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 20: “The Final Whitewash” on page 273 and I quote: “After Kamala Harris backed out of settlement talks, everything went silent for a few months. By this time Lisa had sent packages of documents to the offices of thirty-odd attorneys general, but she rarely heard anything back. Calls with Laurence Tribe’s Justice Department deputy unceremoniously ended. The Florida Department of Law Enforcement wouldn’t respond. Other leads fizzled. Lynn wasn’t even calling Jacksonville anymore. Michael, Lisa, and Lynn were stuck on an island, having proven a far-reaching fraudulent scheme but unaware of how that proof was being used. They had allies–some registers of deeds, scattered judges willing to invalidate foreclosures, and a couple of journalists exposing it all. But they had no vantage point on the endgame, no way to impact the process. They always talked about giving their information to someone in power to generate a reasonable solution. But what if that solution wasn’t reasonable?
All the foreclosure fighters could do was fill the Internet with truth and give comfort and resources to homeowners. They could highlight the horror stories (“Sharon Bullington may lose her home because she paid her mortgage a week early”) and call out the shenanigans. They could cheer heroes and jeer villains. They could hold happy hours: Tim Miller, a musician who wrote a song about foreclosures called “Love, Your Broken Home,” gave a live performance at one.
That fall, state organizations under the umbrella Campaign for a Fair Settlement began to flood the inboxes of reporters and state and federal law enforcement with nearly identical talking points. “It is premature to sign an agreement before there is a full investigation into the foreclosure crisis,” claimed Nevadans for a Fair Settlement. “We cannot accept a settlement without a full investigation,” Pennsylvania for a Fair Settlement agreed, it seemed like a spin-off of Californians for a Fair Settlement, which dislodged Harris from the fifty-state talks. But something was off about it. Why did they assume a settlement, with the only question being whether that settlement was fair? What investigation were they referring to? What happened to sending perpetrators to jail? Other than Catherine Cortez Masto, nobody seemed to be making the leap from robo-signing and document fraud to implicate the banks that authorized it. A settlement would break the path up the chain, tossing aside a mountain of documentary evidence. The mortgage industry didn’t create phony documents because it was quicker but because they had no other alternative.
On December 1, 2011, Massachusetts attorney general Martha Coakley filed the kind of lawsuit activists wanted. She sued five big banks–Bank of America, JPMorgan Chase, Citi, Wells Fargo, and GMAC–for “conducting foreclosures when the defendants lacked the right to do so.” This lawsuit effectively accused banks of stealing homes. Because of the Ibanez case, Massachusetts had the legal basis for charges about improper proof of mortgage ownership. But JPMorgan Chase’s reaction to the Coakley lawsuit was ominous: “We are disappointed that Massachusetts would take this action now when negotiations are ongoing with the attorneys general and the federal government on a broader settlement that could bring immediate relief to Massachusetts borrowers rather than years of contested legal proceedings.” Chase floated the prospect of quick homeowner aid to try to shut down a comprehensive inquiry into their practices. The sounded exactly like the White House officials pressing for a global settlement.
After New Year’s, Lisa and Lynn had something new to worry about. The inspector general for Florida’s chief financial officer released his report about the firing of June Clarkson and Theresa Edwards. It not only absolved Pam Bondi and her underlings of wrongdoing but also gratuitously accused June and Theresa of gross misconduct. They had “messy desks” and sloppy case files, which was true, mainly because the public delivered millions of mortgage documents and they had no legal secretaries to handle them. They were unprofessional, Economic Crimes unit director Richard Lawson told the inspector general, citing a letter from a corporate lobbyist complaining of aggressive treatment. They spun wild theories about mass fraud without evidence, even though these theories were confirmed by Florida court rulings. They threw around terms like “forgery” in their PowerPoint presentation, in contrast to how Lender Processing Services claimed to have internal “surrogate signing” policies whereby individuals would delegate signing authority. Why LPS internal policy mattered more than state law was unclear. Lawson accepted the opinions of investigation targets and their corporate lawyers over his own prosecutors.
According to the report, Lisa and Lynn leveraged their personal relationships with June and Theresa to dictate the investigations (“[Clarkson] was just listening to Lisa Epstein and following her instructions”). The foreclosure fighters had no opportunity to rebut this because they were never interviewed. Lisa, described as “a blogger who is being foreclosed on,” was in Lawson’s view using the Economic Crimes office to “extort a better result out of her own foreclosure case.” The “last straw” was June and Theresa leaking a confidential multistate draft subpoena against LPS to Lisa. But Lisa made a public records request for that document and never published it or circulated it to the media, though the report claimed otherwise.
It was the only day since getting her foreclosure notice that Lisa felt afraid. She had no relationship with June and Theresa except as a source of publicly available documents. She certainly had no power to force them to do her bidding. Yet in an official report that she requested, the state smeared her as a conniving deadbeat looking for a free home. Not only did it legitimize the fraud, but no whistleblower would ever approach the state with information again. That week Lisa’s hair came out in clumps from the stress.
