About Me 0105: foreclosure agents

The latest report by Shahien Nasirpour at Huffington Post confirms two things you’ve heard here and on some other sites following this sorry affair: first, that Tom MIller, Iowa attorney general who is leading the 50 state attorneys general negotiations on mortgage abuses, is a liar, and second, that any settlement will be a whitewash.

Actually, we already knew Miller was a liar. Shortly after the effort was launched, Miller promised that “”We will put people in jail.” He then started walking that back. Not only did he tell Bloomberg that they were NOT pursuing criminal charges, but per an e-mail:

I was w/ a European documentary maker this weekend who spoke to Miller a few days ago and said Miller relayed the fraud isn’t so bad, everything will be worked out .. the standard line; he’s already made up his mind. He doesn’t want those European governments demanding their money back. The meeting is a photo-op setup because the too-big-to-fail crowd is scared of put-back liability and shorts; they’re working hard to make it appear they’re doing something to quiet everybody down.

Note this message was sent BEFORE MIller made the “jail the baddies” promise that MIller recanted. And it indicates that this entire affair was intended to be an exercise in kabuki theater rather than anything remotely resembling a real investigation.

That brings us to MIller’s second lie. After a staffer ‘fessed up that no investigations were being undertaken, Miller maintained that extensive examinations were underway. That, as Nasiripour indicates, confirming earlier intelligence via Gretchen Morgenson, is complete crap (emphasis ours):

According to sources familiar with the ongoing state and federal probes, state and federal officials have wasted months not digging into the details of the foreclosure crisis, yielding little of value in court and undercutting the lenders’ incentive to strike a settlement of greater benefit to homeowners and taxpayers.

The investigators have yet to gather many documents, conduct depositions or assemble tallies of aggrieved homeowners. They don’t yet have a good handle on the number of wrongful foreclosures, the amount of fraudulent documents filed in local courts or the volume of legal instruments processed by so-called “robo-signers,” the agents that lenders employed to process foreclosure filings en masse without examining the underlying paperwork.

“The evidence a prosecutor would use is not in the possession of the prosecution,” said one person familiar with the ongoing settlement talks.

Even Richard Shelby, the ranking member of the Senate Banking Committee, and a long-standing critic of Wall Street, is not happy with the lack of investigations:

We need a full-fledged investigation,…There’s no substitute for a thorough investigation and finding of fact

The piece later details the evidence the prosecutors say they have obtained, and shows how it actually adds up to very little. This was a feature, not a bug. Consistent with the objective of doing nothing more than provide air cover for the banks, no meaningful investigations were conducted (and on top of that, there have been plenty of other irregularities in how the discussions were conducted). We pointed out this was essential to have any negotiating leverage: a party agrees to settle in order to escape possible litigation. The HufPo article underscores that point:

“I would never want to go into a negotiation without solid evidence of actual misconduct to hold as leverage over my counterpart,” said Neil M. Barofsky, the former special inspector general for the Troubled Asset Relief Program, which was crafted to bail out teetering banks. “It would also be very dangerous from a public policy perspective to waive all future claims as part of such a settlement if you do not have a good sense of the size, scope and severity of the underlying misconduct.”

If you don’t have a credible threat to launch a suit, why should anybody bother? The answer here is obvious: this isn’t a “settlement”; it’s a cash for a broad release (effectively, an indemnification). And since the AGs have done nada in the way of a probe, only the banks know the value of that waiver, and they won’t enter into a deal unless they think it is a bargain.

And indeed, the intended deal is a “get out of liability for almost free” card:

….expedience now appears to be trumping other considerations in settlement talks with major mortgage servicers. Despite failing to marshal a strong case proving misconduct during the foreclosure crisis, the government is seeking to craft a settlement quickly, in the hopes that this will inject greater certainty into the financial system, stabilize home prices and add vigor to a flagging economy.

Ah, yes, if we just give the banks another bailout, surely that will fix the economy! We can see how well that movie is working. As if “fixing the economy” is a good reason to ignore crooked behavior. By that logic, the government shouldn’t go after companies that sell beef full of e-coli because they provide employment.

And have no doubt, the Administration’s fingerprints are all over any deal:

The Justice Department is pressing state attorneys general to release the banks from liability for a host of alleged violations in exchange for a far-reaching settlement, people familiar with internal discussions said.

