Oh, for crying out loud, banker people… can’t you EVER do ANYTHING that’s not illegal?  Ever?  Like, just once?  Are we going to find out one day that you’ve all been engaged in money-laundering related to your purchases of those little pens with the chains on the ends?  Or will it be extorting senior citizens related to their Christmas Club accounts?

I mean, don’t get me wrong… I realize it’s not really your fault.  You’re bankers, after all, and like sharks bite, banks lie, cheat, steal, pilfer, skim and defraud, I suppose.  And were that not enough of an explanation, it’s obvious that our government could care less even when you swindle well into the billions, so I would think that after a while, it’s like you might as well do what’s expected.

I actually imagine that whenever some government regulatory agency inadvertently discovers that you have done it again, they react like I would upon finding I’d stepped in dog droppings.  Oh my, damn it… well, just scrape it off and hope no one was watching.  I imagine that the regulators actually draw straws to see who among them has to bring up their decidedly inconvenient discovery of bank malfeasance to the banksters-in-charge.  As in…

Federal Regulator: “Excuse me, sir?  Might I have a moment of your time?”

Bankster-in-Charge: “What?  Why would I give you a moment of my time?  Get out.”

Federal Regulator: “I’m so sorry, sir, but one of our investigators accidentally stumbled into one of your off-the-books slush funds, and I just thought you should…”

Bankster-in-Charge:  Are you f#@king kidding me, I told you last time never to let your clods go snooping around in our files… I’m calling your boss… you’re through.”

Federal Regulator:  No, no… that won’t be necessary sir, I already fired the investigator involved.”

Bankster-in-Charge: “Fired?  And you think that’s enough?  What if he goes to the press?  What a hassle that will be… you’ll have to cover it up, of course, but I’ll probably have to attend a meeting about it and you know how I hate anything that clogs my schedule.”

Federal Regulator: “Oh, no sir.  I remembered what you told me last time.  Before I fired him, I made sure he was accused of sexual harassment by an underage underling, so I don’t think we’ll be hearing from him again, sir.”

Bankster-in-Charge: “Did you make sure his wife knows about whatever he was supposed to have done?”

Federal Regulator: “Of course, sir.”

Bankster-in-Charge: Okay, so from now on where do your investigators stay when they’re in the building?

Federal Regulator: “In their cars parked in the garage, sir.”

Bankster-in-Charge: “Good man.  Well, I’m off to the Caymans.  Try not to get us into any more trouble while I’m gone.”

Federal Regulator: “Don’t give it another thought, sir.”

~~~

Come on… someone write in and tell me the truth… I know it was an exaggeration, but how close was I?   Is it true that you made the SEC guys shine your shoes for a year for bringing up your unfunded pension liabilities a few years back?  You can tell me… it’ll be our secret, I promise.

So… guess what just came out?  No, wait… I know… let’s play knock-knock.  I’ll start…

ME:      Knock, knock.

YOU:   Who’s there?

ME:      Country’s largest bankers.

YOU:   Country’s largest bankers who?

ME:      Country’s largest bankers strong-armed $6 billion in illegal kick-backs from mortgage insurers over the course of a decade, a violation of RESPA at the very least, and the investigation was first kept under wraps by HUD’s Inspector General and then not acted upon by the Justice Department.

YOU:   Hahahahaha…

ME:      Why are you laughing?

~~~

According to a story in National Mortgage News:

“The allegations, since referred to the Department of Justice, stem from lenders’ demand that insurers cut them in on the lucrative business of insuring the mortgages they produced during the housing boom.

In exchange for the their business, companies such as Citigroup Inc, Wells Fargo & Co, SunTrust Banks Inc. and Countrywide allegedly required reinsurance partnerships on generous terms that violated the Real Estate Settlement Procedures Act, a 1974 law prohibiting abusive home sales practices.”

According to unnamed individuals that National Mortgage News described as “familiar with the investigation,” a HUD “team” turned over a “thick” binder containing evidence of major banks’ involvement in an illegal kickback operation to DOJ attorneys in the summer of 2009.  Insiders say that the Justice Department did essentially nothing with the case, and when contacted by American Banker, a Justice Department spokeswoman declined to comment.

So, very well done there.

Apparently the documents show that HUD investigators concluded that “banks and insurance companies had created elaborate financial structures that had the appearance of reinsurance but failed to transfer significant amounts of risk to their bank underwriters.”

According to the National Mortgage News story:

“Some of the deals were designed to return a 400% profit on a bank’s investment during good years and remain profitable even in the event of a real estate collapse.

Making matters worse, banks allegedly forced unknowing consumers to buy more insurance than they needed and failed to properly disclose the reinsurance agreements, another RESPA violation.”

Michael Stephens, who is HUD’s acting inspector general, is said to have worked on the case prior to this past year when he was moved upstairs where he could begin concealing even more important and damaging secrets as the head of HUD’s inspector general’s office.

And here’s the best part… the National Mortgage News story said that Stephens “acknowledged the investigation’s existence and expressed frustration that the case had not yet produced a settlement or prosecution.”  The story went on to quote him as saying: “This thing has been going on for too damn long.”

Obviously I wasn’t there, but I’d like to think that he put on his best “I’m frustrated” face and perhaps even stomped his feet when he said that.

Stephens also told the reporter that he was still “hopeful” that prosecutors would bring a case, and thank the Lord for that.  I would hate it if he weren’t still “hopeful.”  I mean… three’s always hope, right?  And where there’s Hope, there’s Crosby.  Bada-bing… whoa!  (Thank you, thank you… I’m here all week.)

But wait… there’s more.  Again, quoting from the National Mortgage News story:

“Market observers, analysts and ratings agencies long questioned the reinsurance deals, but banks and insurers publicly maintained they met the standard for arms-length transactions set out in a 1997 policy letter circulated by HUD. The deals, they said, were not the result of coercion… and it’s none of anyone’s business, besides.” (Actually, I made that last part up.)

But… the story went on to say that Wells Fargo and Bank of America both settled class action lawsuits that alleged the very same sort of misconduct, and internal documents show “banks and insurers viewed the arrangements as a thinly veiled pay-to-play scheme.”  And in true mobster fashion, “even as insurers complained they couldn’t afford the escalating cost of the reinsurance payments, banks threatened or punished companies that balked at providing them, documents obtained by American Banker show.”

Apparently, Wells Fargo told at least one insurer that if it wanted business referrals, it should consider making such kickback deals with the bank.   And, according to the story, after MGIC Investment Corp., an insurer, made it known that it was planning to cut back on bank kickbacks in 2003, Countrywide’s bosses complained to an MGIC executive and then threatened to move Countrywide’s kickback business to MGIC’s competitors.

When it comes to kickbacks and defrauding homeowners, timing is everything.

When the HUD investigators handed over the binder containing their case to federal prosecutors, it came with a suggestion made by the HUD inspector general that much of the penalty be “stayed,” which I guess means “waved.”

Why?  Well, it’s simple really.  Back in ’09, the mortgage industry was still reeling from defrauding the global financial system, and… well… I mean… we wouldn’t want to be a burden.  After all, fining the bankers back in 2009 or 2010 could have negatively impacted their taxpayer funded record bonuses, and no one wanted to have to explain that to Jamie Dimon.

National Mortgage News wrapped up by pointing out that even the proposed settlement amount would constitute “the most aggressive action ever pursued under RESPA, requiring banks to pay hundreds of millions of dollars in fines and restitution.”

Yeah right… like that’s really going to happen.

And, former HUD Inspector General Ken Donohue, likely unable to avoid the question by slipping out the back door of wherever he was cornered said: “I’m bewildered by why this wasn’t pursued on an aggressive basis.”

Oh, are you bewildered Ken?  Bewildered? Are you sure you’re not befuddled or perhaps even bemused?  How about flummoxed, Kenny-boy.  Might you be flummoxed or nonplussed?  Flabbergasted?  Astonished?  Dumbfounded?

Tell you what, Kenneth-my-boy… if you’re even remotely any of those things, then I’d suggest that you need round-the-clock care, because I’m worried that you may hurt yourself while tying your shoes.

Save it, Inspector Gadget… you’re not fooling anyone.

Mandelman out.

First posted April 9, 2009… Re-posted now at reader’s request…

And a good idea because its worth reading.  Nothing’s changed.

Just for the record, I did study accounting, both at the undergraduate and graduate levels. I’m no accountant, by any means, but if you explain it to me slowly, I can usually “get it”.

I understand quite a bit about the public company structure and tax treatment associated with the informal funding of previously unfunded, long-term liabilities associated with nonqualified executive benefit programs, the importance to the P&L of asset to liability “matching” on corporate balance sheets and even how to balance my business checking account… well, sort of… no one can actually balance today’s business checking accounts.

Anyway, I’m not bragging, I’m just saying. That’s it. I just wanted to say that. Now, I’ll start writing the article whose headline drove you to read. Okay, sorry… so here goes…

Yesterday, Oppenheimer issued a report saying that Bank of America would need to raise an additional $36.6 billion dollars to bring its capital ratios in line with its competitors, Fox Business Network reported. Bank of America denies it.

Whew! Well, I for one am so totally relieved. Or, at least I would be… if I could make myself believe even one word of what comes out of CEO Ken Lewis’ mouth. Why does this guy still have a job? I’m serious, why?

President Obama told GM’s CEO to hit the bricks, but I liked the guy. Why? I don’t know… because I have a GM Suburban, it’s my second one… they run great… comfortable… four wheel drive… safe… I know… lousy gas mileage, but you never hear me complaining about it. GM’s CEO had been there forever, and was working for a dollar a year. Why call for his head and then put his #2 at the helm? Please don’t tell me that you’re expecting me to believe that the #2 guy at GM is radically different than his boss of the last umpteen years. I mean it… don’t tell me you want me to believe that, because that’s just stupid.

Remember when Lewis was talking about the downfall of those other banks and saying that it represented an opportunity for Bank of America to assume its rightful position as the clear and dominant leader of the banking industry. Lewis was like a cat perched above looking down coyly at the silly humans and their problems. When was that… hmmm… oh yeah, like six months ago, which is about a decade in deepening-recession-hours.

Bank of America bought Countrywide for $4 billion and change. That sounds funny to me now. You’ve got to admit it. The idea that someone would PAY money for Countywide has to make you giggle at least a little bit. Like someone buying themselves rheumatic fever. Shouldn’t Countrywide have been free? Never mind… I’m just saying.

Then, adding insult to injury, the man paid money for Merrill Lynch, too. And I think that makes him a special kind of moron. He’s a moron with hubris… you know… brass balls, you’ll pardon the phrase.

Without getting overwhelmed in details, let’s take a look at a few highlights from Mr. Lewis’ recent past, shall we?

Back in the latter part of January 2008, the Federal Reserve announced an emergency rate cut. Mr. Lewis called it a “pleasant surprise,” according to Reuters, saying that the move should help stave off a recession. Here’s what Lewis said at the time:

“It was a bold and decisive move and was exactly what the market needed. Growth had become very sluggish. Absent any moves, we were very close to a recession. This gives us a chance not to have one.”

Now, it’s important to keep in mind that he was saying this in late January 2008, and Bank of America had just reported fourth quarter 2007 results. The bank’s filings, which were signed by Mr. Lewis, showed net income tumbled 95% to 5¢/share from $1.16/share just one year ago. They also showed the bank writing off $5.28 billion in collateralized debt obligations (CDOs). Merrill alone had $16 billion in write-downs that last quarter of 2007, and posted a $9.8 billion loss.

I wonder what set of factors would have to occur for Mr. Lewis to see the potential for a recession ahead.

“Sir, it is Armageddon out there… has been Armageddon for months now. What shall I tell the press?” “Tell them I still think the resilience of the American workforce combined with the entrepreneurial spirit of our young people, will once again prove and let the world see, how our economy is strong… blah, blah, blah.” I can hardly listen to these guys anymore.

Fast-forward to early October 2008, again according to Reuters, and you’ll find a very different picture.

“These are the most difficult times for financial institutions that I have experienced in my 39 years in banking,” said Kenneth Lewis, its chairman and chief executive officer, in a statement.

Bank of America warned that credit quality continued to weaken during the quarter, and Lewis said he expected higher credit losses and depressed earnings ahead. Third-quarter net income dropped to $1.18 billion, or 15 cents a share, from $3.70 billion, or 82 cents a share, a year ago.

Lewis blamed the weaker earnings on higher credit costs resulting largely from Countrywide Financial Corp and Chicago-based LaSalle Bank, its two most recent acquisitions. The bank cited “recessionary conditions,” and halved its dividend on October 6, 2008.

October 6, 2008? Wasn’t the whole Wall Street meltdown thing around September 15^th? Ask Sen. John McCain, I’m pretty sure he’ll remember the exact date. Maybe even the time.

Fast-forward again to January 16, 2009 and you find a joint press release from the Federal Reserve Board of Governors, the FDIC, and the Treasury Department. It reads:

The U.S. government entered into an agreement today with Bank of America to provide a package of guarantees, liquidity access, and capital as part of its commitment to support financial market stability. Treasury and the Federal Deposit Insurance Corporation will provide protection against the possibility of unusually large losses on an asset pool of approximately $118 billion of loans, securities backed by residential and commercial real estate loans, and other such assets, all of which have been marked to current market value. In addition, Treasury will invest $20 billion in Bank of America from the Troubled Asset Relief Program.

Then a week or so ago, Bloomberg reported that:

Bank of America Corp is carrying loans on its balance sheet marked at more than $44 billion above their fair value, the company said in its annual report filed with U.S. regulators on Friday.

The bank said it ended 2008 with $886.2 billion in loans, but estimated the fair value – or market price – for these loans as $841.6 billion.

So far, so good? Are you keeping some lose track of all these numbers? You don’t have to run tape or anything, which is what us older folk used to call using a calculator when it was still an adding machine, just so you have some sense of the dollars involved is fine.

The other thing I don’t like about Ken Lewis, is that he bought Countrywide… which means he had to get along with Angelo Mozilo, who is shaping up fast to be the Ken Lay of the mortgage meltdown. As I understand it, the competition for the Ken Lay moniker is stiff this year, but smart money is still backing Mozilo.

Countrywide was the nation’s largest predatory lender… er… I mean sub-prime mortgage lender. It’s been investigated by the FBI, SEC, and God only knows who else, but I’m not even talking about any of that. I’m talking about Mozilo. He’s the guy who gave us IndyMac Bank, now IndyMac Federal. It was like someone pulling the pin on a grenade and handing it to you. You turn around and… KA-BLAMO!

Of course, with the meltdown in full swing in late 2006 and throughout 2007, Mozilo sold $145 million in Countrywide stock. Simply put, he is a man who made hundreds of millions of dollars while the mortgage market fell apart and people lost their homes, dreams, and life savings. My kind of guy he is not.

Look, I don’t care about being politically correct here, the guy’s a crook. He needs to give the money back and go to jail. His is the kind of case that really shouldn’t take more than an hour or two to get through at trial. What’s to discuss? The prosecution could just stand up and say, “Ladies and Gentlemen of the jury, we are here to punish Angelo Mozilo,” and then sit back down. Then the foreman could stand up and say, “We have reached a verdict, Your Honor.” And… cut… print… that’s a wrap people, the Final Four are on… ”

(Ow, ow… take it easy, John… ow, ow, ow.)

So, Lewis made a deal with Mozilo and the guy from Merrill Lynch, who bought the antique toilet for like $36,000 or some crazy number. Now, what kind of person do you have to be to ever come in contact with, much less consider or purchase an antique toilet for $36,000… or $360 for that matter? (For $36, I might buy it.) That’s not the thinking of a normal mind, right?

I’d be walking along with the antique dealer and he’d say to me: “Well, and right over here we have an antique toilet for $36,000.” And I’d go: “Ooooo, yuck… that’s disgusting. Throw it away. $36,000? What… are you on crack?”

The Royal Tushie.

Mr. Kenneth Lewis, CEO of Bank of America, however, must have gotten along with both these guys… a very sleazy group, if you ask me. And we, the tax payers have now given Bank of America roughly $164 billion in order to keep it not lending to businesses or consumers.

So, now even though old Kenny-boy says it’s not true about Bank of America needing another $36 billion, the chances of him telling the truth are small enough, but since it’s Lewis we’re talking about here, I should add that the chances of him knowing or actually being right are so slim that it’s not even worth talking about.

So… I suppose we’re going to give Bank of America the $36 billion… and who knows what we’ll cough up after that. There’s no reason to think that Bank of America is going to get better… ever. You can’t expect a company to digest that many toxic assets and live. Look for the announcement on page 16B of the Business Section on a Saturday.

Once we’ve said yes to the additional $36 billion, we will have come up with $200 billion for BofA including guarantees and cash.

I stared at the number for a few minutes and finally couldn’t contain myself… I had to know. I went online to find out how much Bank of America is worth… as a company… if we bought the damn thing. It wasn’t at all difficult to find out. Couple of clicks and there it was. As of a couple of weeks ago, Bank of America had a valuation of… wait for it… a little less than $30 billion.

That $30 billion includes the bank’s stakes in Central, South American banks, and asset manager Blackrock, which came with the Merrill Lynch acquisition. Add to those holdings the bank’s stake in China Construction Bank, currently valued at $20 billion, and you get a total price tag of $30 billion for Bank of America. And we’re paying $200 billion… but we don’t own the bank?

How the hell do accountants do it? The Citibank deal was a lot like this one. We pumped so much money into Citibank relative to its value that when Secretary Geithner announced on a certain Monday morning that the US government would nationalize Citigroup, it would invest with a partner, and the US taxpayers would only own 36%… after pumping hundreds of billions into it.

All about transparency, yeah… that’s the ticket.

I know, I know… it’s not all going into common shares, which are technically the shares that own and control the company through the election of its Board of Directors. But so what? I’m tired of struggling with the accounting related to this mess. It would seem that it’s long past time for a little common sense.

If you pump $200 billion into something with $30 billion and don’t own it… then all bets are off. Up could be down… in might be out. Don’t ask me nothing… I obviously don’t know a thing under such conditions. Whatever accounting classes I took were clearly a waste of time because I’m out of the field. Don’t want to know… not going to ask…

Oh, and one last point… one small, little, minor point I just read about… it’s the one that ultimately caused me to have to lie down.

On a national basis, the Wall Street Journal reported earlier this month that banks hold $41 BILLION in LOANS MADE TO TOP EXECUTIVES, DIRECTORS, AND OTHER INSIDERS!

At Charlotte-based Bank of America, those loans more than doubled last year, to $624.2 million – the biggest dollar jump in the country. The largest of them likely went to three directors or their companies. The surge came during the third quarter as credit markets froze, the government prepared to infuse banks with billions in tax dollars and the board approved the purchase of troubled Merrill Lynch. Bank of America ranked fourth on the list of biggest insider lenders.

Industry experts were quoted as saying that insider lending is “particularly troublesome because it could cloud the judgment of people charged with protecting shareholders and overseeing bank management.” Particularly troublesome? I’ll bet they’re particularly troublesome.