Lynn had a greater disrespect for authority than Lisa and took the report in stride. But she found criticisms of the PowerPoint presentation ridiculous. But allegedly “sensitive” documents in there were on Lynn’s website for a year. Assistant attorney general Trish Conners gave the same presentation to the Florida Senate.
When Lisa met with Conners and Richard Lawson at the 2011 Rally in Tally, Conners personally thanked Lisa and other “citizen whistleblowers” for their work. Yet in the report, Conners seemed to develop amnesia: she “may have used a couple of slides” from the presentation but couldn’t remember which.
The fact that the Florida attorney general’s office hadn’t issued a subpoena to any foreclosure fraud target since June and Theresa left suggested that they weren’t committed to hard-charging prosecutions. In fact, Richard Lawson told Scott Maxwell of the Orlando Sentinel that he’d rather work with companies to change their internal culture than penalize them.
Days after the release of the inspector general’s report, Lisa obtained confidential communications between LPS lawyers and the attorney general’s office through a public records request. In June 2011 several states were discussing a civil suit against LPS, but Michigan had issued more damaging criminal subpoenas. Joan Meyer, a partner with LPS’s law firm Baker and McKenzie, emailed Victoria Butler in Tallahassee to “catch up” about the Michigan subpoenas; “These public announcements can deeply impact LPS’s business operations and stock price. . . . Wondering if there’s anything we can do,” Meyer wrote. Later that day, Meyer followed up: “Sue Sanford from the Michigan AG’s Office is going to call you about the State AG meeting with LPS. She may ask about converting her investigation from criminal to civil. If you are comfortable, please encourage her to join the civil group.”
Many coalition partners in the campaign had memberships of struggling homeowners needing immediate assistance. They weren’t focused on the consequences of elites being allowed to break the law while merely paying back a sliver of their profits as a penalty. Schneiderman’s team didn’t think robo-signing and false document submissions were big enough transgressions to get homeowners what they needed. They covered up what he considered the real crimes of mortgage origination and securitization–“the lending and packaging of risky mortgages,” as Obama put it. So Schneiderman’s team negotiated a two-step process: first get federal buy-in for an investigation of pre-crisis conduct, where he could pull from multiple state and federal agencies to exert maximum pressure on Wall Street; then reach a narrow settlement on false documents and servicer abuse, securing relief for homeowners in the process.
Schneiderman was one of five co-chairs of the RMBS working group, housed inside a Financial Fraud Enforcement Task Force that had done little in two-plus years. Other co-chairs included federal officials who previously worked for banks, including Lanny Breuer (Justice Department/corporate law firm Covington & Burling) and Robert Khuzami (Securities and Exchange Commission/Deutsche Bank). In fact, Breuer and Khuzami were already on the task force and authorized to investigate bank misconduct for years; why would they do it now? But Schneiderman’s advisers vowed to critics that if the government tried to kill or slow-walk the investigation, he would bolt in the showiest, most public way possible, letting everyone know who was responsible for the lack of prosecutions.
The Campaign for a Fair Settlement front organization fell in line, praising the working group. For some reason, everyone claiming to want to hold banks accountable was thrilled with the foreclosure fraud investigation resulting in little more than a second investigation. The attorneys general Schneiderman led in opposition had no leverage once he made his deal. Nevada’s Catherine Cortez Masto asked her strike force to review the release of liability, and John Kelleher recommended she reject it, calling it overbroad and vague, arguing it would harm their ability to bring criminal prosecutions. The next day Masto signed on, despite the recommendation. As for California’s Kamala Harris, the White House told her they were fully prepared to move on without her; holding out would only hurt her constituents. Michael changed his Schneiderman graphic, replacing the white hat with a black hat. The sheriff had become the villain.
On February 9, 2012, state and federal regulators announced the National Mortgage Settlement with the five largest mortgage servicers: Bank of America, JPMorgan Chase, Citigroup, Wells Fargo, and GMAC. Forty-nine states joined, all but Oklahoma, which didn’t believe the banks should pay any penalty. In exchange for releases from liability on robo-signing and other forms of foreclosure fraud, along with numerous servicing practices like fee pyramiding and driving homeowners into default–components of the largest consumer fraud in history–the banks agreed to pay $25 billion. That was the same number offered a year earlier, which Eric Schneiderman said at the time would let the banks off cheap.
