mae’s foreclosure attorneys in Florida routinely filed “false statements” and affidavits, that MERS filed “sham pleadings” in cases across seven states, and that “Lavalle has identified an issue that Fannie Mae needs to address promptly.”
But the report added one critical caveat. “Mr. Lavalle’s assertion that Fannie Mae faces tens of billions of dollars of unenforceable mortgages and damages from class action lawsuits is overstated in our view,” Cymrot explained, because borrowers didn’t have the resources. Plus Fannie Mae was insulated, one step removed from the attorneys who filed the false documents. Reaching Fannie would require multiple lawsuits, and borrowers would simply run out of money.
There was an eerie parallel to the infamous Ford Pinto memo. According to a 1977 expose in Mother Jones magazine, Ford Motor Company discovered a design flaw in the fuel tank of its Pinto model that made it susceptible to explosion in a rear-end collision. But the company refused to fix it, because a cost-benefit analysis determined it would be cheaper to pay off individual lawsuits than to redesign assembly lines and repair the cars sold. They deliberately kept the public at risk rather than spend the money.
The Baker Hostetler report for Fannie Mae wasn’t as explicit, but it made the same point: it would cost more to unwind the many problems with foreclosures than to keep everything in place and deal with borrower lawsuits on a case-by-case basis. As a result, Fannie Mae took no action on Nye Lavalle’s claims. They certainly didn’t make public the documented evidence of fraud.
Nye was hooked on exposing banking industry fraud, and years of setbacks wouldn’t stop him. In his career, he always peered to the edge of the horizon and brought back the future. Now he saw tsunami waves on that other side, and he felt obligated to warn people. Nye started serving as a consultant and expert witness for some foreclosure defense lawyers who embraced his theories. Through those cases and additional reports, Nye believed, he could educate lawyers, judges, and the general public. It was hard to get people to listen; even Nye’s friends would tease him, calling him Chicken Little, asking when the sky would fall. They stopped laughing when it did.
Nye left a trail a mile wide, so anyone could see what he called “the fraud of our lifetime.” When the truth came out, as he knew it would, the corporate accountants, bank directors, judges, and federal regulators could not say they weren’t informed. What would really bring down the whole charade, Nye thought, was the Internet. Without a way for people to talk to each other, banks could squash dissenters. But if victims could coordinate, and expose the fraud for themselves, everything would come crashing to the ground.”
(SINCE THE GOVERNMENT DIDN’T REALLY HAVE ANY CONSUMER PROTECTION AGENCY WHICH SEN ELIZABETH WARREN SET UP UNDER THE DODD-FRANK BILL [CONSUMER FINANCIAL PROTECTION BUREAU], THE CUSTOMER THEMSELVES HAD TO DEFEND THEIR PROPERTIES AND THIS BOOK TALKS ABOUT A NUMBER OF INCIDENTS OF CUSTOMERS DOING BATTLE WITH THE BIG, UNREGULATED INVESTMENT BANKS.
LaVern Isely, Progressive, Overtaxed, Independent Middle Class Taxpayer and Public Citizen Member and USAF Veteran