And wouldn’t you know it… at Charlotte-based Bank of America, those insider loans more than doubled last year, to $624.2 million – the biggest dollar jump in the country and Bank of America ranked fourth on the list of biggest insider lenders… that’s my Kenny! I bet he makes his mother proud.

It’s a small loan, I swear.

By the way, banks, as it turns out, don’t have to explain increases in insider lending. They don’t have to disclose individual amounts loaned or the terms of those loans to any insiders, including executives. Of course, insider favoritism is against the law, so we dodged a bullet there, don’t you think?

Most publicly traded companies were banned from making insider loans in 2002, as part of the regulatory changes that followed the Enron debaucle. But banks were excluded from the ban, because they’re banks, silly… and also because it was said that loans have been subject to extensive regulation for more than 25 years. That’s rich… really rich.

Here’s the rub…

Seventy percent of the banks with the largest insider loan balances got a more than $50 billion in the TARP funds late last year, according to an analysis of banks’ federal filings by the Charlotte Observer. What’s that you say? You don’t subscribe to the Charlotte Observer? Well, then you just won’t ever know these kinds of things I suppose. (To subscribe to the Charlotte Observer, call 1-800-EAT-SH#T.)

There’s a handbook called “Insider Activities” that’s published by the nation’s lead regulator for big national banks, the Comptroller of the Currency. Here’s what it says about insider loans at banks:

“Studies of bank failures have found that insider abuse, including excessive or poor quality loans made … is often a contributing factor to the failure.”

Did you feel that? We just got bitch-slapped across the face.

Good thing I don’t live near any bridges, ’cause I swear there are certain articles I write after which I just want to…

Mandelman out.

Preface…

Sit down and relax… you’re going to need a comfortable chair.  But, I promise you… it’ll be worth it.

In the fall of 2008, news stories about “scammers” taking advantage of homeowners at risk of foreclosure started appearing frequently in the media.  I remember watching a prime-time national news magazine type program, I think it was 20/20, that was airing a story that featured a sleazy looking middle-age man in Denver, hurriedly walking from a small, strip mall store front to his car, his hand covering his face, as a reporter tried to ask him questions that he obviously did not plan to answer.

The story involved a company that had charged a handful of homeowners several thousand dollars up front to help them negotiate with their banks to get their mortgages modified.  The core issue being raised by the show’s host was that the homeowners had been victims of a scam because, as a couple of the homeowners interviewed were saying, their loans had not yet been modified.

I remember wondering, to begin with, how in the world such a story had become the subject of a national news magazine television program.  I mean, “Three homeowners get ripped off by small business in Denver,” is not usually the sort of event that makes national headlines.  The implication being made was that this case was emblematic of a more widespread problem, but nothing further was offered in the way of proof… no statistics, no additional facts… just statements about how homeowners should NEVER pay anyone up front to help them negotiate with their bank over a loan modification because they were “scammers.”

Around the same time, I also remember quite clearly reading a newspaper story that appeared on the front page of a major mid-western paper… it might have been the Minneapolis Star, but I can’t be certain.  The large photo on page one was of a young couple with a baby in arms and maybe a four year-old standing at Dad’s hip… there was a white picket fence in the background… and a for sale sign in the yard.  I can easily sum up the story in a single sentence: About eight months ago the couple had paid a law firm $1,000 to help them get their loan modified… and that’s the reason why they were now losing their $300,000 home.

And I remember thinking how ridiculous that sounded.  I remembered the time that my wife and I paid a contractor $2500 and he never came back to even start the work on our deck.  We were plenty angry, all right, but we didn’t even come close to losing our home because of it.

Now, you have to understand that, at the time, I was devoting my weekends to driving around Southern California conducting on-camera interviews with homeowners who either had already saved their homes from foreclosure, or were in the process of trying to get their loans modified, and the reoccurring theme was coming across loud and clear: “We tried contacting our bank on our own for a year and got nowhere, so we hired a law firm or mortgage expert company for $3,000, give or take, to help us and they saved our home from foreclosure.”

In addition, I had visited with several mortgage experts and lawyers back then, and they had let me sit by their side as they contacted banks on behalf of their clients… with their client’s permission, of course… so I knew that calling one’s bank to apply for a loan modification was not an easy thing to do.  I remember once sitting waiting on hold for just under two hours only to hear the phone go dead.

And once, while I sat with a lawyer while he called a well-known bank on behalf of a client… with that client on the 3-way call… and the first thing the woman from the bank said upon hearing that the homeowner had hired an attorney was: “You know… you don’t have to pay him.”

I was taken aback, and since we were on speaker phone, I just couldn’t help but say something, so I interrupted the conversation, introduced myself as a writer, and asked the question: “How do you know she’s paying him, I mean, maybe her lawyer is her son-in-law or a friend of the family… how do you know whether he’s even being paid?  Are you instructed by the bank to say that to anyone that hires someone to help them?  Do they tell you to do that as part of your training?”

The line went dead.  I remember saying: “She did not just hang up on me, did she?  Call her back.”  The lawyer explained that we’d never get her back on the phone, but he dialed the number anyway and a full 60 minutes later… it was still ringing.  “Okay, I think I’ve got the picture,” I said.  I thanked him for everything and left.

I can’t tell you the name of the bank in question, except to say that when they’re a “bank,” and their name starts with “IndyMac”.  You’ll have to put it together yourself from there.

Within a month or two, the number of stories appearing in the media warning homeowners about “scammers” who offered to help prevent foreclosure, increased to the point that one might have easily started to believe that tens or even hundreds of thousands of “scammers” had mobilized to overrun the country.

I found it very hard to believe that there were large numbers of such “scammers.”  I mean, how many people would be willing to take advantage of working class homeowners, many of whom had lost jobs and now were at risk of foreclosure?  What would be next, mugging the blind?

Many of those I spoke with back then told me that I was naïve, but I just couldn’t believe that all of a sudden there were that many people willing to steal three grand from a middle or working class family at risk of losing their home.  It was like hearing about an epidemic of criminals stealing food stamps from octogenarians on fixed incomes.  Really?

I’m not saying that such aberrations never happen in this country, but it’s at least somewhat rare.  Our society simply doesn’t produce that many people willing to commit such despicable acts.  You might find thousands willing to rip off rich people, or big companies… but working class families losing homes?  How many would sign on for a job doing that?

Well, apparently… quite a few.

After two and a half years spent covering the financial and foreclosure crises, I have come to realize that there are a whole lot more people in this country willing to take advantage of homeowners at risk of foreclosure than I would have ever thought possible.  In fact, I’d have to say that if you throw a dart at the front page of Google when looking for advice related to preventing foreclosure, the odds of being scammed are absolutely excellent.  It’s shocking to me that this is the case, but it unquestionably is.

Look, I grew up in Pittsburgh… born in Brooklyn, hung out in places like Philadelphia, Chicago, Los Angeles… and I’ve traveled all over the world… but I’ve never heard about large numbers ripping-off working class people suffering the trauma of losing their homes.  To say nothing of the risk involved… I mean, aren’t most people in this country still afraid of going to jail?

A change in our cultural norms…

Consider that in the mid-1990s, headline crimes in New York City started including descriptions of mob hits that shocked even members of the Italian mob and NYPD, including: “Arms hacked off with an ax.”  “Victim castrated with crescent-shaped knife.”  “Man was gutted like sheep.”  “Victim buried to the neck in gravel.”  What kind of person that grows up in our society does these types of things?

But, it was after the fall of the Soviet Union, and the murders were being committed by a new group of gangsters that had only recently arrived in this country, and they had very different ideas about violence than our home grown gangs.  They quickly became known as the “Russian mob.”

You see, the Russian gangsters that appeared on the scene after the fall of communism didn’t exactly grow up in New Rochelle watching Leave it to Beaver and drinking Tang… in fact, many grew up in the gulags of Siberia… places where right and wrong have very different definitions than they do in our country.  One member of the Russian mob vocalized his contempt to the NYPD saying: “I did time on the Arctic Circle. Do you think anything you’re going to do is going to bother me?”

The fact is… before the current financial and foreclosure crises, I don’t remember there being nearly as many scammers looking to con anyone, anytime, anywhere.  Where did the incredible numbers of scammers willing to defraud anyone without giving it a second thought come from, that is to say, what were they doing five or ten years ago?  Did someone put something in the water since then?  Could alien spaceships have dropped them off in 2007?  Is it possible that the Internet just brings out the worst in people?

It seemed to me unlikely… nothing I could think of would change societal norms to the degree seen today over such a short period of time.  I set out to analyze the situation more closely and I began by profiling a sample of those individuals that had been shutdown by authorities for scamming homeowners, and those that I’ve come across quite willing to continue operating even though they are not operating legally.

The construct of my focus group sample…

Had they all come from faraway lands, as in the Russian mob example, I would have looked at cultural differences as being the root cause of their apparent willingness to scam anyone at anytime, but the group was not predominately from anywhere, and the majority could be described as being “average Americans.”

The most common factor was their chosen profession prior to the financial meltdown of 2008… almost all had come from the mortgage industry.  In fact, depending on whether I looked at a sample of 25, 50, or 100 individuals… the number of ex-mortgage people was always above 80%.

I realize that should not be surprising when you consider the target for these scammers is homeowners at risk of foreclosure, a group well-known to those that worked in the mortgage industry, but I also know many that came from the mortgage industry that would be no more likely to scam a homeowner in distress than I would.

The other commonality that I found to be present was their age… most were relatively young.  Depending on the sample group I looked at, three-quarters were under 40… and more than half were under 35.  It was difficult to be precise but I think it’s safe to say than fewer than 20% were over 45.

Education was the third commonality I was able to identify, and I estimate that 80% of the group never earned a college degree, although more than half reported that they had attended some number of college classes after high school.  Almost all said they never finished college because the mortgage business paid so well.

I also found it interesting that a large percentage, perhaps just over half, reported having lost a home or homes as a result of the economic meltdown, and my sense was that a very low number saw the meltdown coming, fully understood its causes, or recognize the permanent or long-term nature of the changes to the mortgage industry.

In terms of the U.S. economy, they are a very optimistic group.  I would say that 80% believe that worst case, the housing market will bottom out in the next 2-3 years, and many think that some areas have already hit bottom, and a similarly large percentage think that what they’re doing today is temporary… and at some point they will return to careers in mortgage lending.  The longest timeframe for our country’s economy to recover that I heard from 90% of the group was 5-7 years.

The absolute ineffectiveness of the government’s response…

Over the last year, there have been a flurry of new state and federal laws ostensibly created to protect distressed homeowners from scammers, and one would have to assume that awareness among distressed homeowners about the potential for being scammed is certainly higher than ever.

However, there is absolutely no evidence that any of this legislation has reduced the number of scams, and in fact, my research strongly indicates that the number of scams targeting distressed homeowners has continued to increase.  But the effect of the new laws has also caused scammers to diversify their illicit offerings and therefore will now be more difficult for regulators to address and law enforcement to police.

The latest count, as listed on California’s Office of the Attorney General Website dedicated to loan modification fraud as of April 23, 2011, lists 55 individuals and 32 companies, against which the AG has taken legal action related to fraudulent loan modification, forensic loan audit, and related foreclosure-related services, to-date.  Considering the size of the State of California, the numbers are essentially zero.

The California State Bar is reporting the same numbers of consumers filing complaints this year as last, although the number of disciplinary actions taken by the bar hasn’t changed in any meaningful way, indicating that they are having a difficult time both investigating and prosecuting lawyers accused of being “scammers”.

This article seeks to explain where today’s proliferation of scammers came from, who they are… why they are the way they are…

… And why their presence is all but certain to continue to impact our society for a generation unless we come to understand that the same people that caused of the crisis, also created the scammers.

They Once Were Lenders…

Being a lender of money… the phrase itself congers up images of stature and great wealth.  Investors funding loans providing the capital that drives our economy, building industries, creating prosperity… to be a lender of money has always meant having power and prestige… to be the person with the gold that makes the rules.

To be the provider of funds is to have a seat at the proverbial table.  In our society, such a person is to be respected, their opinions are sought out… when they talk… others listen.  And although in the past, being a lender meant being a “banker,” over the last thirty-odd years, the advent of securitization and financial innovation, supported by ongoing legislation favorable to the finance industry, a series of disastrous attempts at deregulation, and the growth in equities markets, all combined to broaden the types of lending and increase the need for “lenders.”

The type of lending that grew the fastest over the last three decades was “sub-prime.”

Sub-prime lending began its meteoric rise in the late 1970s, but the lowering of interest rates in the early part of the 1980s was the fuel it needed to explode.  And from the start, sub-prime lending attracted individuals with very a very different set of ethics than were found among the traditional bankers and financiers of Wall Street.  Many, in fact, came from failed Savings & Loans.

You see, the 1970s, with the decade’s spiraling interest rates were very difficult for the Savings & Loan industry ironically because of over-regulation.

S&Ls were originally a very important component of the government’s response to the financial disaster that caused the Great Depression, because they made it possible for people to buy homes at a time when our nation’s bankers were reluctant or incapable of lending.

S&Ls were required to pay a regulated amount of interest on short-term deposits that were insured up to $40,000 by the FSLIC, and then invest those deposits in 30-year fixed rate mortgages on residential real estate within a 50-mile radius of the S&L’s home office.  In the 1970s, an S&L might pay 5.25% to 5.5% on deposits, and because long-term interest rates were generally higher than short-term rates, the owner of a Savings & Loan could make a fairly nice, if somewhat boring living.

Of course, that was fine during the decades of relative stability that followed WWII… before the inflation of the 1970s appeared on the scene thus causing interest rates to rise.

Higher rates caused homeowners to keep their homes longer, first-time buyers were forced to delay becoming first time homeowners, and rising unemployment all combined to significantly reduce the demand for housing.

Those that did buy homes more frequently took advantage of the “assumable” clause in mortgages that allowed them to take over the mortgage at the existing interest rate.  The typical S&L’s mortgage portfolio, that had traditionally turned over every 5-7 years, stagnated during the latter part of the 1970s… and S&L earnings followed suit.

At the same time, S&Ls were finding it increasingly difficult to attract depositors as well.  The five percent interest rates they were permitted to pay out started to look pretty silly with inflation at 12% a year… and climbing.  Depositors flocked to Money Market mutual funds that pooled deposits in order to purchase large Certificates of Deposit from banks and S&Ls, and on which there were no interest rate controls.

S&Ls were now stuck between the rock of the rising costs of funds, and the hard place of stagnant incomes, and with only 30-year fixed rate mortgages to provide returns on invested capital, the S&L industry was doomed even before deregulation and other legislation would start it on a rollercoaster ride that would end in its demise.

When the pendulum swings too far…

First, Congress and the Carter administration gave us the Depository Institutions Deregulation and Monetary Control Act of 1980, which abolished state usury laws that limited how much interest could be charged on primary mortgages, began a six-year phase out of deposit interest rate ceilings, and raised the deposit insurance provided by the FSLIC from $40,000 to $100,000.

Then, a couple of years later, the Gain-St Germain Depository Institutions Act of 1982, expanded what S&Ls were allowed to invest in, permitting investment in short-term consumer loans, credit cards, and commercial real estate, among others.

The idea was simple… allow S&Ls to diversify their portfolios in order to increase their short-term earnings and it would help shield them from economic instability in the future.

But, it’s not hard to imagine that many owners of S&Ls were a less-than-happy group back in 1980.  Many S&L owners were second-generation owners… in other words… they were the sons of founders.  For the last decade they had watched their institution’s capital erode as the housing market had essentially slowed to a standstill… and their customers started saving in Money Market mutual funds.

In other words, spending the 1970s running the S&L your Dad founded was no fun whatsoever, and by many wanted out badly enough that they weren’t all that picky about the price, so when deregulation of the S&L industry soon created buyers for S&Ls that saw nothing but opportunity ahead, many were more than ready to sell.

Most were initially under-capitalized, however, but the new owners found that they could get their hands on almost unlimited funds simply by raising the interest rates they offered on deposits, and since such deposits were insured by the federal government, the financial health of the S&L didn’t much matter to anyone.  The new owners raised rates and money flooded in.

Deregulation also meant that there were now plenty of investment opportunities available to S&Ls for the first time, in much riskier commercial real estate developments, for example, and the S&Ls could compete with the banks by making loans based on more relaxed credit standards, such as home loans that required no down payments.

These new S&L owners, however, were poor managers and as many S&Ls failed, the deposit premiums paid by those that remained went steadily higher.  And because there was no distinction between well-capitalized S&Ls, and the ones that were taking on too much risk, the well-capitalized and more conservative institutions found themselves forced to match the competing interest rates offered by their problem competitors, causing their costs of funds to increase.

It was a recipe for the disaster stew that was about to boil over… and yet, Congress kept its collective head firmly planted in the sands of short-term thinking.  (It’s nice to know that some things never change.)

Had the federal government empowered the regulators to take a tougher stand on S&Ls in 1982, it’s likely that the whole mess could have been avoided, but notwithstanding the extreme pain felt during the Great Depression, regulating financial institutions has never been our government’s strong suit.  Back then, because virtually every congressional representative had at least one “good friend” that owned an S&L in his or her district none was in any hurry to cause immediate problems for their important constituents, even to ensure their longer-term financial health.

If we hit the jackpot, what have we won?

As described by Michael Hudson in his fabulously detailed if terribly disturbing book about sub-prime lenders, titled “The Monster,” when President Ronald Reagan signed an S&L deregulation bill in 1982, he is said to have quipped: “All in all, I think we’ve hit the jackpot.”

State governments, Hudson explains, immediately started competing for S&Ls by offering the lowest barriers to entry and the most lenient oversight.  And one didn’t need much start-up capital to open an S&L, in fact, you could list “non-cash” assets to establish that you could operate in a stable manner.  As in, “gosh… I don’t have any cash right now, but I do own a 4-plex in Poughkeepsie, a ’67 Mustang that’s totally cherry, and I suppose I could throw in my baseball card collection from the 60s.”

The State of California was among the most aggressive in terms of marketing to the S&Ls, in fact in Hudson’s book, he recalls seminars being held all over the state that promised to teach attendees how to start their own Savings and Loan, including one in particular titled: “Why Does It Seem Everyone is Buying or Starting a California S&L?”

At the end of the decade, when the Bush administration and congress were finally forced to deal with the failed industry’s problems, all S&Ls were tarred with the same broad brush.  The Financial Institutions Reform, Recovery and Enforcement Act of 1989, didn’t distinguish between well-run S&Ls and insolvent institutions, it took away from the entire industry, most of the investment freedoms granted at the beginning of the 1980s.

An Industry About to be Born…

It seems to me that two key pieces of legislation, the previously mentioned Depository Institutions Deregulation and Monetary Control Act of 1980 (“DIDMCA”), and the Alternative Mortgage Transactions Parity Act of 1982 (“AMTPA”), worked like sperm and egg to give birth to sub-prime lending, with securitization being the incubator.

