WEDNESDAY, APR 23, 2014
When financial crimes go unpunished, the root problem of fraud never gets fixed — and these are the consequences
Eric Holder (Credit: AP/J. Scott Applewhite)
Joseph and Mary Romero of Chimayo, N.M., found that their mortgage note was assigned to the Bank of New York three months after the same bank filed a foreclosure complaint against them; in other words, Bank of New York didn’t own the loan when they tried to foreclose on it.
Glenn and Ann Holden of Akron, Ohio, faced foreclosure from Deutsche Bank, but the company filed two different versions of the note at court, each bearing a stamp affirming it as the “true and accurate copy.”
Mary McCulley of Bozeman, Mont., had her loan changed by U.S. Bank without her knowledge, from a $300,000 30-year loan to a $200,000 loan due in 18 months, and in documents submitted to the court, U.S. Bank included four separate loan applications with different terms.
All of these examples, from actual court cases resolved over the last two months, rendered rare judgments in favor of homeowners over banks and mortgage lenders. But despite the fact that the nation’s courtrooms remain active crime scenes, with backdated, forged and fabricated documents still sloshing around them, state and federal regulators have not filed new charges of misconduct against Bank of New York, Deutsche Bank, U.S. Bank or any other mortgage industry participant, since the round of national settlements over foreclosure fraud effectively closed the issue.
Many focus on how the failure to prosecute financial crimes, by Attorney General Eric Holder and colleagues, create a lack of deterrent for the perpetrators, who will surely sin again. But there’s something else that happens when these crimes go unpunished; the root problem, the legacy of fraud, never gets fixed. In this instance, the underlying ownership on potentially millions of loans has been permanently confused, and the resulting disarray will cause chaos for decades into the future, harming homeowners, investors and the broader economy. Holder’s corrupt bargain, to let Wall Street walk, comes at the cost of permanent damage to the largest market in the world, the U.S. residential housing market.
By now we know the details: During the run-up to the housing bubble, banks bought up millions of mortgages, packaged them into securities and sold them around the world. Amid the frenzy, lenders failed to follow basic property laws, which ensure legitimate transfers of mortgages from one legal owner to another. When mass foreclosures resulted from the bubble’s collapse, banks who could not demonstrate they owned the loans got caught trying to cover up the irregularities with false documents. Federal authorities made the offenders pay fines, much of which banks paid with other people’s money. But the settlements put a Band-Aid over the misconduct. Nobody went in, loan by loan, to try to equitably confirm who owns what.
Now, the lid banks and the government tried to place on the situation has begun to boil over. For example, Bank of America really wants to exit the mortgage servicing business, because it now finds it unprofitable. The bank entered into a deal to sell off all the servicing for loans backed by the Government National Mortgage Association (often known as Ginnie Mae). But Ginnie Mae refused the sale, because the loans Bank of America serviced are missing critical documents, including the recorded mortgages themselves.
If you’re a mortgage servicer, and you don’t possess the recorded mortgage, you probably aren’t able to foreclose on that loan without fabricating the document. And Ginnie Mae made it clear that the problem could go beyond Bank of America. “I don’t mean to sound like we’re picking on BofA,” Ginnie Mae president Ted Tozer told trade publication National Mortgage News. “I can’t say if it’s just BofA or not.” Incredibly, this would represent the first time a government agency has actually examined loan files under its control to search for missing documents, seven years after the collapse of the housing bubble and four years after the recognition of mass document fabrication.
Any effort to fix the system would start by reforming MERS, the electronic database banks use to track mortgage trades (and avoid fees they would incur from county clerks with every transfer). MERS was part of a broad settlement in 2011 with federal regulators, and they promised to improve the quality control over their database to avoid errors and fraudulent assignments. Three years later, the fixes haven’t happened, and four senior officers brought in to comply with the settlement have left. MERS then tried to hire a consultant to manage the settlement terms whom U.S. regulators found unqualified for the job.