And the AGs have been sold a complete bill of goods:

The government fears that if it can’t stanch the flood of foreclosures by lowering troubled homeowners’ monthly mortgage payments — and if mortgage servicers cannot resume taking possession of homes for which borrowers have long been delinquent and sell them to people able to afford them — the housing crisis could drag on for years, keeping the broader economy in a feeble state. This is the scenario the government is seeking to stave off by striking a swift settlement with banks, restoring legal clarity to the foreclosure process and providing additional relief for distressed borrowers.

By including assistance for homeowners in the settlement agreement — like loan modifications that reduce payments or the overall amount owed — state and federal authorities said they believe they can help the housing market recover.

This is utter rubbish. First, the AGs are NOT going to “restore clarity to the foreclosure process.” Any action by the AGs will have no impact on the judiciary (the settlement will apparently include useless boilerplate about how banks will follow the law. They are supposed to be following the law regardless; an extra affirmation is pointless). The reason the banks are having so many trouble foreclosing is pervasive problems with how ownership interests were handled in the securitization process. In most cases, they are not amenable to easy fixes, which is why there has been so much fraud committed in courts all over the country.

The story indicates that the states are willing to sell out because any cash settlement would help fill yawning state budget gaps. But what we have been told by well placed sources is that the banks will take a deal only if it is very close to free: a minimal cash component (the $30 billion number in the HuffPo article is pure smoke and mirrors), with the rest being credits of various sorts, including for past mortgage mods. Oh, and any settlement is tax deductible, further lowering what little real cost there will be.

To the extent the AGs believe they need to bribe the banks to do mods, they’ve been snookered. The Fed and the OCC had the power to make them happen, now. The biggest banks all have large second lien portfolios (almost entirely HELOCs). They’ve refused to modify first mortgages because it’s a lot of work they don’t get paid for, and they make good money foreclosing. And they are able to keep borrower looking current on seconds via a combination of bullying and accepting very skinnied down payments.

If the Fed and the OCC told banks that they had to write down the second liens on delinquent mortgages, and write off the second liens on homes where they started foreclosing on the first, you’d see a 180 degree change in behavior. Banks would be falling all over themselves to do mods Indeed, if these regulators were to take this step (which is within their power) you’d probably see an bank change of heart on bankruptcy cramdowns too (banks twice beat back legislation to write down the value of a mortgage to the market value of the house in bankruptcy proceedings, which is done with very other type of secured consumer debt).

If you are as upset with this as I am, call your state attorney general and give him a piece of your mind. You can find their phone numbers here.

Comments

Please use the comments to demonstrate your own ignorance, unfamiliarity with empirical data, ability to repeat discredited memes, and lack of respect for scientific knowledge. Also, be sure to create straw men and argue against things I have neither said nor even implied. Any irrelevancies you can mention will also be appreciated. Lastly, kindly forgo all civility in your discourse . . . you are, after all, anonymous.

23 Responses to “Will the AGs Turn the US into a Banktocracy?”

joeyfishface Says:

July 11th, 2011 at 10:02 pm

“Its a sad situation, and it appears that whatever hopes we may have had that the Attorneys General were not like the whores in Congress appear to be starting to fade. (At least NY and California AGs are showing some spine).”

Perhaps the AGs, Feds, Regulators, etc. knew damn well what they would find and can’t risk the fallout of possibly collapsing the market? Given that the Fed has little firepower left, maybe they figure it’s a necessary (albeit ugly) evil?

Or not.

uzer Says:

July 11th, 2011 at 10:10 pm

joeyff, do your powers of rationalization help you sleep?

champs2011 Says:

July 11th, 2011 at 10:54 pm

US 200 year chart history

http://gmbpost.com/investment-news/chart-sheer-marvel-200-year-history-of-us-growth/

Mike in Nola Says:

July 11th, 2011 at 11:09 pm

Why do you phrase the question as if we are not already a banktocracy?

Mark E Hoffer Says:

July 11th, 2011 at 11:24 pm

“Why do you phrase the question as if we are not already a banktocracy?”

Mike in H-town,

Good Q: !

Andy T Says:

July 11th, 2011 at 11:36 pm

“At least NY and California AGs are showing some spine.”

Not really. NY and CA just need the cash more … you just need to put out a little bit of work to strong arm the banks into paying you some money.