The AMPTA, which was intended to provide “parity” to non-bank lenders, preempted many state laws that had precluded lenders from offering anything but conventional fixed-rate mortgages, and in practice, allowed for the obfuscation of a loan’s total costs.  This was the legislation that led to the creation of a variety of new types of mortgages, including the different flavors of adjustable rate mortgages (ARMs), interest only mortgages, and those offering balloon payments.

Because of AMPTA, consumers could now be titillated by teaser rates for the first few years, only to be slammed when the adjustments caused payments to be reset.  And even worse were the loans that gave the borrower the ability to decide how much they would underpay during the first few years, with the amount of the underpayment being tacked onto the loan’s balance.  Now your mortgage balance could actually increase from $300,000 to $350,000 in the first few years, destroying any equity a homeowner had in his or her home when they bought it.

Of course, many would argue that it’s not the loans themselves that were the problem, rather it was the people that chose these loans that caused their own future grief.  These are the same people that continue to oppose anything even remotely resembling a bailout for homeowners, and according to Fannie Mae’s most recent survey, it remains a sizable group, roughly 53% of their survey’s respondents, which is why even after three years of watching the foreclosure crisis drag our economy straight down, our government lacks the political will to address the problem and stop the carnage.

(Sidebar: In case anyone is interested, my initial motivation for writing my blog, Mandelman Matters, was to combat the rhetoric of the banking industry following the meltdown that began in 2007, which was starting to place blame for the emerging crisis on “irresponsible sub-prime borrowers,” a group that could never have caused Wall Street’s demise, let alone the global meltdown that followed.

During the fall of 2007, then Treasury Secretary Hank Paulson and Fed Chair Ben Bernanke… the crazy guy with the beard who just keeps printing money to no avail… both blamed “sub-prime borrowers” during the fall of 2007, and the bankers saw their opportunity and the industry’s P.R. machine echoed the message throughout the media.

So, in a letter I wrote in November of 2007, which I sent to my representative in Congress, my two state senators, Hillary Clinton, and others… the problem with allowing the public to erroneously place the blame for the meltdown on “irresponsible sub-prime borrowers,” was that when the government finally came to understand the real cause of the crisis, they would lack the political will to do what’s needed to fix the problem… because by then, too many voters would strongly oppose bailing out “irresponsible sub-prime borrowers.”

My letters were, of course, ignored, and Mandelman Matters was born.  And yet, here we are 450 articles and countless trillions in taxpayer funded bank bailouts later, and the same core issue continues to prevent our elected officials from doing what’s required to fix the problem.  Hank Paulson, however, in his book about his last two years as Treasury Secretary, titled “On the Brink,” admits this pivotal mistake, saying that when he looks back at statements he made about sub-prime loans back in the fall of ’07, it makes him “cringe.“

“We just plain got it wrong,” he says in his book as he talks candidly about this very subject.  And when I read his admission while sitting up in bed one night about a year ago, I’ll admit that I started to cry.)

The truth is, that under normal circumstances, I might even agree, at least in part, with those that place blame on borrowers for signing up for toxic mortgage products.  But, because our financial crisis and economic meltdown have not been the result of a housing bubble popping, but rather they are the byproduct of Wall Street’s actions that caused the total destruction of the credit markets in the summer of 2007 when triple A rated bonds were downgraded and the demand for mortgage-backed securities dried up overnight, the circumstances surrounding obtaining a mortgage in this country, or being able to refinance it, or even selling a home that became unaffordable, have been anything but normal.

Easy to be Hard for Minorities…

A common practice employed by lenders in the past was called “red lining,” and it commonly meant that they wouldn’t lend in minority neighborhoods, regardless of an individual’s credit score.

So, first it was hard money that showed up to fill the void, but soon the consumer finance companies started offering small loans in disadvantaged communities that people used to pay medical bills, or maybe to get through the holidays, but by the mid-1980s, securitization was lowering the risk associated with lending and they began offering second mortgages.

In “The Monster,” Michael Hudson provides vivid descriptions of how these companies would hook someone with a $300 loan, and then systematically barrage them with offers for additional loans in an effort to make them a “customer for life”… although a “debtor for life,” would be more accurate.  Since being deregulated, these companies would make loans at 15 to 18 percent, with as much as 10 points up front, which was still less expensive than the hard money lenders, so they could actually say… with straight faces… that they were the good guys for providing loans to underserved communities.

Ultimately, these consumer finance companies would be accused of cheating borrowers in any number of ways, setting aside many millions to settle class action lawsuits accusing them, in so many words, of robbing and cheating their customers.

As companies go, these were literal pressure cookers for sales people.  They were widely known for their abusive managers that would constantly drive salespeople to make more loans at all costs… and then make even more still.  It didn’t matter what you had to do, you just had to do more than you did the month before, or you would risk being berated by your boss in front of your peers.

An excerpt from “The Monster”…

In Arizona, a judge scolded Transamerica for trying to throw a 77 year-old widow out of the house her late husband had helped her build 42 years before.  Lennie Williams, a retired house cleaner, was getting by on $438 a month.  Her mind was failing her and she got snookered into signing up for a mortgage that obligated her to pay Transamerica $499 a month.

The loan carried 8 points in up-front charges and an interest rate of nearly 18 percent.  The mortgage salesman who put together the deal later testified he didn’t think Williams understood the loan, but he had said as little as possible about the details because he didn’t want to lose the sale.

“I didn’t want to bring up the fact that we could foreclose on your home.  People don’t want to hear this,” he explained.  “When you close a loan, you try to get through with it.  You say everything you have to say and no more.”

Consumer finance companies were the predecessors to the sub-prime lenders that would come out of the failed Savings & Loans.  After being trained in the horrific environments at Transamerica, ITT Financial, Household Finance, Beneficial and others, they were recruited by institutions like First Alliance Mortgage and Long Beach Savings & Loan, which was started by a man whose name would become synonymous with sub-prime lending, Roland E. Arnall.
Hudson paints a picture of Arnall that explains a lot… he was born in Europe during WWII and escapes with his family to come live in the U.S.  He’s a hard charging kind of kid, doing everything possible to make money at all times.  He becomes a real estate developer in the 1970s, ends up opening Long Beach Savings & Loan, and when the restrictions on S&Ls become too much for his tastes, he opens Long Beach Mortgage… which he later renames “Ameriquest.”

Long Beach recruited loan officers that had worked at Transamerica and the like, and combined with his overdriven personality, he was known for doing things like doubling sales goals moth over month and firing anyone who said they couldn’t do it.  He began to build one of the country’s largest sub-prime mortgage companies, but he would never have gotten very far alone, because fairly early in the life of Long Beach Mortgage, he was making so many loans that he simply ran out of money to loan.

He needed a new source of funds, looked to Wall Street, and wouldn’t you know it, he found Lehman Bros.

Enter the Financial Innovation of Securitization…

Wall Street’s new invention was “securitization,” and it would allow lenders like Arnall’s Long Beach Mortgage to make essentially an unlimited number of loans because they could now be immediately sold to Lehman Bros., who would then use them to create a pool of loans, which would then be sold in slices, called “tranches,” to investors.

The investments were referred to as “mortgage-backed securities,” and the investors that bought these bonds, of sorts, did so in order to receive a percentage of the cash flows generated by the mortgage payments that were paid into the pool.  As compared with other investments, they were considered very safe, and yet they paid a relatively high rate of interest… like tasting great and being less filling all at the same time… what’s not to love?

(If you’re not already up to speed on securitization and how it works, you really should consider reading my article on the subject: “Mandelman U. Presents… Securitization and Mortgage Backed Securities.”)

Now, with essentially unlimited capital at their disposal, the sub-prime lenders had enough fuel to make it to Mars and back as many times as they wanted to go.  The world was about to change for the next few years, anyway… because now anyone would be able to get a loan.  Prices would rise with the increasing demand that would be created by the flood of accessible capital, and so those loans could be refinanced over and over as the value of the collateral increased.

With no limits on the how much they could loan, all they needed now were army of loan officers…

We’re Going to Need an Army…

Roland Arnall’s Long Beach Mortgage, now with unlimited funds, would spread out across the United States bringing his high cost loans to millions of Americans, and he became immeasurably wealthy as a result, as did those that worked for him.  He was never satisfied… a billion a month in loans, only made him demand two billion.

To do so, however, he needed an army of salespeople, and he wanted them trained the Ameriquest way.

In all-important California, prior to 1996, this meant finding loan officers licensed by the California Department of Real Estate, and recruiting them to come over to Ameriquest.  It couldn’t have been easy, and he must have realized that it would be much easier to hire and train sharp, young sales people than it would be to recruit someone licensed by the California DRE who would be more established and would have to be changed to fit the Ameriquest way of selling loans.

Not just anyone would put up with working in an environment in which you could be berated to get more sales, and likewise, not just anyone could be pushed into taking advantage of little old ladies and their Social Security checks.

The types of individuals that studied and passed the DRE’s exam, did so expecting to go into business for themselves as independent contractors, and therefore were independent thinkers… clearly not the type of people companies like Ameriquest were looking to bring on board.

Wasn’t it incredibly lucky, therefore, that in 1996 the law governing the licensing of mortgage lenders in California changed when the California Residential Mortgage Lending Act and the California Finance Lender’s License (“CFL”), used when you sold only through in-house loan officers, and the broader CRMLA licenses were created, both became operational.  Now someone could become licensed to broker, originate and service mortgages without the need to pass that pain-in-the-neck test required by the state’s Department of Real Estate.  Yes, it was very lucky, indeed.

Licensed under the CRMLA/CFL are individuals, partnerships, associations, limited liability companies and corporations, including many of the largest “Fortune 500″ companies.  Those with these new licenses were required to be employees issued W-2s, which was fine for larger organizations, as opposed to their DRE licensed counterparts who worked as independent contractors.

Now large sub-prime lenders could easily recruit the personnel they needed to grow their sales without having to bother with new sales people having to receive any training or pass any tests.  Armall and others in his peer group were free to hire young salespeople in masses, put them in classes, and if they didn’t perform… toss them out on their behinds.

Hudson’s investigations of Ameriquest showed that the company’s system was designed to back borrowers directly into a corner, or if you prefer, put them up against a wall.  The company’s loan officers were trained that when a customer complained about the costs of their loans, they were to assure them that they need not worry because once they’d made their payments on-time for 12 months, the company would refinance them into the lower cost loan.

In addition, the payments on Ameriquest’s 2/28 adjustable rate mortgages ALWAYS shot up towards the end of the second year, driving the borrowers to refinance with Ameriquest or pay higher fees somewhere else.

As the second half of the 90s came and went, Ameriquest employees saw the company’s sales practices investigated by various state attorneys general, and numerous fines get paid, but at the end of the proverbial day, they also saw Armall become a billionaire as he lived out the rest of his life in opulent luxury.

He and his wife, Dawn, bought a $30 million, 12,000 square foot mansion in the Holmby Hills section of Los Angeles.  Tony Curtis had owned it in the early 1960s before selling to Sonny and Cher.  A year later, the Arnalls shelled out $46 million to buy Aspen’s Mandalay Ranch, a 650-acre property with a 15,000 square foot mansion, and a 3,500 square foot guesthouse.

Many of Ameriquest’s customers lived out very different lives than that of the Arnalls, with many borrowers, after being tricked and trapped by the company’s sales practices, and after their payments shot up with no opportunity to refinance and prices starting to fall.  A few in Hudson’s book, lost homes and found themselves living out their lives in motel rooms or as long-term guests with relatives.

Like a gaggle of raptors…

The loan officers that trained at companies like Ameriquest and had come out of places like Transamerica, would ultimately move on to places like WaMu, IndyMac, or even Wells Fargo, Bank of America or Countrywide.  And as the housing bubble began to inflate in 2003, sub-prime was going mainstream.  Wall Street firms like Lehman Bros. were buying sub-prime mortgage originators… and what had been a relatively small group of loan officers was now multiplying like a gaggle of raptors.

They had learned the business of lending in the most oppressive and unethical environments and as they moved up corporate ladders at various commercial banks and mortgage companies, they instilled their own ways of doing business, developed their own cultures, and tried to make work what worked before, cross pollenating sales techniques until the influence of places like First Alliance Mortgage and Ameriquest could be seen and felt throughout hundreds of lenders all over the country.

What had once been a respected career that involved honest dealings and careful underwriting to protect one’s financial institution and look out for the borrower’s interests, was being transformed into high pressure sales organizations only concerned with profits and at best operating on the edge of the law.

Over the years, a variety of state AGs have tried to take action against the business practices of various sub-prime lenders who were clearly abusing communities and ruining the lives of homeowners, and in limited instances have had some success.  But, the lenders on the losing side of such actions often just file for bankruptcy and the perpetrators end up opening new companies that go right back to their underhanded business as usual.

And the lending industry’s lobbying efforts have won out in all cases, essentially arguing that poor and working class neighborhoods need loan sharks.

That sinking feeling…

By the summer of 2006, the Fed had raised interest rates 17 times in a row, housing sales had slowed, prices were softening, and I had long-since started warning my own friends to get out of speculative real estate deals as the evidence of dark skies forming on horizon was now abundant. In response, they’d tell me about real estate’s safety and something about how a home’s value couldn’t go to zero, I suppose as their technology stocks did after the dot-com bubble popped in 2000.

By summer of 2006, a parade of prominent economists were already explaining to the world what was about to transpire… not that many people were listening, least of all Ben Bernanke, who proved beyond any doubt that what he knew about the housing market could not hope to fill a thimble.

Then came the tenth of July, in the year of our Lord, 2007, and at a news conference being held in London, Standard & Poors and Moody’s, the two largest bond rating agencies were about to completely botch the handling of their announcement that the ratings on 1,032 bond offerings were being downgraded.  Some would drop from AAA to AA, but others would find themselves with a BBB rating.

The bonds being downgraded represented less than one percent of the mortgage-backed securities backed by sub-prime loans, but investors saw smoke and knew there would be fire to follow, because if the ratings agencies had gotten these wrong, what was to say that they didn’t improperly rate others as well.

It’s astonishing how fast things locked up beginning on that inauspicious day.  The credit markets were frozen solid within a week or two… tops.  Demand for residential mortgage-backed securities (“RMBS”) dried up almost as fast, and derivatives such as Collateralized Debt Obligations (“CDOs”), which derived their value from the mortgage-backed bonds, went with them.

With no demand for MBS, the secondary mortgage market stopped buying mortgages almost immediately and banks and other non-bank lenders found themselves unable to sell the loans that were now stuck on their balance sheets, and capable of destroying their required ratios.  Everyone started hoarding cash… banks stopped lending even to each other… no one knew who had what on their balance sheet, who would prove overleveraged and potentially not recover.

It was roughly four weeks later, on August 8, 2007, when the Fed reversed its position of just a few weeks prior, and Bernanke started pumping liquidity into the financial system like a fire hose locked in the “On” position.  Money needed to flow through the global financial system or the system would collapse, companies wouldn’t make payrolls, all sorts of credit derivatives and transfer payments wouldn’t be made…it would be the end of the world as we knew it.

On August 10, 2011, PBS News Hour’s, Jeffrey Brown interviewed two “experts” in global finance, Laurence Meyer, a former Federal Reserve Board Governor, and Glenn Hubbard, who was at the time, Chairman of the President’s Council of Economic Advisers.  It had been two days since the Federal Reserve and EU Central Banks had pumped $326 billion into the global financial system, and PBS was asking why.

JEFFREY BROWN: All together, central banks have pumped some $326 billion into the global financial system in the past 48 hours.  Why don’t you explain what the Fed, other central bankers are doing? What does it even mean to pump extra cash into the financial system? Where does that money come from, and where does it go?

LAURENCE MEYER: Well, it creates deposits at the Federal Reserve by lending, by lending to these primary dealers, for example.

JEFFREY BROWN: Primary dealers meaning…

LAURENCE MEYER: Large banks and broker-dealers.

Doesn’t that exchange make you wonder why Lawrence Meyer didn’t just say that the $326 billion was being pumped into large banks and Wall Street broker-dealers, instead of saying “it creates deposits at the Federal Reserve by lending to primary dealers?”

JEFFREY BROWN: So that, what, so they can lend to each other? What is the problem that they’re trying to fix?

LAURENCE MEYER: So they can lend to each other, and so that they can, more generally, so that the lending can take place between banks and other institutions who lend to each other in the money market. And what happened was that that got disrupted because of a very abrupt re-pricing of risk in the economy. They became less willing to lend to each other.

You see… banks wouldn’t lend to each other because no one knew who was solvent and who had leveraged themselves across a bridge too far.  And “disrupted because of a very abrupt re-pricing of risk in the economy.” Abrupt re-pricing of risk is just another way of saying that bond ratings were lowered overnight.

JEFFREY BROWN: Mr. Hubbard, explain more about this idea risk and re-pricing of risk. I think it sounds simple, but it’s at the heart of what we keep talking about in all of this. Explain it a little more for us.

GLENN HUBBARD: Well, exactly. I think many economists believe that risks had not been accurately priced in recent times, that risk premium — that is, the spread you would get for bearing risk — were very, very low by historical standards.

What we’ve seen is a pricing where the risky assets would now require much higher rates of return. We saw this in this market for so-called subprime mortgages, but it’s really filtered throughout markets for risky debt into higher-grade mortgages and into the leveraged loan market.

Did you read that last sentence carefully?  We saw it in so-called sub-prime mortgages, but it has really filtered throughout markets into high-grade mortgages and leveraged loans?  Hmmm… I guess “irresponsible sub-prime borrowers buying homes they couldn’t afford” didn’t cause the crisis after all… what do you know about that?”

JEFFREY BROWN: And staying with you, how does this happen? How do we get in a situation where the risk factor is out of balance? How do smart people in the financial world not make the equation right so that we tip over into a kind of bubble here?

GLENN HUBBARD: Well, it can happen in a number of ways. First of all, there’s been enormous global liquidity in financial markets chasing returns, putting downward pressure on yields and on risk premia. Also, people can learn more about risk characteristics. There’s been a change in views in the past few months about how risky subprime lending is and other forms of lending. So it really is about learning over time.

Glenn has no clue how this happened.  Global liquidity pushing down yields and risk premia… premiums, for the rest of us… Hubbard has always been a real pompous ass.  A change in views over the past few months about how risky lending is?  Was “lending” something new, and we just didn’t understand it on Wall Street back then… in 2007?

So, Brown tries the same question with Meyer:

JEFFREY BROWN: How do you explain how this happens?

LAURENCE MEYER: Well, I think there are some fundamental forces that have been in play over the last 20 years. The economy is more stable; there are longer expansions, shorter contractions. So there are some fundamentals that support that credit risk spread should be narrowed.

But things go in cycles, and they get overdone. Long-term rates were very low; credit spreads were very low. People were searching for yield, looking for more exotic, going out to the fringes, and taking on more risk and becoming complacent about that risk.