Only $5 billion was in cash, with $3.5 billion of that going to the federal government and state-based mortgage relief programs. The remaining $1.5 billion in cash would go to victims of foreclosure in an estimated $2,000 “sorry you lost your home” check, a paltry compensation for the wrongful seizure of their property. Officials earmarked $3 billion for refinancing underwater homes, and the other $17 billion would get paid out through consumer relief credits. For every dollar of mortgage principal education, banks would get a dollar of credit. But they could also get partial credit for short sales (where banks agree to allow homeowners to sell for less than the price of the mortgage), post-foreclosure housing assistance, and even anti-blight measures like donating homes to charity or bulldozing properties. Banks performed these activities routinely, and none of them helped save homes. Yet they could comprise over one-quarter of the penalty; principal reduction only had to come to $10 billion.
Banks could also get credit for modifying loans in mortgage-backed trusts owned by investors, paying their penalty with other people’s money. They could route loan modifications through HAMP, and take HAMP incentive money with their punishment. Homes owned by Fannie Mae or Freddie Mac, the majority of the market, would be ineligible, because the government didn’t want those agencies taking more losses. Homeowners benefited from the settlement only if they met random criteria beyond their control. The five servicers would also have to comply with a variety of new standards, but the Consumer Financial Protection Bureau was readying similar standards for industry-wide adoption anyway.
Headlines touted the largest corporate payout since the tobacco settlement. HUD secretary Shaun Donovan said one million borrowers would get mortgage balances cut. But at the time there was $700 billion in negative equity in the country, and this deal wouldn’t cover more than a sliver of that. In fact, the Treasury Department had twice as much money designated for mortgage relief in HAMP as there was in the settlement.
Banks have been caught red-handed submitting false documents to courts, with millions of documented examples, and law enforcement treated it like a man catching a too-puny fish and throwing it back. No one bothered to investigate the misconduct, instead charging banks $2,000 for every family they threw into chaos and leaving it at that. That evidence would be unusual in future cases; Nevada couldn’t go up the food chain from LPS and nail servicers for fraudulent documents. Ongoing foreclosure fraud using previously submitted forgeries and fabrications would be effectively legalized, or at least beyond the reach of state and federal prosecutors. And nobody would see a jail cell. Sure, officials swore that they still reserved the right to pursue criminal charges, but the reaction to that varied between chuckles and hysterical laughter. Individual borrowers could still challenge their cases but their resources were far smaller than those of the banks. This is why attorneys general existed, but in this case they abdicated their responsibilities, knuckling under to those who really wielded power in America–Washington and Wall Street.
Amid the morass, there was one silver lining. The government folded a bunch of lawsuits into the deal, relieving banks of as much liability as possible. Among them were five whistleblower cases: appraisal fraud at Countrywide, fair lending violations, underwriting inaccuracies, and more, all lumped in as violations of the False Claims Act. One of those cases came from Lynn Szymoniak. Her qui tam suit retrieved $85 million for the U.S. government, and under the law, she would receive $18 million of that herself.”
(THIS IS A PHENOMENAL STORY ABOUT THE FIVE, BIG, UNREGULATED INVESTMENT BANKS [BANK OF AMERICA, JPMORGAN CHASE, CITI, WELLS FARGO AND GMAC] AND WHILE ONE OF THEM, WELLS FARGO, GOT INTO A REAL BIG PROBLEM WITH SELLING PRODUCTS TO THE CUSTOMER THAT THE CUSTOMER HAD NOT REQUESTED TO GENERATE PROFITS FOR THE BANK. THEY GOT THEMSELVES INTO A BIG GOVERNMENT FINE WHERE THEIR CEO, JOHN STRUMPF, HAD TO RESIGN BECAUSE OF COMMENTS ON THE SENATE BANKING COMMITTEE, PARTICULARLY, SEN ELIZABETH WARREN WHEN HE WAS TESTIFYING IN FRONT OF THEIR COMMITTEE. THE SITUATION IS GRADUALLY IMPROVING UNDER PRES OBAMA BUT WE HAVE READ THAT DONALD TRUMP SAID THE FIRST THING HE WAS GOING TO DO IF HE GOT ELECTED WAS TO ELIMINATE THE DODD-FRANK BILL EVEN THOUGH IT ISN’T TOO RESTRICTIVE, HE DOESN’T WANT ANY REGULATIONS. SO, IF THE REPUBLICAN DONALD TRUMP GETS IN OFFICE, ALONG WITH THE REPUBLICAN-CONTROLLED CONGRESS, LOOK FOR THINGS TO GET WORSE AGAIN, LIKE THEY DID UNDER PRES GEORGE W BUSH WHICH LED TO THE 2008 BANK BAILOUT. AS FOR ME, I’M VOTING FOR DEMOCRAT HILLARY CLINTON FOR PRESIDENT, AS WELL AS OTHER DEMOCRATS THAT SAY THAT THEY ARE GOING TO GET REAL REGULATIONS ON THE BIG INVESTMENT BANKS TO STOP CORRUPT PRACTICES LIKE WHAT TOOK PLACE WITH WELLS FARGO.
LaVern Isely, Progressive, Overtaxed, Independent Middle Class Taxpayer and Public Citizen Member and USAF Veteran