The database still tracks roughly half of all U.S. home loans, and banks fear that without changes, they might have to – horrors – actually go back to recording mortgages individually with the county clerks! You know, the property law system that the nation somehow survived under for more than 200 years.
Link to full article here
March 30, 2014
This is one of the zombie house residents in Ormond Beach are trying to fight.
Florida leads the nation in zombie foreclosures.
ORMOND BEACH —
There’s a group of Ormond Beach homeowners battling a zombie home problem — homes that are standing dead and sucking the life out of entire neighborhoods.
The group is targeting homes that are abandoned and decaying, with so much overgrowth they are hard to look at.
“It is an eyesore and it is exactly a zombie home because we don’t even know at this point who owns the homes,” said Rita Press, president of Citizens for Ormond Beach.
“I think it’s gonna lower the property values if they see a rundown house,” said neighbor Joe Puccino.
The group has identified at least 300 foreclosed homes throughout the city, and numerous abandoned homes with no paper trail that homeowners simply walked away from. One house Press told us about is in the city’s exclusive, historic riverfront district.
The group contacts homeowners in foreclosure to help them through the process before a homes turns into a zombie home. They also want the city to prevent houses from turning into lifeless shells.
But the ultimate goal, Press said, is to get all those homes on the market so that new homeowners can breathe life back into a lifeless Zombie home.
FLORIDA AND ZOMBIE FORECLOSURES
Five of Florida’s housing markets are in the top 10 zombie foreclosures, according to RealtyTrac.
The foreclosure tracking group said there are more than 140,000 homes in Florida that are in zombie mode, or are bank-owned. And zombie homes in Florida are in foreclosure for about 1,095 days.
And compensation is one area where bank regulators may need to do more if they want to do more to clean up bank culture, according to critics of the industry.
Wall Street’s compensation practices can reward unhealthy levels of short-term risk-taking and entice bankers into ethical lapses. Acknowledging that, regulators around the world agreed after the crisis to overhaul bankers’ pay, in part by requiring them to wait several years before they receive all of their bonuses. The hope is that bankers will behave better if they know their employers can easily take back the deferred part of their pay.
But there is evidence that large American banks are still deferring much less pay than their European peers. The Fed is in charge of regulating compensation at American banks. When asked whether the pay overhaul at American banks had gone far enough, Mr. Dudley said, “There is potential to defer more compensation for longer periods of time.”
One particularly daunting challenge looms over the efforts to improve the ethics of banks. Some banks may be so large and complex that it would be difficult for managers to maintain a clean culture across all of their operations.
But Mr. Dudley said he would not allow size or complexity to be an excuse for ethical breaches. “Either the firm is not too complex, you can manage it, you do know what’s going on,” he said. “Or, if you don’t know, that’s sort of raising the question whether the firm is too complex to manage.”
March 12, 2014
Armando Granillo viewed the kickbacks as commonly accepted behavior and did not intend to defraud Fannie Mae, his lawyer says.
Armando Granillo is accused of defrauding Fannie Mae by failing to get the best possible prices at foreclosure sales, instead promising to provide Arizona broker Angus “Gus” Maughan unlimited foreclosure listings in a preferential deal.
A former Fannie Mae employee accused of soliciting kickbacks from a real estate broker in return for foreclosure listings regarded the practice as commonly accepted behavior.
His defense lawyers said Wednesday in a Santa Ana courtroom that the former employee had no intention of defrauding the home finance giant last year when he accepted $11,200 in cash in what turned out to be a videotaped federal sting.
The unusual explanation came on behalf of Armando Granillo, 44, a foreclosure specialist at a Fannie Mae Western regional office in Irvine. Before his arrest in May, he had spent 3 1/2 years overseeing brokers as they cleaned up and sold the foreclosed homes that had swamped Fannie Mae, requiring a $116-billion taxpayer bailout during the subprime mortgage meltdown.