I think, in some sense, it was inevitable at some point that credit spreads were going to widen. It just happened quickly, very abruptly. And sometimes when it happens so abruptly, people get worried about the riskiness of people who were there, who, you know, they’re borrowing and lending, and they pull back very sort of aggressively from that.

So, you should see clearly… if you’ve always been confused at what went on back then… it’s only because these are the kind of clowns we’ve got running our financial system and they don’t have a clue about what’s happening, so they stumble about incoherently throwing big words around.

Just remember the number of times these guys pointed out that whatever it was that happened, it had happened “VERY ABRUPTLY.”

Will the real “irresponsible borrowers,” please stand up?

Between 2004–2007, the banking lobby asked Congress to approve of our nation’s banks issuing enormous amounts of debt, investing the proceeds in mortgage-backed securities (“MBS”).  This is what the experts are referring to when they use the term “financial leverage.”  Essentially, the bankers were betting that house prices would continue rise, and that homeowners would continue to make their mortgage payments, but for those things to happen there would have to be mortgage lending… but mortgage lending had dried up “VERY ABRUBTLY” as banks hoarded cash, and now there wasn’t any mortgage lending.

No mortgage lending,,, VERY ABRUPTLY… means housing prices will fall, because can’t get a mortgage means can’t buy a home, and when demand for something goes down… anyone, anyone… price goes down… very good, class.  Refinancing loan also dried up VERY ABRUPTLY, and by the time there was any hope of refinancing most people were already underwater.

What the banks did leverage-wise is akin to a homeowner taking out a second mortgage in order to invest in the stock market.  As long as the market was rising, this leverage magnified their returns, but when prices started falling the effect was horrendous.  Lehman Bros. was leveraged by about 30:1.  WaMu, I believe was around 40:1.  Other institutions were even in worse shape.

Our bankers had assets-to-capital ratios that were way out of whack, as well.  Assets, by the way, on a bank’s balance sheet are loans, and capital is, well… capital or shareholder’s equity.  Having an assets to capital ratio of 25:1 means that the bank has $25 in loans for every $1 in capital.  It also means that if the bank’s assets fall in value by 4%… it will wipe out the bank’s capital.

It’s an oversimplification, to be sure, but it doesn’t matter… just remember that at 25:1, if the assets go down in value by 4% it leaves the bank insolvent.

Well, in the fall of 2008, Bank of America was 73.7:1, which means if the value of its assets had slipped by even one or two tenths of a percent, its capital would have been wiped out and the bank would have been insolvent.  And if you were to have included BofAs “off-balance sheet” transactions, the bank’s assets to capital ratio was a staggering 134:1. (To contrast those numbers, just consider that during the 1970s, a bank’s assets to capital ratio might have been 7:1.)

Everyone should be able to clearly see that Bank of America’s problems were not caused by anyone but Bank of America.

Let’s wrap it up, stick a bow on top, and ship it to everyone who still blames borrowers for the financial and foreclosure crisis, shall we.

So, our nation’s banks had gorged themselves on Collateralized Debt Obligations and credit derivatives, leveraged assets by 30-40 to 1, and lowered loss reserve account balances in order to pay themselves unprecedented sums.

And as if that weren’t enough to ensure insolvency, their assets to capital ratios were at levels far beyond reckless… certainly bordering on criminal in many countries, and likely punishable by death in some… and not only were these bankers not punished, not only do they all still have their jobs, but they were rewarded with multi-generational wealth to be layered on top of their unconscionable billions and encouraged to do whatever they think is right going forward.

All while they were permitted to publicly lay blame for their catastrophic outcome that has broken the economic back of the world’s wealthiest nation, on the working class American homeowners, to whom they’ve also been allowed to send the bill.

And, to add insult to injury, our government has stood by obtuse and witless as these same banks have been permitted to lie, mislead, abuse, disrespect, malign and outright torture homeowners trying to apply for a government program funded by the taxpayers themselves… only to find at the end of three years that the outcome of a regulatory investigation into the banks and servicers is that they must investigate further and self-assess what should happen as a result of their egregious behavior?

And still, when most homeowners try to turn to the courts for the possibility of some sort of relief, however remote, they find themselves chastised for having had a financial hardship, told they lack standing, and called irresponsible borrowers… by the bankers who in point of FACT are WITHOUT ANY QUESTION… the most irresponsible borrowers the world has ever seen.

It’s amazing that America’s homeowners haven’t risen up with a voice so loud to make the Tea Party sound like a dropped pin.  I understand it, however, they are in large part ashamed and don’t want anyone to know they’re struggling to make their mortgage payment, and secondly… homeowners could not have seen this coming… our country treating homeowners as though their lives or rights meant nothing.

But, that’s not all…

I guess that would be enough to say about what’s transpired these last so many years, but in addition, todays homeowners must also face the fact that they are almost literally being hunted by a group of highly trained individuals desperate for money from any source, and trained by the banking class to take whatever money they need from homeowners in distress whenever they want and using any means possible.

And yet our government’s response is collectively for the last three years continues to be… “We’re trying our best… awfully busy you know… try not to get ripped off, but if you do just dial 1-800-EAT-SH#T?”  That about cover it?

Federal regulatory agencies, such as the FTC, says it just doesn’t have the manpower to effectively police what’s going on today.

But, Memo to the Obama Administration: If you can’t adequately police Baltimore, perhaps we have to bring a few guys back from one of the foreign military posts that are still sitting on the 38^th parallel in order to stop the spread of communism, a form of government certain only to bankrupt a nation were it to actually succeed in spreading.

They once were lenders…

As a group, those that hunt homeowners in distress are still relatively young in terms of their years, they have little if any formal education… they have natural sales abilities, which were honed by professionals hell bent on training them to deceive so that they would become an army of sorts… an army trained to seek only dollars regardless of their cost and irrespective of who they hurt achieving their petty objective.

Their competitiveness has been heightened as well, because that too served their bosses.  They earned, in many cases, $50,000 a month, and more… Over a decade they were shown indisputable evidence that crime pays, and pays handsomely.  They watched their bosses make incalculable sums through highly questionable means… and flat out get away with it.

Them one day, quite abruptly, the proverbial music stopped… without any warning they could discern, the whole thing was over… overnight.  The money was gone, and they were not prepared.  They lost their cars, their homes, their boats, everything, and they could no longer do for a living what they had been trained to do.  But what was it that they had been trained to do, really?  Sell free money for which everyone qualified?

But this meltdown wasn’t their doing either… they were only pawns whose lives were played with by the titans of Wall Street who cared little for any damage they might cause.

It was over too fast and they were left with no seat at tomorrow’s table.  They once were lenders, but now what?  Now, many of them were, in truth, scammers.

Loan modifications and debt settlement programs provided a soft landing for the first few years.  .  The up front fees made them feel rich again.  They rented huge offices for their loan modification and debt settlement companies… tens of thousands of square feet they weren’t even using… they took it so they could grow into it… without giving it a second thought.

It’s not clear just how many loan modification and debt settlement companies were truly deserving of the moniker “scammer,” but regardless, state and federal regulators started receiving thousands of complaints from homeowners claiming to have been scammed, and the FTC, state Attorneys General, State Bar associations, and other regulatory and law enforcement agencies have all played a role in shutting down companies that were run by those that came from the mortgage lending industry for unethical or illegal acts involving homeowners in distress.

With enforcement actions making headlines it was predictable that state legislatures would get involved and starting in the latter part of 2009, new laws protecting consumers gradually took the ability to market loan modifications and debt settlement services away from those licensed as loan officers, by making it illegal for them to charge a customer until they had obtained a loan modification for that customer.

And the FTC finally, at the end of 2010, enacted the MARS Final Rule, which is a federal rule that prohibits anyone, with the exception of attorneys from charging homeowners for loan modification services before homeowner have received and agreed to a written offer to modify their loans from their servicer.  Because no one can know how long it will take to get a servicer to agree to a loan modification, without the ability to charge a customer in advance or along the way, few were interested in offering the service as part of their business.

So, was that the end of the line for those willing to scam homeowners… certainly not, in fact, now that they couldn’t sell loan modifications or debt settlement programs anymore, they moved into areas that were more difficult for authorities to pin down… and that often delivered even less value than the loan mod or debt settlement services had in the first place.

Many started selling “forensic loan audits,” which are report that claim to identify laws that were broken by the originator of the loan.  The pitch was (and is) that armed with this proof of impropriety the homeowner could hire an attorney, sue their servicer who would be forced to modify the loan.  Homeowners bought them in the tens of thousands… it felt like a way to regain some of their power and once again feel in control of their lives.

(At this point, there are likely more American homeowners that want to sue their bank than there are that want to kill Osama Bin Laden.)

The problem, however, was that these “audits” were largely worthless, either because they failed to take into account statute of limitations issues, or they pointed out violations that offered only impractical remedies or provided for no cause of action for the homeowner whatsoever.  The homeowners were buying something for thousands of dollars that would end up being thrown into the trash.  In the most outrageous example, a company that was shut down by California’s Attorney general, and is currently being sued by the state for something like $60 million, is alleged to have charged an elderly man $53,000 for a forensic loan audit that was to put him in the driver’s seat with his mortgage servicer.

More recently, as the securitization process has been increasingly shown as being, at best, seriously flawed, and with questions surrounding chain of title and the ownership of loans prevalent in the courts, there are an increasing number of companies now offering to sell homeowners securitization audits.  Some of these are unquestionably legitimate, but homeowners will undoubtedly have a very hard time differentiating between what is real and what is just another scam.

Some unemployed loan officers found new jobs in lending selling FHA loans, which many are referring to as the “new sub-prime.”  An array of Do-it-Yourself loan modification kits hit the market starting in 2009.  And some of the emerging scams are so bizarre, that I would have a hard time describing them without sounding like I was insane.  For example, something called “an administrative process” promises homeowners that by sending a series of letters to their bank, they will end up owning their home free and clear.

The Latest Sales Pitch: Sue Your Lender

Most recently, the idea of selling homeowners participation in a “Mass Joinder” lawsuit against their servicer has taken off like wild fire nationwide.  Sue your bank today for only $5,000!  I’ve got a suit against Chase on sale for $3500!  Join our lawsuit and you’ll receive thousands in damages, or even a free and clear home.  And, when you sign up for our lawsuit, you won’t have to make your mortgage payment for years, while the bank can’t foreclose and sell your home.

Mailers that make promises such as these are NEVER TRUE, but scammers in this space have never been bothered by lying to get a check for five grand from a homeowner… desperation is heavy in the air… fear is palpable… many have become able to talk themselves into anything.  They don’t care about getting caught… nothing bad will happen to them, because crime pays, remember?

None of this is to say that some of the lawyers seeking to represent homeowners against their lenders aren’t perfectly legitimate.  And there’s no question decisions coming out of the courts around the country this year are increasingly favoring homeowners over bankers.

Prominent Los Angeles attorney, Mitchell J. Stein, who filed the very first lawsuit on behalf of multiple homeowners… and largely on a pro bono or contingent fee basis by the way… against Bank of America/Countrywide in Los Angeles Superior Court, back on March 12, 2009.  Stein’s Curriculum Vitae (that’s a resume that went to college) shows that he’s successfully represented many of the world’s largest companies in State and Federal Court over the last 25 years… but most importantly, his list includes something like 300 banks and financial institutions.

Mitchell Stein’s complaint in the Ronald v. Bank of America lawsuit, which is a case that after two years is proceeding in the Los Angeles court, has been used as the model for suits recently filed by attorney Phillip Kramer, and there are numerous others, many of which are likely little more than sales gimmicks in lawsuit clothing.

But, as Mr. Kramer acknowledged in his interview with me that I posted on February 23^rd of this year, the numbers of Websites that popped up marketing his lawsuits has made it almost impossible for most people to figure out what is real and what isn’t. Stein says he’s been shocked at the number of people that have attempted to use his name or his firm’s identity to market their own version of his case, or even to sell a homeowner participation in his suit.

For the record, Stein says unequivocally that he has never authorized anyone to accept clients on his behalf (he has a warning on his site to this effect), and that homeowners that are interested in being represented by him should only contact his firm and speak with someone authorized to evaluate their case.  “There is no other way to do it,” he explains.  (The Law Offices of Mitchell J. Stein can be reached at 877-475-2448.)

Kramer said basically the same thing, readily agreeing that homeowners should never hire a lawyer without speaking with someone at the firm.

According to Stein, the term mass joinder doesn’t mean protection from the bank taking action to foreclose. It doesn’t mean stopping foreclosure.  It doesn’t actually mean anything.  He points out that the only protection a homeowner can get is the protection gained by having a good lawyer.  Each client Stein represents is represented individually and he spends time talking at length with every client before he agrees to represent him or her.

Stein says he considers the lawsuits he has filed against banks to be individual lawsuits with individual clients, saying “the phrase mass joinder” is really meaningless and terribly misleading.  And as far as I can tell, no bank has ever made a blanket agreement not to foreclose on homeowners just because they are plaintiffs in any lawsuit, mass joinder or otherwise.

Stopping the ongoing regulatory failures to stop scammers…

There are indeterminable thousands of individuals unleashed in our society today that were raised in a mortgage industry at its worst… taught to hunt for homeowners in distress… and shown that acts of fraud are profitable and likely to go unpunished… and now unable to make their livings making loans, and with little if any formal education, they continue to seek out ways of using their skills to target homeowners in order to line their pockets.

They look just like the rest of us… they present themselves very well… ooze with credibility when needed… lie effortlessly and entirely without conscious.  They were trained by bankers and sub-prime lenders to function as sociopaths.  They represent a clear and present danger to our society today and they aren’t going to go away anytime soon.

Passing new laws in an attempt to stop them from earning a living has not stopped a single scammer, nor will it.  When Senate Bill 94 in California was going through the legislative process, a bill that prevents those operating under a mortgage/real estate license from charging an up-front fee in conjunction with loan modification services, I tried to explain in countless articles that the bill would not stop a single scam, rather the scammers would simply find something else to sell to homeowners.

And that is precisely what has transpired.

The only way to stop the scammers who prey on homeowners in distress as a result of the foreclosure crisis, is for our government officials and legislative bodies to take action that acknowledges the need for legitimate legal representation for homeowners, along with other applicable programs and resources, and then makes access to such services readily available.

Specifically, that means taking the time to become educated as to the true nature of the situation… that is was not the borrowers, sub-prime or otherwise, that caused the financial or foreclosure crisis, and that homeowners will not find answers by following the utterly useless advice: “Call your bank directly, or call a HUD counselor.”

Consider that during prohibition of the 1930s, G-Men running around the country trying to enforce the 18^th Amendment to the U.S. Constitution by smashing stills and spilling illegal booze in the streets accomplished nothing.  The only way our government ultimately stopped bootleggers… was to put legal liquor stores on the corner.  People wanted to drink, and they were going to find a way.  The only lasting outcome of prohibition was well-funded organized crime.

The same factors apply here.  Homeowners at risk of foreclosure are going to do everything they can to save their homes, including writing a check to organized crime, if that option becomes available.  Calling a HUD counselor or your bank directly, when at risk of foreclosure is certainly not something that results in the homeowner having someone working in the homeowner’s “best interests.”  In fact, as countless thousands have learned the hard way… it’s often a waste of time that produced nothing.  That’s why homeowners start looking elsewhere.

Banks and servicers don’t do anything in the homeowner’s best interests, they are only there to protect their own interests.  And HUD non-profits… well, let’s just start admitting here that, for example, a couple of weeks ago, Bank of America presented a check for $100,000 to a HUD non-profit in Southern California for doing such a bang up job.

Homeowners who are at risk of foreclosure need to be able to find someone ON THEIR SIDE, competent legal representation that works only to protect their best interests.  Not some group funded by the banks.  And why isn’t it ever disclosed that it’s the banks who are funding the non-profits helping homeowners?  I know why, the question is rhetorical.

The banking lobby has far too much power in this country and the people are starting to notice.  Our politicians are going to pay for that in the end.

This crisis was not the fault of homeowners and they should not be treated like deadbeats because they are struggling financially… because our banks are also struggling financially, and for the very same reason.  The difference is that it’s the bankers that caused the “abrupt” changes in the financial markets back in July of ’07, not the homeowners.  And yet, they continue to be blamed by banks and eve n our government.

The anger felt by homeowners is building and their knowledge of the situation is increasing each day.  Our government’s response to the crisis has been laughable, were it not so inconceivably tragic.  And all of this while the scammers continue to come up with a new way to rip someone off who is suffering the trauma of possibly losing a home.  And things are worsening, economically speaking… unless you are one prone to believing the government’s drivel about some phantom recovery.

It’s the bankers that led us to this crisis… they trained their loan officers to scam and then abandoned them after the meltdown, as well.  Homeowners are paying the bill for both, and until our government regulators come to grips with what’s really going on here, the scams will proliferate freely, home prices will continue to fall, and our economy will deal out pain more broadly.

And all I want to know is… for what?

Mandelman out.

It should be readily apparent that there are an overabundance of reasons for Bank of America’s CEO, Bryan Moynihan, to be regarded as a massive rear end in a province undeniably replete with rear ends of utterly mammoth proportion.  Even the adjectives in that last sentence don’t begin to do the nature of his posterior justice.

To begin with, let’s just acknowledge that Moynihan is a corporate lawyer.  He graduated in 1981 from Brown University… a history major that co-captained the rugby team.  He then went on to Notre Dame Law School.

In 1993 he went to work at Fleet Boston as deputy general counsel, but after Bank of America acquired Fleet in 2004 Moynihan became the bank’s president of global wealth and investment management, and from October 2007 to December 2008, he served as the bank’s president of global corporate and investment banking.  But from December 2008 to January 2009, Moynihan once again returned to his roots, serving as general counsel for Bank of America, and he became CEO of Merrill Lynch after its oh-so-well-thought-out-and-executed sale to Bank of America in September 2008.

A history major that co-captained the rugby team transformed into Bank of America’s president of global corporate and investment banking… okay, sure… why the heck not?  His predecessor, Kenny-They-Made-Me-Do-It-Lewis started his climb to the top of the largest financial institution in the country, as a credit analyst with a B.S. in Finance from Georgia State at what would soon be NationsBank before merging with and becoming today’s Bank of America.  As they say… the smartest guys in the room, no two ways about that.

Back in 2005, Bank of America was trading at around $50 a share, as was JPMorgan.  As I write this you can buy the stock at an overpriced $12.82.

Kenny was singlehandedly responsible for the bank’s spectacular decline, paying way over mini-bar prices for Countrywide and Merrill Lynch.  JPMorgan’s CEO, Jamie Dimon, meanwhile, managed to pay essentially bupkis for the assets he purchased during the crisis, and along with the Federal guarantees he was able to extort… I mean, successfully negotiate… his financial behemoth has recovered almost all the shareholder value that it lost during the meltdown.  So, very well done there, and as a taxpayer let me just say that I’m glad to have been able to help.