Bob is still unemployed Says:

July 11th, 2011 at 11:48 pm

From the quoted article:

Despite failing to marshal a strong case proving misconduct during the foreclosure crisis, the government is seeking to craft a settlement quickly, in the hopes that this will inject greater certainty into the financial system, stabilize home prices and add vigor to a flagging economy.

In my most humble opinion, if you want to inject greater certainty into the financial system, then you appropriately punish those who are responsible for crashing said financial system.

If you let those who have crashed the system off lightly (as this settlement appears to do), then you are sending the signal that the financial system will never be robust and reliable because crooks can easy scam the system and get way with little more than a wrist slap.

Those who swear to protect the financial system need to send the message, “do not mess with the financial system.

This proposed settlement sends the opposite message.

dsawy Says:

July 12th, 2011 at 12:13 am

Why would you think that the AG’s weren’t political whores like those in Congress?

Where do you think AG’s go when they get tired of being AG’s?

Links 7/12/11 « naked capitalism Says:

July 12th, 2011 at 5:32 am

[...] Will the AGs Turn the US into a Banktocracy? Barry Ritholtz (hat tip reader John M) [...]

wisedup Says:

July 12th, 2011 at 5:54 am

hey, wiseup you guys.

You think that anyone with any amount of capital is going to piss off the people who can make or break his future?

The AG’s are somewhat smarter than those who invested in Uncle Bernie, but not by much. They need the reassurance that what money they have can be magically enlarged – without risk if they are good little boys.

barbacoa666 Says:

July 12th, 2011 at 6:52 am

Our current ZIRP is a subsidy to banks. Unless I am mistaken, the SS and Medicare Trust Funds will earn lower rates of return due to ZIRP. So, in order for these trust funds to remain solvent, current and future American retirees must either pay higher taxes, see reductions in their SS checks, or retire later. So, in essence, the working people of America are being charged a back-door tax that is being used to float our zombie banks.

rktbrkr Says:

July 12th, 2011 at 7:10 am

(unemployed Bob)… This proposed settlement sends the opposite message.

Ditto Paulson’s pulpitizing about about “moral hazard” and then the Treasury and Fed proceed to punish predent savers to rescue and reward reckless risk takers.

I’m sure the states AGs are being pressured to be “team players”. CA and NY will be able to squeeze a lot out of them, CA was ground zero for bad behavior. I’m surprised FL,AZ,NV aren’t playing hardball too – grassroots politics overruling big banks lobbyists.

Anthony Says:

July 12th, 2011 at 7:18 am

more importantly, Europe is in meltdown mode.

Italian bonds moved 42bps in a day. That is an enormous move. That also means an enormous drop in the price of Italian bonds (in the range of 3%). Banks holding Italian bonds just saw the value of their assets go down a lot. Who thinks European banks are in such good shape that they can withstand declines in asset values? From an accounting perspective if the assets are categorized as ‘held to maturity’ a bank wouldn’t have to recognize the decline in value but that doesn’t change the reality that the value of their assets dropped.

This quickly become a self-fulfilling prophecy. Market participants know this so they stop transacting with each other. There’s an article in the WSJ about that very point (European banks are pulling back their exposure to each other).

This could get ugly fast.

HEHEHE Says:

July 12th, 2011 at 7:32 am

Government sanctioned fraud is all it was so now lets sweep it all under the carpet.

I have a tiny amount of sympathy for BAC and JPM simply because we don’t know the entire story re their taking over Countrywide and IndyMac – the institutions were the fraud was widespread. Were they really arm lengths deals that were willingly entered into or were the acquisitions forced down their throats ala Merrill and BAC by the Fed and Treasury? Btw what ever happened to Ken Lewis? He’s kind of disappeared ever since he accused Bernanke and Paulson of threatening him.

DC Says:

July 12th, 2011 at 8:03 am

[But Harris announced last week that the special unit will likely lose its investigative abilities, a consequence of a debilitating $71 million budget cut. Her office will lose the ability to follow up on open investigations ranging from foreclosure scams to "multi-million dollar corporate fraud," she said in a statement.

"It's all about their budgets," Senator Tom Coburn (R-Okla.) said last week about the state attorneys general and their settlement talks with the banks while rubbing his thumb against his fingers.

...

"We need a full-fledged investigation," said Alabama Republican Sen. Richard Shelby, the ranking member on the committee. "There's no substitute for a thorough investigation and finding of fact."]