Granillo is accused of defrauding Fannie Mae by failing to get the best possible prices at foreclosure sales, instead promising to provide Arizona broker Angus “Gus” Maughan unlimited foreclosure listings in a preferential deal.
According to conversations recorded by prosecutors, the deal was for Granillo to “cherry-pick” prime listings and make Maughan the No. 1 broker in the Tucson area — but he demanded in return a 20% cut of the commissions that Maughan earned.
“The scheme might have worked except for one thing,” Assistant U.S. Atty. Stephen Goorvich said during opening statements. “Mr. Maughan called the authorities,” who secretly recorded a series of meetings, including Granillo grabbing a cash-stuffed envelope in what was to have been the first in a series of payments.
Deputy Public Defender Jeffrey A. Aaron, one of Granillo’s attorneys, acknowledged during his opening statement that “much of what the government told you is not disputed.”
“But there’s more than that,” Aaron said. “The evidence in this case is going to show you that Mr. Granillo was a Fannie Mae employee working under extraordinarily difficult circumstances and extraordinary stress to fulfill what he was told was Fannie Mae’s mission.”
Aaron said Granillo and other sales representatives were under enormous pressure to get the foreclosures off Fannie Mae’s books. Crediting Fannie Mae’s recent return to profitability to the efforts of Granillo and his colleagues, he said the case would prove “surprising” to the eight-woman, four-man jury.
“The evidence will show yes, Mr. Granillo did intend to deceive,” Aaron said. “But he intended to deceive Mr. Maughan and not Fannie Mae.”
In fact, Aaron said, the defense would show that Granillo could not have delivered on his promises to Maughan because he had no authority to “cherry-pick” properties or to approve their sale at less than market value, as the government contends, without review by higher-ups.
“He did what he believed to be the mission of Fannie Mae — to preserve, deliver and sell properties as fast as he could,” Aaron said.
It was unclear whether evidence from Cecelia Carter, another Fannie Mae foreclosure specialist in Irvine, would be introduced to bolster Granillo’s contention that kickbacks were widespread and tolerated at the government-backed company.
In a pending state court lawsuit, Carter contends Fannie Mae fired her in 2011 after she tried to expose widespread corruption, including her belief that Mary Irvine, a supervisor who oversaw both her and Granillo, was among those accepting kickbacks for property listings. She and Granillo have said they discussed the kickbacks and the agency’s lack of interest in doing anything about them.
In remarks out of the presence of the jury, U.S. District Judge David O. Carter — no relation to Cecelia — expressed dismay that Carter was traveling out of the country with her daughter and not available to testify.
“It’s my fault, your honor,” said Deputy Public Defender David Israel Wasserman, representing Granillo. “She should have been subpoenaed.”
Since 2009, Fannie Mae, the nation’s biggest buyer of home loans, has been a treasure trove of lucrative foreclosure listings — a premium commodity for brokers, as buyers and investors swarmed for bargains in beaten-down housing markets such as California and Arizona.
A South Florida woman succeeded with the unheard of
when she was able to get her mortgage wiped out by a lender.
In an effort to save her mother’s home, Idania Castro waged a two-year battle with the bank.
“The mortgage got wiped out, so I have no mortgage payment, everything was completely satisfied,” Castro said.
The woman, who took it upon herself to go through every document related to the mortgage, finally discovered robo-signing. She said the signatures on her foreclosure documents appeared to have been signed by different people.
“The signatures varied five times and it made me suspicious,” she said.
With the help of attorney Omar Arcia, she won her case. The lender decided to stop all legal proceedings against her because the documents were deemed fraudulent . Castro now owes nothing.
“The moment that we brought that information to light and we brought it to the judge, the parties resolved the case and in that particular case the bank agreed to forgive her entire mortgage debt,” Arcia said.
The attorney stressed the importance of investigating.
“You have to do your legwork and find out if there is anything wrong that was done in connection with your transaction,” Arcia said. “ You may have something that you can go back to the bank with and either negotiate better terms for your loan or sometimes get your mortgage wiped out altogether.”