Kenny, by the way, after costing his shareholders roughly $150 million, retired with $83 million in cash, according to the Wall Street Journal… including a $4.2 million salary in 2009, if you can comprehend that.  I can’t, by the way, so if you can… well… you’re completely insane.

Lewis had a nickname for Bryan Moynihan, this also according to the WSJ… the Tasmanian Devil, and he used it to convince members of Bank of America’s Board of Directors that Bryan was the right man for the CEO position after his ouster.  The “Tasmanian Devil,” in case you don’t recall your Saturday morning cartoons, is the Looney Tunes character that can’t form complete sentences and creates sand storm hurricanes everywhere he goes.

Nancy Bush, a well-known independent banking analyst at NAB Research, in so many words, confirmed to Bloomberg that Moynihan’s nickname has basis, saying:

“He’s always thinking way faster than he can talk,” Bush said. “The thoughts tend to run together, and it’s been somewhat of an impediment to getting people to focus on what he’s saying, rather than the way he’s saying it.”

In his new book, Crash of the Titans, Financial Times’ writer, Greg Farrell tells the tale of how Moynihan got his job, first as General Counsel for Bank of America Merrill Lynch, and ultimately as the bank’s CEO.  Apparently, Moynihan was all set to leave Bank of America, the bank had even prepared a press release announcing his departure, when out of nowhere, Kenny decided to can the bank’s General Counsel, Tim Mayopoulos, a guy Farrell describes in his book, which is a fabulous read by the way, as an “egomaniacal wild man.”

So, then one day he was shooting at some food, and up through the ground came a bubbling crude… Bryan’s the bank’s new GC… and Kenny’s best guess for the new CEO.  One of the reasons Ken recommended Moynihan was that he actually wanted the job, which should make you throw up in your mouth a little bit, assuming you own the stock as almost everyone does in one fund or another.

Today, Bryan Moynihan is known for an uncanny ability to put a positive spin on any situation, which I find a lovely euphemism for saying he lies well, assuming such a thing is possible.  He’s driving a financial institution that required TWO federal bailouts totaling $45 BILLION in cash, to say nothing of the federal guarantees, and is today being sued by so many consumers and investors that I can’t even keep up anymore.

As of the end of 2010, more than 1.3 million of the bank’s mortgage customers were delinquent on their loans, close to 200,000 of those haven’t made a payment in at least two years, and a third of the homes facing foreclosure are now vacant, making them costly to maintain and, shall we say, a tad difficult to sell.  A report issued by Moody’s at the end of last year showed that when talking about resolving delinquent sub-prime loans, Bank of America lagged behind ALL of the other six major servicers.

Moynihan’s statements about the bank’s inability to clean up its mortgage mess include saying things like: “At the end of the day, we could have done better,” which is the kind of thing that makes me want to scratch his eyes out.  He has also pointed out that the scale of Bank of America’s modification efforts far exceed those of his competitors, and that the bank has completed 725,000 modifications since January 2008, but other numbers tell a different story.

Of the homeowners who failed to get their loans permanently modified under the federal government’s HAMP program, only 14 percent were granted in-house modifications by Bank of America, compared with 31 percent at JPMorgan Chase, 27 percent at Citibank, and 40 percent at Wells Fargo.

Stories about Bank of America customers enduring year long… and longer nightmares in order to get answers about loan modifications are so common as to be safely considered the norm. As of September 2010, of the 425,000 Bank of America mortgagees deemed eligible for HAMP, only 0.7 had begun trial modifications, according to the federal data.  It’s improved since then, but when you’re talking about millions of loans, improvements that are measured in tens of thousands just isn’t going to cause anyone to stand up and cheer.

A year ago, the bank posted a “profit” of $3.2 billion or 28 cents a share, and in mid-April 2011 the bank’s revenue declined 16% versus a year earlier, and it posted a first quarter “profit” roughly $1.2 billion under that number… at 17 cents a share.  Since he took the helm, the bank’s shares have fallen something like 20%, and with the potential losses on the bank’s $2.1 TRILLION in mortgages still to come being estimated by some at $35 BILLION, it’s little wonder that the bank’s stock, although inexplicably (Ha ha) still rated a “buy” last time I checked, is seen by investors as a significant risk.

Mr. Moynihan, however, says everything is going swimmingly.

“While still soft, the economy is healing; we see retail spending up versus the year-ago period and continued declines in bankruptcy filings and delinquency rates,” Moynihan said.  And last December he told the New York Times: “It’s been a great year and we’ve learned a lot… there’s not a better job in the world.”

Most recently, Moynihan launched a Jimmy Carter-esque type approach to fixing the bank’s woes.  Referred to as “Project New BAC,” it basically means that 44 executives and a couple of consulting firms will fan out and scour the mega-financial-mess that is Bank of America in an effort to glean ideas from the rank and file as to how expenses might be lowered, and how revenues and/or productivity might be increased.  (Are you feeling all warm and fuzzy about this initiative?  Yeppers… me too.)

Now, if all of that weren’t enough to make the case for Bryan Moynihan being this month’s REAR, here’s what really got me started on him in the first place.  Last month, at the 2011 National Association of Attorneys General conference, Moynihan actually came out publicly and said that HOME PRICES MAY NOT REBOUND LONG-TERM, in some areas anyway.  According to Moynihan, homeowners may need to look elsewhere for their long-term investment returns… and forget about their homes being worth more than they owe… like, in their lifetimes.  He blamed population growth, by the way.

According to an April 12^th, 2011 story by Joe Rauch for Reuters: “It’s sobering to think, but some people shouldn’t be thinking of (their home) as an asset, they should be thinking of it as a great place to live.”

Is that right, Bryan?  A great place to live… and dramatically overpay for, I suppose.  Because we shouldn’t be thinking about our real estate holdings as “assets,” is that what you said?  You’re a real asshat, Mr. Moynihan, you know that?  Modify the predatory loans, Mr. General-Council-turned-CEO.  Stop being part of the problem, and help stop the financial and foreclosure crises that you and yours created.

Or, I’ll tell you what… we’ll stop looking at our homes as financial assets as soon as you stop looking at the garbage Collateralized Debt Obligations and mortgage-backed securities you defrauded the planet with as securities… how about that?

Mandelman out.

Last week, the Justice Department decided to end the criminal investigation of former Countrywide Financial CEO Angelo Mozilo.  People close to the case say that the overall collapse in the mortgage market has made it too difficult to prosecute the actions of any one particular executive.

So, in other words, Mozilo got off for his role in creating the housing market bubble and sub-prime implosion that fed into the global financial meltdown of 2008, precisely because the meltdown was so large?  Well, that’s certainly nice to hear, don’t you think?

I’m not going to attempt to write some scathing or potentially insightful commentary about Mr. Mozilo, I’m sure that’s been done many times before, and frankly… he bores me to no end.  But, at the same time I felt like I had to say something about a financial criminal of his stature picking up a get out of jail free card… it simply could not go by without at least a mention.

So, here’s sort of a highlights reel in print… I give you Angelo Mozillo, the man behind Countrywide, IndyMac, two of the most spectacular banking and mortgage industry failures in U.S. history.  And not only that, but he also managed to eviscerate Bank of America as he made his way to the exit, retiring in 2008.

Here we go… join me, it’ll be quick, and then you’ll want to throw-up, so stay close to a bathroom is my best advice.

Mozilo co-founded Countrywide in 1969, and spun off Indy Mac Bank in 1995, and we all know what a success story Indy Mac was.

When the mortgage crisis started in October 2006, Mozilo filed a stock trading plan to sell 350,000 shares a month.  He revised the plan twice, first in December so he could sell 465,000 shares per month, and then on February 2, 2007, the day Countrywide stock it a record high of $45 a share, he revised it again to sell 580,000 shares per month.  En total, Mozillo sold 5.8 million shares for roughly $150 million between November 26, 2006 and the end of 2007.

Mozillo claimed he was only selling shares of his company’s stock according to a prearranged retirement schedule, but during that same time period, Countrywide’s shareholders lost all of the $2.5 billion the company had just spent on repurchasing shares.

The man has impeccable timing, no question about that.  Countrywide’s exceptionally high 18% mortgage payment failure rate first appeared in 2006.

In the fall of 2007, Democratic Senator Chuck Schumer wrote a letter to the Federal Housing Finance Board warning its chairman, Ronald A. Rosenfeld about the Federal Home Loan Bank’s $51 billion in cash advances to Countrywide that were collateralized by $64 billion in bad mortgages.

In that letter Sen. Schumer wrote:

“I find these numbers alarming as reports continue to emerge about how Countrywide’s reckless and predatory lending practices were a leading contributor to today’s foreclosure crisis.”

Last October, Mozilo agreed to pay $67.5 million to settle the U.S. Securities and Exchange Commission’s accusations that he misled investors about Countrywide’s health and risk-taking, and generating roughly $140 million of improper gains from insider stock sales.  Mozilo neither admitted nor denied any wrongdoing… (Want the actual SEC complaint, CLICK HERE.)

Mozilo’s internal emails, obtained by the SEC, show him referring to a sub-prime product as “toxic” and saying “the company was flying blind.”  (Want to read the rest of the emails obtained by the SEC, CLICK HERE.)

California recently settled a predatory lending case against Mozilo (and another ex-Countrywide executive) for $6.5 million.

When the deal to sell Countrywide to Bank of America was struck in mid-January of 2008, Countrywide was valued at $4 billion and Bank of America’s share price was $38.50.  Two weeks later, Countrywide posted a loss of $422 million for the fourth quarter of 2007.  By the time the acquisition was completed on July 1, 2008, the deal’s value had fallen to $2.5 billion.

After eight months, $46 billion of TARP funds, $118 billion in government-backed asset guarantees, and an incredibly stupid merger with Merrill Lynch, Bank of America was $3.14 per share in March of 2009.

By then, Countrywide was being sued by everyone imaginable… homeowners, shareholders, municipal employee pension funds, and they were alleging everything from insider trading to inflated fees being charged to homeowners, to unlawful actions, collusion and mortgage fraud, and let’s not forget deceptive advertising having to do with a variety of predatory lending claims brought by Attorneys General from 11 states and led by Illinois and California on October 6, 2008.

Countrywide ultimately settled by agreeing to modify $8.4 billion in principal and interest rates on over 400,000 loans it had initiated, but the company neither admitted nor denied any wrong doing and no fines were levied.  Following that, the company settled other predatory lending claims for about an additional $3 billion.  But, these settlements led to a class action lawsuit brought by investors who argued that Bank of America didn’t have the right to modify Countrywide’s agreements.

Between July of 2003 and June 30, 2008, Mozilo had taken home more than $470 million in compensation and stock sales, which represents the third highest pay package of any financial or homebuilding executive during that time.  If you’d like to see Mozilo’s employment agreement, as taken from the company’s 8K filing with the SEC in 2004, CLICK HERE.

“Mozilo’s fingerprints are all over the economic catastrophe we are living. He was the Typhoid Mary of the mortgage business, spreading the exotic-loan disease far and wide,” said Dan Pedrotty, director of the AFLCIO’s Office of Investments. “He was also grossly overpaid, especially considering the fact that he drove his company off a cliff.”

Time Magazine called Mozilo the #1 Culprit of the Financial Crisis.

Mozilo’s lawyers argued that “Countrywide’s problems were caused by the general collapse of the mortgage market nationally and not by any misdeeds by company executives,” according to the Wall Street Journal.

Best of all, I was dumbfounded to learn that Bank of America is writing the checks for all of these settlements… including one for $22.5 million, another for $45 million, a $60-some million settlement, and even $600 million to settle a class action suit brought by shareholders… even the recent $6.5 million to the State of California… all because BofA agreed to purchase Countrywide, indemnifying Mozilo and his ace lieutenants against legal costs.

So, very well done there.

Okay, that’s all I can take… I just learned something that I had always hoped wasn’t true… Crime Pays!

Mandelman out.

Should homeowners join Kramer and Kaslow’s “Mass Joinder” lawsuit against Bank of America or any of the other banks being sued by Attorney Phillip Kramer or Attorney Mitchell Stein?  Mandelman interviews attorney Phil Kramer to see what he can find out.

Last week I posted a “Homeowner Warning” about a mailer I’d received from a homeowner promoting participation in a lawsuit, referred to as a “Mass Joinder” lawsuit, being filed against several major banks on behalf of homeowners by the law firm of Kramer & Kaslow.  Before I posted the “warning” I spoke with several attorneys I know that are well-versed in law firm marketing compliance, and I made two attempts to contact the Kramer & Kaslow attorneys at the number provided on the mailer, but received no response.

A couple of hours after I posted my “warning” my phone started ringing off the hook.  Several people were calling to tell me that the mailer was not sent out by Kraner & Kaslow, but rather was a rouge marketing effort by someone not authorized to use the Kramer & Kaslow name.

At first I was not persuaded and thought I should leave the post up until I received proof that Kramer & Kaslow were not, in fact, behind this deceptive mailer, but then someone I know at a reputable law firm called me and explained that my post was causing homeowners to contact the real Kramer & Kaslow and demand that the amounts they had paid as a retainer be returned.  They had read my post and wanted out on that basis alone.  They claimed that the lawsuit was real and that if I would just take down the post for a couple of hours, attorney Phillip would be calling me to straighten things out.

While I didn’t want to take down something that could protect homeowners from being taken advantage of, I also didn’t want to be the cause of homeowners withdrawing from a legitimate lawsuit because of a my critique of a mailer that wasn’t even sent out by the firm of Kramer & Kaslow.

I finally agreed, took the post down, and awaited Mr. Kramer’s call.

Two hours later I had still received no call from Phillip Kramer, but it was about 6:00 PM by that time, so I figured I’d wait until the following day, as anyone can get tied up and not be able to get to a call, no matter how important that call may be to one or both of the parties.

The next day I did receive a call from someone who identified himself as an employee of Kramer & Kaslow, telling me that he was trying to contact Mr. Kramer and that he would be calling me shortly.

In my original post, I said that I thought the mailer looked “extremely suspicious, and could be an illegal scam… because it appears to invite homeowners to participate in a SETTLEMENT, and presents such outcomes as a free and clear mortgage and up to $75,000 in monetary damages per individual participant.

I checked into this mass joinder lawsuit, and found that there had been no “settlement,” rather it was and is an ongoing lawsuit, and therefore I found the wording used in the mailer highly deceptive.

I also was informed by several homeowners that they had received phone calls from an auto-dialer, saying something to the effect of, “If you’re interested in finding out more about how you might get your home free and clear, press ‘1’”.

Law firms are not allowed to engage in outbound telemarketing, or solicit clients in this manner, and as I pointed out, if non-lawyers are doing this and being paid commissions as a result, this is called “running and capping and may involve fee splitting, and both practices are not legal for attorneys.”

I finished the post by urging homeowners to be “extremely careful before writing a check to Kramer & Kaslow, or anyone else suggesting that you pay to be part of a lawsuit promising a lucrative settlement, especially a free house, which is an extremely rare event.

I also mentioned that several attorneys had told me that there was and is an actual lawsuit filed, but that even if that were the case, it wouldn’t make the mailer in question, or the use of auto-dialers by a law firm in any way okay.

An Interview with Phillip Kramer, Attorney at Law

Phillip Kramer called me later in the day, apologizing for not speaking with me sooner, and assuring me that his firm didn’t send out or authorize the mailer I was warning consumers about, nor was his firm doing any telemarketing, or authorizing the use of auto-dialers or outbound telemarketing.

I asked Mr. Kramer if he would put something in writing and offered to publish it in my follow-up article clarifying why I had taken the “warning” down after just a few hours.  He said he would and in a subsequent email to me, he said the following:

“As we discussed, I became aware of the mass mailing piece bearing my firm’s name when I saw it on your website.  I immediately called the toll free number, was outraged to learn that the people handling the calls were falsely purporting to be with my firm, and I asked to speak with a supervisor.

I confirmed that the mailer was prepared by and sent by a law firm that I know.  The mailer was NOT approved by me.  I did NOT authorize the mailer.  I would NOT have authorized the mailer if I had been asked in advance.

My cases are progressing nicely, and I don’t need to mass market every homeowner.  I’d rather organically grow my client base.

I’m not opposed to representing a large number of clients in my mass joinder cases.  In fact, that is the idea of delivering economy of scale to clients and being able to properly litigate against banks.  However, I am opposed to careless and aggressive marketing campaigns, and I never was asked, nor did I approve, that law firm to market under my name, and/or to pose as my law firm when speaking with prospective clients.

In fact, I have never marketed these mass joinder cases, I have not approved any marketing under my name, nor have I authorized anyone to pose as me or to solicit prospective clients under my name.  As I become aware of people doing these things, I confront them and shut them down.

I know that Mitchell J. Stein feels the same way about people marketing under his name and he is also stopping offenders as he learns about them.”

After I received his statement, I sent him a few follow-up questions to ask if he’d like to clarify things further… he did, and he said he appreciated the opportunity.

Here’s what he said…

“I know of no outbound calling.  If asked, I would not approve of that.  I knew that some law firms wanted to send out mailers.  I have insisted that everyone comply with State Bar rules and that anything with my name must be pre-approved.  As of this date, no one has submitted any proposed marketing for my review.  That piece was done without my knowledge.

I am happy to pay a referral fee to other law firms.  I do not split fees, pay commissions, nor do I pay referral fees to non-lawyers.  I do not use cappers, and have never authorized anyone to robocall, telemarket, spam email, or undertake any mass marketing on my behalf.”

While we were discussing the merits of the lawsuits he was filing, which I’ll discuss in a moment, he mentioned that he had just hired a compliance attorney to train all staff attorneys at his firm.  I asked him to send me something in writing so I could describe the sales process in his own words.  Here’s what I received:

“I have recently hired a compliance attorney.  He is currently hiring and training a staff of lawyers to call all new prospective clients.

I will not take on a new client unless I have a licensed attorney speak with the prospective client, make certain that the prospective client understands the risks — and acknowledges that joining the case is not a substitute for making payments to the lender, etc.

If a prospective client does not understand the nature of what we can and cannot do, or if someone has made false statements and the prospective client has unrealistic expectations, we are not accepting them as clients.”

Well, that’s pretty clear, I would think.  And that’s why I agreed to take down my post last week that “warned” homeowners… to give Mr. Kramer a chance to state in no uncertain terms that the mailer shown above and the reported telemarketing efforts were not coming from his firm, Kramer and Kaslow.  And that he, nor attorney Mitchell Stein, in any way endorse any illegal marketing activities, such as capping or fee-splitting… which are both illegal ways of compensating non-lawyers for bringing clients to a law firm.

It’s great to hear that Kramer and Kaslow will do everything they can to put a stop to such rogue efforts, but that doesn’t mean that the mailer or auto-dialer are okay… they’re not.  And from checking online, there are clearly dozens of other obviously unauthorized marketing efforts out there… and homeowners should take care to avoid them.