—

Classic Republicanism from Coburn and Shelby. Just as with the SEC, FCC, FEC, etc., the goal is to starve the enforcers at the federal level and push that responsibility to the states. States of course are out of money and don’t stand a chance of making up the difference.

But these stalwarts of stupidity demand action! Investigation! What a reeking load of bullshit from self-righteous, corporation-owned senators-for-life who long since forgot what it’s like to be an “average American.”

Small Business Depression, Lack of Faith in Federal Government | Raw Finance Says:

July 12th, 2011 at 9:14 am

[...] what some sharp observers, like Barry Ritholtz, are terming a “Banktocracy” (see “Will The AGs Turn The US Into A Banktocracy?” at The Big Picture [...]

lambert Says:

July 12th, 2011 at 9:50 am

Can we avoid the “politicians are whores” trope? It’s insulting to whores. Thank you!

Julia Chestnut Says:

July 12th, 2011 at 10:06 am

Government of the corps, by the corps, for the corps. Now playing at a kabuki theater near you.

DeDude Says:

July 12th, 2011 at 10:08 am

@DC;

You are absolutely right. It is all about not having the resources to do the fight, because the GOPsters behind the door have slashed the budget. It is such an easy scam to get passed the idiots of this idiocracy. Why doesn’t/didn’t the gobinment do X !!! ??? – because you idiots voted for corporate sock puppets who cut the budget such that the gobinment does not have the resources to do X. When things go wrong the GOPsters can always come back and claim we don’t need to change anything because it was all the fault of gobinment (not enforcing current laws). Look at the joke of outrage about illegal immigrants. They had a law banning companies from hiring illegals, and then they had 100 people total in the only agency charged with enforcing that law – how could that go wrong.

Lugnut Says:

July 12th, 2011 at 10:53 am

let me translate the AG position: “We can’t be arsed to actually conduct a proper investigation on something so massive, so how about you guys just give us a whole bunch of money, since we need it; no one goes to jail, and we call it even? Sound like a plan?” Ptui.

I would just loooove to see any one of these so called news networks chasing down some of these AGs down the steps of their office buildings, stick a mic and a camera in there face ala Madoff, and ask why they’re offering payoffs in exchange for criminal prosecutions. Everyone points the fingers at the banks, but if the government offers no checks and balances for criminal behavior, or worse yet, leans towards what amounts to federal bribery for malfeance, whos really the worse actor in this play? The banks? I say the regulators and justice officials, as well as the Congressman who sell out for kleptocratic legislation bear equal top billing.

AHodge Says:

July 12th, 2011 at 10:54 am

a useful deal is possible

which would include punishment for foreclosure fee adding and lying

writing off second mortgages and

serious cramdowns and capital writedowns for banks and big pressure to short sale

but allowing cases where the house is vacant to go forward on inadequate docs

if the AGs want to do penalties and fines that are applied to writedowns and loan forgiveness?

i cant object, though its something the banks should do anyway

however if the AGs get little but a pot of tens of billions of penalties to farm out how they like?

they will be whores that a russian oligarch or chinese party official would have nothin to top

Bracton Says:

July 16th, 2011 at 5:32 pm

@AHodge:

money recovered by a state AG in a situation such as this goes to the state treasury, usually the general fund or a dedicated consumer protection fund. no state legislator or governor would let the state AG hand out the money himself.

@DeDude, @DC:

you hit the nail on the head in terms of resources available to a state AG. any enforcement action or civil litigation started against the banks, etc. would be hugely complicated, time-consuming, and expensive for a state AG’s office. california and new york can take the lead in a case like this because the respective AG offices are large, and there are attorneys in those offices with experience in financial regulation.

Senka Says:

July 26th, 2011 at 11:17 pm

Prosecuting Wall Street investment banks and their “geniuses” is not only a matter of democracy, but more importantly, it is about survival of America that we all love…and the only path for our kids’ future.

How did we become just one big hypnotized mass, even after the truth has been revealed? We’re walking around as if we’re mesmerized, not standing up, not demanding justice, still paying our mortgages to lenders who don’t even legally own them…

MA citizens stood up together on July 18th, demanding answers and justice- http://tinyurl.com/3qsu87x

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About Me 0105

Monday, August 1, 2011

foreclosure agents

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