The bottom-line is… NEVER hire a law firm unless you’re talking to that law firm and can speak with a lawyer employed by that law firm before you do.  Don’t get scammed by someone who is NOT AUTHORIZED by Kramer and Kaslow… in fact, I think you should report those you suspect of unauthorized marketing activities and violations to the laws governing attorney marketing to offices of Kramer and Kaslow… at the very least.

Commentary on the Kramer and Kaslow Mass Joinder Case Itself…

Now, before I say anything… let me be very clear… I’m not an attorney and therefore I am not qualified to assess whether a given lawsuit is a good one or not, or right for you or not… so at the end of the day, homeowners have to make their own assessment and decision as to whether they want to participate or not.  All I can do is share my thoughts and ask around as to what others might think…

As I understand it, the cost to participate in the suit is about $5,000.  For some, that may sound like a cheap way to sue a bank, while for others it may be too much to gamble.  Because I think it’s worth noting that it is both of those things… a lawsuit against a bank… and a gamble.

The case at the core of the Kramer and Kaslow mass joinder lawsuit is: Ronald vs. Bank of America.  Basically, the case accuses Countrywide (subsequent cases being filed include Citibank, One West, GMAC/Ally Bank, and perhaps others) of perpetrating a massive fraud upon homeowners by knowingly inflating appraisals, creating a bubble the bank knew would pop and leave homeowner equity devastated, violate privacy statutes, and then Civil Code sections when they refused to modify… you get the idea.

The case says that Countrywide execs knew and did it anyway in order to make zillions of dollars securitizing the loans and therefore only others would incur the future losses.

Here’s an overview of what the third amended complaint says in its Introduction section:

2. This action seeks remedies for the foregoing improper activities, including a massive fraud perpetrated upon Plaintiffs and other borrowers by the Countrywide Defendants that devastated the values of their residences, in most cases resulting in Plaintiffs’ loss of all or substantially all of their net worths.

6. Hand-in-hand with its fraudulently-obtained mortgages, Mozilo and others at Countrywide hatched a plan to “pool” the foregoing mortgages and sell the pools for inflated value. Rapidly, these two intertwined schemes grew into a brazen plan to disregard underwriting standards and fraudulently inflate property values – county-by- county, city-by-city, person-by-person – in order to take business from legitimate mortgage-providers, and moved on to massive securities fraud hand-in-hand with concealment from, and deception of, Plaintiffs and other mortgagees on an unprecedented scale.

7. From as early as 2004, Countrywide’s senior management led by Mozilo knew the scheme would cause a liquidity crisis that would devastate Plaintiffs’ home values and net worths. But, they didn’t care, because their plan was based on insider trading – pumping for as long as they could and then dumping before the truth came out and Plaintiffs’ losses were locked in.

9. It is now all too clear that this was the ultimate high-stakes fraudulent investment scheme of the last decade. Couched in banking and securities jargon, the deceptive gamble with consumers’ primary assets – their homes – was nothing more than a financial fraud perpetrated by Defendants and others on a scale never before seen. This scheme led directly to a mortgage meltdown in California that was substantially worse than any economic problems facing the rest of the United States. From 2008 to the present, Californians’ home values decreased by considerably more than most other areas in the United States as a direct and proximate result of the Defendants’ scheme set forth herein.

This massive fraudulent scheme was a disaster both foreseen by Countrywide and waiting to happen. Defendants knew it, and yet Defendants still induced the Plaintiffs into their scheme without telling them.

10. As a result, Plaintiffs lost their equity in their homes, their credit ratings and histories were damaged or destroyed, and Plaintiffs incurred material other costs and expenses, described herein. At the same time, Defendants took from Plaintiffs and other borrowers billions of dollars in interest payments and fees and generated billions of dollars in profits by selling their loans at inflated values.

14. Since the time Plaintiffs filed the initial Complaint herein, Defendants’ improper acts have continued, including, inter alia: (i) issuing Notices of Default in violation of Cal. Civil Code §2923.5; (ii) misrepresenting their intention to arrange loan modifications for Plaintiffs, while in fact creating abusive roadblocks to deprive Plaintiffs of their legal rights; and (iii) engaging in intrinsic fraud in this Court and in Kentucky by stalling in addressing Plaintiffs’ legitimate requests to cancel notices of default and for loan modifications, and by refusing to respond, in any way, to Plaintiffs’ privacy causes of action.

Now, there’s no question… this is a real lawsuit.  Some attorneys believe it will be a very difficult case to win, while others think it’s quite viable and likely to settle.  I can see both sides of that argument.

On one hand, it would seem difficult to prove that Countrywide caused the housing bubble; there were certainly many parties involved and numerous other contributing factors as well.  On the other hand, the case has numerous aspects that are unquestionably true and certainly wrong.

Then there’s what’s known as “the banker factor.”  Actually, I’m making that up, but you know what I mean.  The banks aren’t going to lay down for this as it would open an enormous can of litigating worms… so they have to fight… or is there no percentage in that either?  Well, now you’ve seen first hand why I chose not to go to law school.

I really haven’t the foggiest idea what’s going to happen… and neither does anyone else.

But then, Columbus couldn’t exactly stop and ask for directions either, which, it’s worth noting is why, when sailing for The New World, he landed in the Bahamas and named them San Salvador, but assumed he had found the Indies so he named the native people Indians (leading me to always wonder what he would have named them had he not gotten so hopelessly lost.)

(What if his favorite word was “Jujubees,” and he had named the natives “Jujubees?”  Then I would have grown up playing Cowboys & Jujubees?)

So, since no one can know what’s going to happen in the future of this case, I thought I’d take a look at where it is today.  From a review of the Los Angeles Superior Court’s online records database we find these events have transpired to-date or are set for the near future…

1. Original complaint was filed in March 2009.

2. First amended complaint was in June of 2009.

3. Second amended complaint March 2010.

4. August 2010: the banks try to remove the case to federal court, but fail.

5. Third amended complaint was filed July 7, 2010.

6. The defendant banksters have demurred again, but it doesn’t appear that the demurs filed in December have been heard.

7. Status conference set for Thursday, February 3^rd, 2011.

8. There is a hearing date scheduled for March 29, 2011, but it’s not clear to me what will be happening at that hearing.

So, this is their third “amended complaint.”  That means the defendants… the banks… have demurred twice.  That means that the banks have come to court claiming that the mass joinder plaintiffs don’t state a cause of action… or in other words saying the plaintiffs have no case… and the court has allowed the plaintiffs to amend the complaint three times so far.

Like almost everything in the law, I guess you could read that a couple of different ways.  On one hand it seems positive… the case brought by the mass joinder plaintiffs has not been tossed out by the judge yet.  That’s good, right?

On the other hand… the court could “sustain the demur without leave to amend,” in which case the mass joinder suit would be over and done.

And that’s why litigating is always a gamble, and by no means a sure thing.

Here’s an oversimplified look at the mass joinder’s causes of action.

First Cause of Action… Fraudulent Concealment – This is saying that the bank was hiding things from the borrowers.

Second Cause of Action… Intentional Misrepresentation – This is lying when you knew you were lying.  In other words, you knew an appraisal was wrong… it came in at $500,000, but you knew it was worth $400,000 and you passed it off anyway.

Third Cause of Action… Negligent Misrepresentation – This is like saying that you’re lying but it wasn’t intentional.  Let’s say that you ordered an appraisal but never really looked at the appraisal to make sure it was done correctly.  You include this cause of action in case the conduct doesn’t rise to the level of intentional misrepresentation, and perhaps because some insurance policies don’t cover intentional acts.

Fourth Cause if Action… Invasion of Constitutional Right to Privacy – This is saying that the banks disclosed personal information… perhaps when selling the loans to another investor.

Fifth Cause of Action… Violation of California Financial Information Privacy Act – See above or read the actual complaint.

Sixth Cause of Action… Civil Code 2923.5 – Defendants are prohibited by statute from recording a Notice of Default against the primary residential property of any Californian without first making contact with that person as required under § 2923.5 and then interacting with that person in the manner set forth in detail under § 2923.5.  Nothing special here, but its been upheld by other courts in California.

Seventh Cause of Action… Civil Code 1798 – When they gave away your private information, they didn’t tell you they did it?  Defendants failed to timely disclose to Plaintiffs the disclosure of their personal information as required under California Civil Code § 1798.82

Eighth Cause of Action… Unfair Competition Against All Defendants – Defendants’ actions in implementing and perpetrating their fraudulent scheme of inducing Plaintiffs to accept mortgages for which they were not qualified based on inflated property valuations and undisclosed disregard of their own underwriting standards and the sale of overpriced collateralized mortgage pools, all the while knowing that the plan would crash and burn, taking the Plaintiffs down and costing them the equity in their homes and other damages, violates numerous federal and state statutes and common law protections enacted for consumer protection, privacy, trade disclosure, and fair trade and commerce.

In Conclusion…

Attorney Phillip Kramer, in his own words, made it quite clear that his firm was not responsible for the mailer I received or the telemarketing about which I’ve been notified.  Once again, he says…

“I know of no outbound calling.  If asked, I would not approve of that.  I knew that some law firms wanted to send out mailers.  I have insisted that everyone comply with State Bar rules and that anything with my name must be pre-approved.  As of this date, no one has submitted any proposed marketing for my review.  That piece was done without my knowledge.

I am happy to pay a referral fee to other law firms.  I do not split fees, pay commissions, nor do I pay referral fees to non-lawyers.  I do not use cappers, and have never authorized anyone to robocall, telemarket, spam email, or undertake any mass marketing on my behalf.”

So, if you want more information from Kramer and Kaslow about the “mass joinder” lawsuit, there’s only one way to get it… from the source’s mouth at Kramer & Kaslow.  And nowhere else, because no other marketing efforts have been approved, according to Mr. Kramer.

As to the law suit… it’s a real lawsuit… and I’ll be following it closely here on Mandelman Matters, you can count on that.

Mandelman out.

Tax fraud, tax evasion, securities fraud, a fraud on the courts, a Ponzi scheme of Herculean proportion, the unqualified failure of our government’s regulatory and enforcement agencies… the money long gone to bankers in the form of mega-bonuses… and a group of Wall Street bankers confident that Congress will simply white wash over everything (read: socialize the debt) and send the bill to the American people.  It’s a horror picture, no question about that.

HERE’S JOHNNY!

And yet, in terms of a national understanding of what’s happened to ours and in fact the world’s economy, we’ve still got more than 50% of our population blaming homeowners, reciting the ridiculous rhetoric about “irresponsible sub-prime borrowers” buying more house than they could afford.  It’s truly stunning work, banker-people.  Nice job brainwashing millions.  When this is over, could you guys make us all believe in Santa Claus again?  I liked it when I believed in Santa Claus.

So, meanwhile… back at the soon-to-be-foreclosed-on-ranch… after a GMAC/Ally Financial manager testified in a deposition that his job involved signing his name 10,000 times a month to foreclosure related documents without reading what he was signing, as if reading were possible when signing 10,000 of anything a month, on September 20^th, GMAC/Ally announced that it had stopped all evictions and the resale of repossessed homes in 23 states.

On October 1st, Connecticut’s Attorney General Blumenthal put the kibosh on all GMAC/Ally Bank foreclosures in his state, saying, and I’m paraphrasing here, that there is the distinct possibility that something is rotten in Denmark.  Texas’ AG has filed suit too, as has Ohio’s.

Then, before you could say “just sign here,” JPMorgan Chase, noticing all of a sudden the writing on the proverbial wall, announced that they too would suspend 56,000 foreclosures in the same 23 states as they “investigate” the bank’s practices related to forging documents needed to foreclose on homes. Apparently, JPMorgan Chase also has quite a bit of robo-signing going on back at its headquarters as well.

Of course, that’s not really what JPMorgan Chase said.  They said something about investigating because some of its employees might have improperly prepared the necessary documents.  So, they’re just not sure whether someone at JPMorgan Chase has a job that consists of signing their name 10,000 times a month without reading what is being signed.  It might be going on, but they’re not sure whether it is or not… so they need to investigate.

The thing that should be noted is that last June, one of JPMorgan Chase’s “robo-signers” testified to the same sort of thing that the GMAC/Ally manager did recently, but I guess since our housing markets had recovered as of last June and our economy was well on its way back to jobless prosperity, no one cared.  So, now… apparently, just weeks from the mid-terms someone does.

Additionally, in August, the Florida attorney general’s office said that it was investigating three law firms that had allegedly fabricated documents in thousands of cases to obtain final judgments of foreclosure.  No one seemed to upset about that at the time either, but let’s just say better late than never, and leave it at that.

I think the next wingtip to fall was Bank of America’s, and they too announced on October 1^st that they would be suspending foreclosures in the same 23 states presumably so they could take a closer look at their document production department, and determine whether the current Vice President of Forgery should be replaced.  (Okay, so that last part isn’t exactly true, but it is true… shall we say, in spirit.)

Just a week later, BofA broadened out their foreclosure freeze to include all 50 states, which should have signaled to all just how all encompassing this whole thing is, and is likely to become.  Obviously, if BoA thinks it should stop foreclosing in all 50 states, JPMorgan Chase, and the rest should probably do so as well, and no one should be surprised to see the rest of the lemmings coming along over the next week or two.

Why in 23 states?  Because the 23 states are the “judicial foreclosure states,” meaning that in those states you actually have to prove you have the right to foreclose before the courts will allow you to foreclose.  In the remaining 27 states, you don’t have to prove you hold the note to the property, or anything else for that matter, before foreclosing… in fact, you don’t even have to go to court and prove you have ‘standing” in order to foreclose, which is why these states are called “non-judicial foreclosure states.” California, for example, is a non-judicial foreclosure state, meaning foreclosures do not require the prior approval of a court.

So, it would seem that in non-judicial foreclosure states, since you don’t have to prove you hold the note and therefore have the right to foreclose, you don’t have to forge anything that proves that you do, and therefore everything’s fine in those states?

(NOTE TO THE READER: If that last sentence made any sense at all to you, please go back and re-read it.)

And on September 29^th, the Washington Post reported that someone had awoken a top federal bank regulator from his nap, told him about the widespread illegal mishandling of foreclosures and evictions and as a result he had directed seven of the nation’s largest banks to review their foreclosure processes.  In addition to JPMorgan Chase, the list included Bank of America, Citibank, HSBC, PNC Bank, U.S. Bank and Wells Fargo.

And with the midterms only a month or so away, U.S. Representatives Alan Grayson (D-FL), Barney Frank (D- MA) and Corrine Brown (D-FL) sent a letter dated September 24^th, to Fannie Mae questioning the failed GSE’s use of “foreclosure mills,” which the letter described as “law firms representing lenders that specialize in speeding up the foreclose process, often without regard to process, substance or legal propriety.”

On September 30, Grayson even posted a video on YouTube in which he presented examples of travesties resulting from robo-signed documents.  He included a man who was foreclosed on even though he didn’t have a mortgage and had paid cash for his home; a home that had two foreclosure suits against it because two servicers claimed to have ownership of the title; and a couple foreclosed on over a $75 late fee that they were in the process of contesting.

And then, 30 Democrats got together and, with Speaker Pelosi speaking for the group, said that “it was time for the banks to be held accountable for their practices,” or something very close.  And President Obama surprised everyone by pocket vetoing a bill that would have affected notarization and interstate commerce, and that many bloggers were very upset about, but I’m still not clear as to its actual impact.  But, no matter, the bankers wanted it and he vetoed it anyway, so… surprise!

(I should say that I was happy to see the Dems finally asking questions, and ostensibly making demands for action and accountability, although as anyone who has read my columns regularly over this past year knows, I can’t claim to be even the least bit surprised.  I’ve been saying that the mid-term elections would have this sort of effect on politicians specifically as related to the foreclosure crisis for over a year.  I’m not bragging, our politicians are nothing if not predictable.)

Okay… there are a few things I want to make sure we all understand before I get to the heart of the matter.

For one thing, it’s important to recognize that these robo-signers are not low-level bank employees.  According to April Charney, who the press often calls the country’s top foreclosure fighter, the signing is taking place only a handful of floors below the C-Suite offices, and if you think about it, this would have to be the case.

I mean, at JPMorgan Chase you have to have some juice to run a department whose job is to fraudulently prepare important documents needed by the court in order to foreclose on property.  That’s a senior management position if there ever was one, because I’m pretty sure that traditionally speaking anyway, forgeries and fraudulent documents are frowned upon by banks in general, and JPMorgan Chase isn’t likely to be an exception.

I also want to make sure that we all recognize that this is not a case of rogue employees going off the reservation. GMAC/Ally, JPMorgan Chase, Bank of America, and ALL THE REST, regardless of whether they have yet admitted the truth about their practices (read: crimes), knew exactly what they’ve been doing. It’s not an accident, or something that went on without the bank’s knowledge.

They all knew it was wrong. They knew they were breaking all sorts of state and federal laws.  They conspired to defraud the federal government, the courts, the states, the American people, and in fact, the entire world. They carefully planned what they did, and until recently, it appeared that they had executed their plans effectively, and certainly with great aplomb.

But now, thanks to a bunch of dedicated consumer attorneys, many of which are associated with O. Max Gardner III, and April Charney, they’ve been caught… red-handed, as they say… hands in the proverbial cookie jar, mouth and pockets stuffed with cookies, and with crumbs and chocolate all over their faces.

We know these things to be true, right?  We don’t have to wait for the rest of the banksters to come forward… we know it was ALL of them.  Bank of America, GMAC, JPMorgan Chase, and the others that have halted foreclosures in 23 states is more than enough to expose the crimes being perpetrated here, right?  And we certainly don’t have to wait to see if the fraud occurred in the other 27 states, right?

We also don’t need to wait for our judicial system to rule on whether the banksters and servicers were in fact breaking laws… just the fact that they have robo-signers signing 10,000 of anything a month is evidence of criminal wrongdoing on a massive scale, correct?  And the fact that banks are voluntarily freezing foreclosures, now that their robo-signing has made headlines, should make it clear that they know they’re in trouble here.

THE SiGNiNG…

With Apologies to Stanley Kubrick

Take a step back for a moment… there’s a job at banks where someone signs their name thousands of times a day without reading what they’re signing.

Once again… there’s a job at banks in this country, where you sign your name on documents you’re not reading?  We don’t manufacture all that much in this country today, but now we’re the global leader at signature manufacturing?  Where else, or whenever before have you heard of that job existing?  Are the career counselors in America’s high schools now advising our matriculating youth that they should consider a career in signature production?

“Well, Tommy… let’s have a look, shall we… hmmm… let’s see, a ‘D’ in English… not much better in math… didn’t take any science classes… SAT scores… no, no help there.  Well, young man… with your academic record, you’re going to have a very difficult time getting into college next year.  But… hang on… I do see that you’re fairly proficient at signing your own name.  Have you considered going to work as a robo-signer at one of our nation’s major banking institutions?”

Predictably, GMAC/Ally and JPMorgan Chase have basically said that the laws being broken through the use of the robo-signers were mere “technicalities”… insignificant little dalliances, conceived by paper-pushers, and wholly unnecessary in today’s fast paced, high-technology world.  In other words… it’s no no big deal.

But, we know they are being disingenuous when they say those things, because we know they considered the laws they were breaking to be quite serious.  If they hadn’t considered the laws in question serious, they wouldn’t have needed to go to such lengths to get around them, right?  It’s not easy to sign your name 10,000 times a month… it’s hard work… certainly not the sort of thing you’d set up just to get out of the equivalent of a parking ticket.

You don’t have people working near the top of a major financial institution, signing their names thousands of times a month, or employ “document production companies,” as in the cases of the foreclosure mills like David Stern’s law firm, or LPS, DOCX, or any of the other variations on the same theme, in order to get around something trivial.  No, if the banks had considered the issues involved to be akin to not paying a parking ticket, they would have handled it much differently.

Heck, when the banksters didn’t want to account for losses on their financial statements, they simply got Tim “Transparency” Geithner to suspend the FASB regulations they considered most inconvenient.

These same bankers, it’s also worth considering, have never told us where the tens of billions in TARP funds went and they didn’t make up some elaborate excuse for not telling us… they didn’t hire robo-signers to fake documents to make it look like one thing or another… they just said… “No, we’re not going to tell you, because we don’t have to tell you.”  And that was the end of that.

We know these things and more because employees of GMAC/Ally, JPMorgan Chase and others have now been deposed, and admitted under oath that their jobs have been to sign their names to documents used to foreclose on people’s homes.  They said that they skipped out on the notary function entirely, and never read the documents they were signing.

As I understand it, these robo-signers are signing affidavits that state that certain documents needed to foreclose had been “lost, or destroyed”… in every single instance at every single financial institution?  What are we talking about here?  A “mass misplacement”?  The “widespread destruction of critically important paperwork?”  Wow… now that’s quite the coincidence, wouldn’t you agree?  Downright spooky.

No, this robo-signing of the documents was carefully planned and carefully concealed, until it couldn’t be anymore.

If it wasn’t a big deal, why not just have hundreds of “robo-signers”?  Why wouldn’t you break up the signature function so as not to overburden anyone by having them sign their names so many times that carpal tunnel and then some is assured.  At the very least you could divide it among a handful of middle mangers, Lord knows GMAC et al has those a-plenty. How about requiring each of 100 to sign 100 times a month. The only reason not to handle it that way, or something close, is that you didn’t want to risk too many people knowing about it.

After all, it does require some real chutzpah to walk into a courtroom and hand the judge a bunch of phony documents. And if your job, while working at a bank, becomes signing those things thousands of times each month… you know something’s not kosher for sure.

No, there should be no question about it… what’s happening is endemic… ubiquitous… it’s happening everywhere, far and wide.

So, now the question that should be on everyone’s mind is… why?  Why did the banks need to have people signing things thousands of times a month in the first place?  And why should the answer to that question matter to every single American citizen?  Because it most definitely should matter, regardless of whether you’re at risk of foreclosure, because among other things, everyone’s at risk of foreclosure as long as banks are foreclosing on homes using fraudulent documents.

Missing their assignment…

Why are the banksters finding it necessary to fraudulently and flagrantly create documents in order to foreclose on homes?  What’s the problem here?

The answer is as simple as it is universal.  Banks are falsifying documents and having robo-signers sign things because they’re trying to hide the fact that the notes were never assigned to the trusts that are now trying to foreclose on the homes.  The trusts are quite simply empty.  They hold nothing inside them.  Certificates in the trusts that facilitated the sale of mortgage-backed securities to investors all over the world are missing the “mortgage-backed part.”  Now the trusts want to foreclose, but they can’t prove they hold the loans… BECAUSE THE FACT IS… THEY DON’T.

The bankers never assigned the loans to the trusts.  Essentially none of them… ever… assigned the… loans… to… the… trusts.

It’s so rare to find a mortgage’s note legally assigned to its supposed trust, that Max Gardner, or… “O. Max Gardner III,” if you don’t know him, I suppose, who is considered by many to be at the top of any list of the country’s consumer bankruptcy attorneys, and who has also become expert in the issues surrounding the mortgage meltdown and resulting foreclosure and credit crises, has often told the hundreds of attorneys around the country that follow his thinking on the issues and legal remedies, that if anyone ever finds a deal where the note was correctly endorsed to the trust, he or she should bronze it and hang it on their wall.

That’s Max!

A mortgage, in case anyone is unclear, is actually two things: there’s the note, which is the IOU the borrower agrees to repay, and the mortgage or deed of trust, which represents the lien on the property. You have to be what’s termed “the real party of interest in the note” in order to foreclose on the property. In 45 states, the mortgage is considered a mere “accessory” to the note.  The note is where the money is found, the mortgage is where the real estate is described.

And here’s something worth remembering about securitization: It’s not the real estate that is securitized, it’s the cash flows generated as borrowers pay their mortgages each month.  The real estate portion of the securitization transaction is boring, doesn’t result in any income of which to speak, and therefore wasn’t exactly the focus of the banking industry during the housing bubble.

Enter: MERS

During the housing bubble, or credit bubble might be a more accurate phrase, loans were sold faster than money was lost during the meltdown.  On a blog called Truthout, Grayson blamed much of the massive foreclosure problems on the electronic shortcut created by the banksters called MERS.

“The banks simply digitized mortgage titles into a privatized system, called the Mortgage Electronic Registry System (or MERS),” he said. “And it did the transfers by trading Excel spreadsheets among the banks and trusts, rather than endorsing the notes as required by their own contracts, by state real estate law and by IRS rules.” He stated that 60 million properties are recorded in the name of MERS — 60% of the mortgages in the USA, and 97% of the loans made between 2005 and 2008.

According to the New York Times, “The companies say they are reviewing their procedures to take care of any violations.”  But if the recent court decisions regarding MERS and its standing as the foreclosing party hold, it’s a dead end.  MERS makes no secret of the fact that it owns nothing.  It has no assets and no employees.  It was set up that way on purpose… it’s considered “bankruptcy remote,” which is a requirement of the credit rating agencies and securitization process.  Loans must be passed through bankruptcy remote vehicles on the way to the trusts that are supposed to be holding the pools of loans that produce the cash flows that are paid out to the investors.

The courts have been increasingly hostile towards the idea of MERS foreclosing… and it makes sense that MERS not be allowed to foreclose… since MERS never owned the loan, never held the “beneficial interest,” so why should it be allowed to foreclose on something it never owned, or transfer something it never had in the first place.

The blog, foreclosurefraud.com, which is often great, by the way, reported the following:

Even if the foreclosure has long since passed, a loophole in the way mortgages are recorded can create a serious title defect for future owners. Title analysis performed this month by AFX Title has detected this error to be common in random samples of properties it reviewed. “This could affect the property ownership of millions of homes nationwide” said David Pelligrinelli, of AFX Title. “The mortgage recording method which created this title flaw did not exist until recently. As title abstractors are just seeing this problem emerge now but a wave of title claims is coming over the next year or so.”

‘

The problem is created through a break in the chain of mortgage ownership. Until the 1980’s, most mortgages were loans between the homeowner and a bank, who lent the money directly. More recently, the mortgage financing system transformed into an international system of securitization, with mortgage lenders packaging their loans into securities, bought and sold by investors like stocks. These transactions even split individual mortgages into sections, where each loan could have parts owned by different investment banks.

Lest you think this is some small snafu that will soon be corrected, think again.

Last week, one of the nation’s largest title insurance companies, Old Republic National, announced that it won’t be providing title insurance on any of the homes foreclosed on by GMAC, JPMorgan Chase, and one would assume Bank of America will be added to that list.  Fannie Mae sent out a memorandum months ago telling servicers that in order to be reimbursed under HAMP they would have to produce the assignment paperwork showing that the loan in question was assigned to the trust.  And Wells Fargo’s answer is nothing short of surreal, and in my mind, anyway, shows how these people think.

Wells decided that it would create an addendum to its contracts, so that someone buying a Wells foreclosure, would acknowledge that they may not be getting a clear title to the property.  And that the buyer agrees to hold Wells harmless no matter what happens in the future.

It’s a handy-dandy new document that Wells shows up with at the end of the transaction, so obviously they’re very interested in buyers taking the time to read it carefully.  Not only that, but Wells is even offering incentives so buyers of these properties won’t hire their own attorney to review the document and instead use one of the bank’s lawyers.  And isn’t that oh so nice of them.

Naked Capitalism, a blog written by Yves Smith, who is wicked smart and someone I’ve absolutely fallen in love with lately, posted the following about the new Wells Fargo addendum.  (Check out her blog here… I love it when she comes in to comment on a post and says, “Yves here.”  That’s hot.)

“Confirmation that this problem is real and potentially serious comes via a new “gotcha” practice by Wells Fargo on foreclosure sales. Wells is sufficiently concerned about the risks of selling properties out of foreclosure that it is springing an addendum on buyers, shortly before closing, which effectively shifts all risk for any title deficiency on to the buyer.

If a bank like Wells does not have the right to foreclose, it cannot have clean title to the property. So the bank could conceivably be selling something it does not own.  With the Wells Fargo addendum, even if the bank has sold you the equivalent of an empty box, you have no recourse to Wells. Zero. Zip. Nada.

Let’s go back and give a bit of context. Wells is encouraging buyers in foreclosures to use its attorney and title insurers and reportedly offers to split fees. So the bank is taking steps to steer buyers not to get legal advice.

This matters because the problems in this document would not be evident to a layperson. And it’s not even evident to lawyers not expert in real estate; I learned about this situation because a lawyer I know who does a fair bit of real estate work had been contacted by a friend of his, a lawyer looking to buy a house over foreclosure. Wells had presented the prospective buyer with this supposed “standard” addendum on the day of closing and said they would NOT negotiate it.  The buyer was advised not to sign it.

On the surface, this document may not seem all that troubling. But what it does, in effect, is say “Warning, warning, you are buying a property out of foreclosure, there is risk here, and you can’t hold us responsible for anything we told you in the sale process.”

Now the not-trivial problem with that is: how can you possibly evaluate the risk of buying a property out of foreclosure without asking the current owner? And if the current owner isn’t legally responsible for what they say, or more important, what they deny is a problem, they buyer cannot perform effective due diligence.

This vitiates a principle that is well embodied in most areas of consumer and business law, that a seller is liable for the representations he makes about his wares.

But according to AFX Title, the bank may own nothing.

It may have foreclosed without having a clear enforceable right to the property (this is the basis of the burgeoning number of cases where borrowers are successfully challenging the bank/servicer’s right to foreclose, because it cannot prove it actually owns the note, which is the IOU between the borrower and the lender; if you don’t own the note, in 45 states, you have no right to enforce the lien on the property).

Now this little problem can be solved by title insurance, right? Well, guess what, some title insurers have exited the business, some others are starting to write policies with meaningful exceptions when they can’t go to the courthouse and find a clear chain of title. Oh, and Wells is trying to steer you towards their title insurer. What do you think the odds are that their title insurance policy doesn’t have exceptions?

So what is the risk? The lawyer explains:

The typical (unsophisticated) buyer thinks that because they have a lawyer at closing (no matter whose lawyer it is), a title policy, etc…….that they are all safe and sound. They struggle through one of these REO transactions for a month or two, finally get in the house, something bad goes wrong, and they find out that 1) the title policy won’t cover them and 2) the land isn’t unique (see the nasty provision in paragraph 27 on “specific performance”), so a refund is all you get – and you are out on your ear. Hopefully, with a refund – and that may be the best outcome.

But if somebody comes in, and voids a foreclosure, your title policy doesn’t pay – Wells Fargo has clearly disclosed that this was a foreclosure, so you only got what they had (nothing), and you have no recourse, no insurance, and guess what, an unsecured loan for half a million bucks.

Think the risk isn’t real? Then why has Wells bothered to insist that REO buyers sign a new type of addendum, when it has been selling REO for decades? This effort to shift all title risks on to the buyer is a tacit admission of problems. And look at the document itself. The buyer has to initial it in eight places as well as sign it. That’s a clear statement of Wells’ intent to shift the risk to the buyer.

Wait until the masses find out what is going on in the Florida court system and realize thousands of properties a week are hitting the market with title problems. In my opinion, titles in Florida, and probably everywhere else have been destroyed…

Here’s a link to the new Wells Fargo addendum… check it out…

Buyer Beware – Wells Fargo Standard Sellers Form REO Addendum

At this point, Moody’s is reviewing the ratings of GMAC and JPMorgan Chase for possible downgrade, and Treasury is asking regulators to investigate.  If you’re a Wall Street or large commercial banker, none of this is good news.

The courts have said that for the mortgages filed in the name of MERS, the chain of title has been irrevocably broken and it cannot be repaired. Not only have the recent decisions held that MERS cannot foreclose, but the courts have also ruled that it cannot convey title by assignment so as to allow the trustee for the investors to foreclose. MERS breaks the chain of title so that no one has standing to foreclose. In theory, the homes are effectively owned free and clear.

But the homeowners must owe money to someone, right?  Maybe. But the claim would be for equitable relief, meaning the courts would have to decide what is a fair resolution. And MERS won’t be the plaintiff.

MERS registration always involves a securitized loan, so the actual “parties in interest” are a group of investors that may or may not know each other.  Before the homeowners can be ordered by the court to pay, the investors have to come to court and prove that they are in fact the parties owed the money, and how much money they are owed.

The reason for this is that the investors, since they were not a party-in-interest to the promissory note, meaning they weren’t even in the picture when the borrower borrowed the money, and with no way to re-establish the chain of title, are only entitled to a remedy “in equity” as opposed to “in law”.  Now I’m not entirely sure what that means, but one thing it does mean is that they are only entitled to recover their out-of-pocket amounts and no more.

The problem is that in many instances, the credit default swaps held by the investment pool, have already repaid the investors as far as their out-of-pocket goes.  So, they’re not entitled to receive anything further… they’re already paid in full, or will be as a result of the insurance purchased.

Keeping it Simple…

Okay, so now I’m going to over-simplify, because I’m an overly simple type person, and if we don’t simplify, we’ll start to lose our ability to concentrate on this arcane topic, right?  I know… right.

The banks never assigned the notes to the trusts.  April Charney has explained this to me so many times I couldn’t even count them, so I’m going to try to explain it here, and no doubt screw it up to some degree.  So, April… don’t yell at me… here goes.  A securitized loan must be transferred from A to B to C to D.

A company originates the loan and let’s say it was New Century.  They originated the loan, and sold the loan, so they’ve been paid in full, besides the fact that they’ve long since filed for bankruptcy. They were supposed to assign the loan to…

A. The Affiliate – Would have been NC Capital.  An “affiliate” is a company that works with the warehouse lender, which is where New Century gets the money they lend.  So, if Morgan Stanley were the warehouse lender, then the securitized pool of loans in trust might be called: “Morgan Stanley ABS Capital I-Inc. 2006-NC-2”.  The last part indicates that it was the second securitization in 2006 by NC Capital.  The Affiliate was supposed to assign the loan to…

B. The Sponsor – Or, in other words, the warehouse lender who is sponsoring the securitization, is creating the pool of loans and will transfer the loans into the pool, which will be held by the trust.  The sponsor was supposed to assign the loan to…

C. The Depositor – A wholly owned subsidiary of the sponsor.  The depositor was supposed to assign the loan to…

D. The Trust – Ultimately this will become a REMIC trust, which is a type of trust created in 1986 by the Tax Reform Act of that same year.  REMIC stands for Real Estate Mortgage Investment Conduit, and as far as taxes are concerned, they function like a Sub Chapter S corporation, they don’t pay taxes.  The investors in the trust pay the taxes, as the holders of “pass through certificates” that entitle the holder to a slice of the cash flows produced by the pool of loans held in the trust.  Any tax liabilities pass through the trust to the investors.

The REMIC trusts issued and sold different types of certificates to investors.  In one trust was found certificate types: A, M, P, X, and R, with some being issued and others not.  One class of certificate in this instance was the securitization of late fees associated with the loans.  Yes, they were even securitizing the late fees.

The other important thing about REMIC trusts is that they have very strict rules, as do the Pooling & Servicing Agreements that govern the relationships between the investors and the mortgage servicers.  And one key rule is that REMIC trusts don’t allow for late transfers, they only enjoy their tax treatment on the loans in the trust on day one.  You can’t put assets into a REMIC trust “later,” if you do, the transfers are subject to a 100% contribution tax.  (The PSAs also prohibit such late transfers, at least for the most part, as I understand it.)

Missing the Assignment…

But none of that, the A to B to C to D stuff, or lets say very little of it, was done.  And as a result, the loans were never assigned to the trusts.  We know that because that’s what the robo-signers are trying to cover up.

So, the question should be WHY?  Why didn’t the bankers go to the trouble of properly assigning the loans to the trusts?  I have to believe that the Wall Street crowd knew their alphabet, at least to the letter “D,” even if they did have to sign the song in order to remember it.  So, why didn’t they do it right the first time.

There are several opinions about why this wasn’t done; I’ve asked around and heard several theories.  Many say the Wall Street bankers were just too busy selling the loans over and over to trouble themselves with the real estate paperwork, but I can’t buy that.  Not all of the banks would have been too busy and unconcerned about such paperwork at the same time.

A friend and business associate of mine, who spent more than two decades as a US Attorney, suggested that there had to be a benefit, some reason that they didn’t assign the loans to the trusts, and that led me to one place: the “repo agreements”.  Last year, I read the book about what happened at Bear Stearns and the one thing that never resolved itself in my mind were called “repo agreements”.  I never totally got what they were all about, but as soon as I heard “there has to be a benefit,” the repo agreements went DING!

In our lives, “repo” means repossession, but I remembered that at Bear Stearns the term “repo” was being used to mean “repurchase”.  And I remembered that because I hate it when people play games with the English, unless it’s their second language.

So, I remembered reading about how the guys at Bear were leveraging something in order to juice their returns, and they were using these repo agreements to do it.  They worked something like this: Bear would borrow money and pledge assets as collateral in the repo agreements, and the deal was that they’d buy the assets back at a certain date at some fixed or variable interest rate.

I remember thinking… well, that’s pretty much how a pawn shop works, no?  Why don’t they just say that… they pawn their assets?

So, why didn’t the bankers assign the loans to the trusts?  I don’t know… for sure.  But I’m going to go out on a limb here and tell you it’s because they wanted to borrow against them, and once assigned to the trust, they wouldn’t be able to pledge them in a repo agreement and thereby get the cash they needed to invest and juice their returns with borrowed money.  They like to call it leverage, but leveraging assets you really don’t own, in order to borrow money and invest it… well, it doesn’t sound like something that’s strictly legal… although again, I’m not entirely sure.

I’m working on it though, and I plan to be sure soon.  And you’ll be the second to know… right after me.

The Bottom-Line… for Now

What we do know for sure is that the loans were never assigned to the trusts… the trusts are empty, so the trusts cannot foreclose.  Who can?  Perhaps no one can, and perhaps those that have these loans, made between 2003 and 2007, will never be able to get a clear title to their properties.  I’m not sure what they’ll try to do to fix this problem, and neither is anyone else.

April Charney told me: “Our bankers went around the world spreading HIV.  Now we all have full blown AIDS.  You want to know the answer: Buy a lot of coffins.”

She really knows how to turn a phrase, don’t you think?

We also know that the bankers are guilty of breaking so many laws it’s impossible to count them at this point.  There’s tax fraud and securities fraud on a scale never before contemplated.

If the loans weren’t assigned to the REMIC trusts, then someone should have been paying the taxes due, corporate taxes at the highest rate, which is about 35%.  Of course, no one has paid taxes on these loan proceeds as they’ve been inside REMIC trusts… or not.  Yes, that sounds like it’s at least tax fraud… but what do I know?  And selling mortgage-backed securities all over the world that were missing the mortgage-backed part, well… that sure sounds like securities fraud, but who am I to say?

So, who does own the loans?  Not the originator, because they already sold the loan and were paid in full.  Not the trust, because if the loan was never assigned to the REMIC trust, then it’s illegal to transfer it now, and forging documents or signing thousands of affidavits isn’t going to cut it.  And if it’s the investors, well… their remedy is “in equity” and the credit default swap has already provided such equitable relief.  I suppose someone could argue that the bond insurer should own something, but you’d never be able to tie their payments to an individual property, and besides, they were never a party to anything here.

Some people may actually not owe their mortgages, and they may never have a clear title to the property either.  It’s a mess, no question about it.  Wouldn’t it have been easier to modify the loans… write them down to their market value, amend the loans in some way?  One things for sure, the litigation is going to go on for some time.

QUOTE OF THE YEAR:

“Blaming borrowers for this crisis, is like blaming the passengers of a discount airline after the plane crashes and it comes out that it was being flown by a monkey.  Didn’t those people know they should have paid more for their tickets?”

From The Great American Stick Up, by Robert Sheer

As I’ve been saying for almost two years now… it’s not the borrowers that caused this crisis, it’s the bankers.  It’s not a housing meltdown or a mortgage meltdown, it’s our bankers that broke the bond and credit markets, and that’s what caused the free fall in housing prices that has taken millions down with it, while the bankers that caused the crisis have profited beyond all reason.  It’s a travesty and a tragedy that defies imagination.

Greenspan, Summers, Rubin, Grahm, Bair, Leech, Freddie, Fannie, Clinton, Bush, Reagan… along with the Wall Street banksters and their lobbyists, and let’s not forget the complete and utter failure of all of our regulatory agencies… well, the real question is when will the rest of the world come to trust our country’s banking and securities industries and markets… 50 years?  A long time, there’s no question about that.

So, get ready to watch as it unfolds.  It’ll be weekly at this point, and right before the mid-terms is guaranteed to include some desperate politicians trying to prove that they are responsive to their constituents, after essentially ignoring them for the last two years.  My guess is that they started polling and discovered that we don’t like them much… none of us.

But, unfortunately, the pain is far from over… in fact, in many ways, it’s just beginning.

I may not be an expert here, but that’s mostly because I’m not sure there is a true expert here.  Nothing like this has ever happened before.  But I’ll tell you one safe statement to make to bankers even at this early stage in the onion’s unraveling: “Lucy… jou got some ‘splainin’ to do.”

And stay tuned… there’s lots more to come.  Same bat time, same bat channel.

Mandelman out.

On Thursday, June 21, 2010, the House Committee on Oversight and Government Reform held a hearing they called: “Foreclosure Prevention, Part II: Are Loan Servicers Honoring Their Commitments to Help Preserve Homeownership?” The committee was supposed to be investigating the overall effectiveness of the processes put in place by loan servicers as related to the implementation of the administration’s Home Affordable Modification Program (“HAMP”) and any other loan modification programs designed to help homeowners avoid foreclosures.

Here is the list of people the committee brought in to testify:

Mr. Sanjiv Das, Chief Executive Officer, CitiMortgage, Inc.

Ms. Barbara J. Desoer, President, Bank of America Home Loans

Mr. David Friedman, President and CEO, American Home Mortgage Servicing, Inc.

Mr. Michael Heid, Co-President, Wells Fargo Home Mortgage, Wells Fargo & Co.

Mr. David Lowman, Chief Executive Officer, Chase Home Finance, Inc.

Mr. Edward J. Pinto, Consultant

Okay, so if you click that link above, where the type is blue, it will take you to the House Committee’s Website, and you can read everyone’s testimony there, however, because I both know and like my readers very much for the most part, I want to be clear that I don’t recommend it.  I read all of them, and I’m pretty sure I’m going to have gastro-intestinal problems for the rest of the week as a result.  Yeah, I know, you found that funny, but you’re not the one who just washed down a Zantac 150 with a tall glass of straight bourbon.

Want me to cut to the chase, no pun intended?  Go straight to the bottom-line?  Okay, I will.

Everything’s going just fine.  There are no real problems with HAMP or with the servicers who are implementing HAMP.  Oh sure, there have been a few challenges, but most of them have been caused by the borrowers who just can’t seem to do a Gad damn thing right.  Leave it to a borrower to be unable to send in the right paperwork six or seven times, unwilling to wait on hold for 4.5 hours in order to be disconnected, and unable to prove their income with anything but paycheck stubs, financial statements, and tax returns.

Clearly, all you have to do is read the testimony of those very credible bankers and it’s homeowners that are the problem here… they’re the ones that caused this whole economic collapse in the first place, and then when the Obama Administration went out of its way to come up with a program to save these poor saps from foreclosure, wouldn’t you know it… the homeowners screw it all up just like they’ve screwed up everything else in their paltry, unremarkable lives.

Honestly, after reading what the bankers testified to, I don’t know why I even talk to you people… you homeowners.  Losers!  If you guys would stop making a mess of HAMP and just let the banks take control, they could modify your loan and preserve home ownership in this country in no time at all, we can all see that very clearly now.  Why do you homeowners insist on being such an impediment to the President’s program’s success?  You just want Obama to fail, don’t you?  You must all be Republicans.

Just look at a few of the things that Mr. David Lowman, the Chief Executive Officer of Chase Home Finance had to say:

“CHASE has consistently been among the leaders in implementing HAMP and other modification solutions for homeowners.”

Well, that’s certainly true, right?  I don’t think there’s any question about that.  CHASE has definitely been “among the leaders.”  Every time you see the leaders hanging out, look left or right and there’s CHASE.  Got to give it to them there.  Point taken.  Move on.

“CHASE has handled over 18 million inbound calls to our call centers from homeowners seeking foreclosure prevention assistance in 2009 and through May 2010, including 3.8 million calls to our dedicated customer hotline for modification inquiries.”

People, look… that’s a lot of phone calls.  I’d like to see a homeowner handle that many phone calls.  Let’s give credit where credit is… you know, that may not be such a useful expression going forward.  Just thinking out loud over here.

“Mailed over two million letters to invite Chase customers to discuss their situation or help them complete their HAMP documents.”

Oh my Lord… now I did not know this, did you?  They mailed over two million letters to CHASE customers inviting them to come discuss things?  That’s a lot of work all by itself.  Don’t scoff… do you know how many envelopes their employees must have had to lick?  Yuck!

“Hosted and participated in more than 711 homeowner events in 2009 and through May 2010 to educate and inform homeowners about the loan modification process and assist in the completion of required documents.”

For heaven’s sake… how much “hosting and participating” can one bank be expected to do over two years.  I know my wife and I can only handle attending one or two Bar Mitzvahs a year and we’re burned out.  I can only imagine what it’s like to be constantly hosting and participating, hosting and participating.

And why do they do it?  To educate and inform stupid homeowners about the process and how to complete the required documents, and obviously we’ve got some remedial learners owning homes in this country, because they haven’t learned a damn thing, it seems.

“CHASE is committed to keeping families in their homes”

What more do you want… blood?  They’re committed, homeowners.  Committed to keeping your dumb, broke families in their shoddy little homes… that you shouldn’t have been allowed to buy in the first place.  How many favors can JPMorgan CHASE do for you people?

“At CHASE we are working very hard to help families meet their mortgage obligations and keep them in their homes by making their home payments affordable. As a national leader in foreclosure prevention, we have continued to expand upon and improve our programs to keep families in their homes.”

Well, I just don’t know what else Mr. Lowman could say.  Here you have a company working not just hard, but VERY HARD to help families meet their obligations by making their payments affordable.  And you’re complaining?  Don’t you think all you homeowners are being just a tad ungrateful here?

I mean, really… this is the testimony of a very busy man.  He didn’t have to come testify, he could have just said he got fogged in, or whatever.  He’s running a national leader in foreclosure prevention, and he’s busy expanding and improving in order to keep people in their homes.  So, do you think you could stop being so critical, and let him get back to expanding and improving?

“We have made solid progress in offering HAMP trial plans to about 257,000 homeowners and have over 87,000 homeowners in active HAMP trial plans through May 2010. We are now working very hard to convert homeowners to permanent HAMP modifications and have successfully converted about 48,000 homeowners, but – like other servicers – we have faced challenges in getting documentation required from borrowers to complete the modification.”

See, stupid homeowners.  It’s your fault.  I mean, according to CHASE’s published figures, CHASE offered 846,542 loan modifications since the beginning of 2009.  And here we are, only 18 months later, and they’ve made solid progress, with about 48,000 permanent HAMP modifications on the scoreboard.  Hey, when you think about the challenges of dealing with stupid homeowners who can’t spell documentation, that’s pretty darn good, I think.

I mean, it’s not like they’ve only permanently modified like five percent of the total.  That would suck.  Not my CHASE, baby… they’ve modified 5.6% of the total, so the gloating lamp is lit, ladies and gentlemen.  Hey CHASE… you go girl.

“Launched a program for discounted sales and donations of foreclosed properties, through which we have completed over 700 transactions with 182 non profit agencies in 30 states.”

Had you heard about this?  I hadn’t heard about this.  These guys are just overachievers.  On top of having all those homeowners throwing challenges in their way as far as modifying loans goes, CHASE had time to launch a program for discounted sales, and for donations of foreclosed properties?  And they did 700 transactions?

You mean to tell me that there have been 700 people in this country that donated their foreclosed properties to non-profits in 30 states?  They didn’t want to reduce the principal for the people living there?  They’d prefer to take it back and then donate it to a nonprofit?  Wow.  I’m getting all teary eyed over here.  Really makes me proud to be an American.

(Side Note: Someone find me one of these pieces of garbage that refused to write down the loan’s principal for the homeowner, foreclosed, and then gave the house away to some non-profit… and I will fly there and beat the crap out of whoever it is.  Think I’m kidding… go ahead, find me the person who did that and we’ll see who’s kidding.)

“Based on the actual re-performance of permanent modifications completed by Chase, payment reduction appears to be the primary driver of post modification re-performance.”

See, and they’re learning stuff at CHASE too.  They studied it for a couple of years and they’ve come to the conclusion that when it comes to modified loans, payment reduction APPEARS to be “the primary driver of post modification re-performance”.  They can’t be sure, of course, and no one would expect them to be.  But, at this point in the game… it looks like if you lower the payment, damn if those stupid, broke, irresponsible homeowners don’t appear to actually make their payments.  Who would have ever thunk it?  Go figure.

You see… the first year they did modifications, 60% of them made the payments go up, but then… and quite surprisingly, I might add… 60% of those modifications re-defaulted a year later.  For a while it was a real mystery, but then those innovative and inquiring minds at JPMorgan CHASE did some hard ciphering and came up with an idea: let’s lower the payments and see what happens then.  Of course, there was a lot of disagreement in the boardroom, but to their credit they took the chance and by golly… it APPEARS to have worked.

“2MP – CHASE was one of the first major servicers to initiate the Treasury Department’s Second Lien Modification Program (2MP), which we began in May 2010. 2MP is a systematic approach to modifying all second liens where the underlying first lien has been modified under HAMP.”

Well, technically speaking, I don’t believe that any second liens have actually been modified under the 2MP program, but hey… at least CHASE was one of the first major servicers to participate.  That’s something.

“There are many reasons borrowers face affordability issues.  In our experience, the number one reason is a recession-driven decline in income, whether it is a spouse losing a job, fewer hours at work, underemployment, or finding a new job that pays less than the previous one.  Data from the Federal Housing Finance Agency suggest that 75% of mortgage defaults nationwide are caused by issues of affordability: borrowers default when a life event (or cumulative life events) causes them not to be able to pay their mortgage with income and savings.”

See, there’s more of that learning happening again.  75% of mortgage defaults are caused by issues of affordability… so, borrowers default when they can’t pay!  Good for you guys at CHASE!  And the number one reason is “a recession driven decline in income”.  Very good, as well!

And what was it that caused the worst recession in 70 years… the sharpest and deepest downturn in our economy since the Great Depression?  Come on… you can do it… it was the incomprehensibly greedy and entirely unregulated asshats like you guys at JPMorgan CHASE!  Yay!  Very, very good!  It’s the circle of life, Simba.

The only difference is, that when you guys went bankrupt, you bankrupted the entire global financial system and our government was so scared that we couldn’t live without you that you all got bailed out 100 pennies on every dollar.  Even better that that… you got huge bonuses for being the biggest crooks and failures in the history of the world.  And in fact, you guys at CHASE are still feeding at the taxpayer’s teat, aren’t you?  Why yes you are.  I know you are because my nipples are still sore.

Look, I could go on and reprint the testimony of the woman from Bunk of America… she complains a lot about how difficult it was to integrate all those messy Countrywide loans into BofA’s system.  After that, however, she goes on to say pretty much the same unadulterated crap that Davey Lowman said above… so why bother.  You can read it for yourself… just scroll back up and click the link, and then scroll down and you’ll see transcripts of each of their testimonies, and I use that term very loosely.

There was one person testifying at the hearing though, that wasn’t a clone of the others, and his name is Edward J. Pinto.  I’ve actually emailed back and forth with Mr. Pinto, mostly because of his response to my calling him a jackass, or possibly a moron in one of my past articles.  It seems that he didn’t like my calling him whatever I called him, and said that I shouldn’t call him those things because he’d been doing his research into HAMP “pro bono,” which means free, if you went to college, or are visiting from ancient Rome.

I didn’t understand his reasoning at the time, to tell you the truth, unless by “pro bono” he actually meant “okay to be sloppy and ill informed”.  For a couple years, Pinto was the Chief Credit Officer for the now entirely bankrupt, and by that I mean both morally and fiscally, Fannie Mae, where perhaps he also worked “pro bono”.  For the record, I was Pro Bono years ago when I lived out in the Palm Springs area.  But then Sonny died in a skiing accident and so I became Pro Bono’s wife.  And no, I’m not sorry about that… it’s late.

I do have to say that Mr. Pinto, in many ways, redeemed himself in my eyes with his testimony, meaning that it was at least much more honest and wasn’t totally insipid and inane.  Speaking about HAMP he did make the following statements:

“The truth is HAMP has been a spectacular failure when measured against the original goal of helping 3-4 million homeowners avoid foreclosure.”

He also pointed out Treasury’s propensity for “applying a rosy gloss,” by showing that the May HAMP report stated:

“Most homeowners in canceled trials became current on mortgage payments or enter an alternative modification.”

But according to Mr. Pinto, and I’m confident that his numbers are right this time:

“It turns out that of the 194,000 canceled trial modifications with a disposition path, only 19,000 or 9.8% were current. Not quite as reassuring as Treasury’s statement.  It turns out that some 95,000 or about 50% are in “alternative modification”.

Now, will you lookie at that.  I believe what you have right there is the Treasury Department lying its ass off… again.  Yoohoo… Mr. Geithner… why can’t you ever tell the truth about anything?  It makes me sad.  You make me miss our ex-Attorney Generral, Alberto “I-can’t-recall” Gonzales.

Then Pinto does it again, but right at the end he made me spit my coffee all over my desk.  He said:

“The Treasury Department also promised “clear and consistent loan modification guidelines that the entire mortgage industry can use.  There are only two words to describe HAMP’s guidelines: numbing complexity.  At last count HAMP had 800 requirements and servicers are expected to certify compliance.  With ever changing regulations, a constant need to re-evaluate past decisions in light of new regulations, and multiple appeals, it is no wonder that the HAMP pipeline became clogged through no substantial fault of servicers.”

At no fault of whom, Mr. Pinto?  No fault of servicers?  Why did you have to go and say something like that?  I was being nice… was going to be nice to you through the whole article.  And then you have to go running off at the mouth saying it wasn’t the fault of servicers.  Okay dumbass… I want to know how many street level modifications you’ve seen up close.  How many homeowners have you spoken with, and how many hours have you sat on hold waiting for Bank of America to answer the damn phone.  BofA has 44 million credit card holders and they manage to answer those phone calls.

He even cites the GAO as proof that what he was saying was right:

The GAO observed: “Servicers faced challenges implementing HAMP because of the number of changes to the program, some of which have required servicers to readjust their business practices, update their systems, and retrain staff.”

Oh, so what Ed.  The crisis has been going on three years, and we’ve given the banks and servicers a blank check to help them with their many “challenges”.  It was like… when I was reading the Bank of America woman whine about Countrywide integration, I wanted to throw up, or smack her hand with a ruler.  You bought Countrywide for $4 billion, as I remember it, Ms. President, or at least that moron Kenny Lewis did, so deal with it.  Nobody forced you to buy it, although we realize that your bank was pretty easy to talk into anything.  The point is, we’ve got something north of $100 billion into your insolvent bank, so go borrow a trillion at 0% and fix it, whatever it is.

Pinto also blames the failure of HAMP for creating strategic defaults, but even though I’d like to blame just about anything on HAMP, and the Obama Administration’s stupidity and insensitivity in allowing it to go on this long, I don’t know if you can blame HAMP for strategic defaults.  I think strategic defaults are caused purely by homeowners with above average intelligence, actually using their noggins.  They walk away because they should walk away.

And I know, Fannie wants to punish them by not letting them buy another home with a Fannie Mae loan for seven years, but besides the fact that no one cares about threats made by a bankrupt mortgage company that won’t even be around in seven years… in fact I’d be shocked it Fannie was still around next year or the year after at this time.  And who are they going to sue… and how will they prove what happened?  Nope, Fannie is just another barking dog trying to intimidate American homeowners, after being a big part of the problem in the first place.

I’ll tell you one thing their threat did for me… it made me want to strategically default, and since our homes that had appraised for $925,000 in 2005, just had a neighbor short sale sell for $360,000, I very well may just get my chance.  I’m so looking forward to it.  I’m thinking about blogging and Twittering all about it as it unfolds.  What fun, don’t you think Fannie Mae?

Lastly, Herb Allison, the man from Treasury that simply cannot keep his mouth shut, had to weigh in with his “everything is going according to plan” speech.  Yes, it’s Mr. Herb Allison, another past focus of mine.  If you believe anything Herb says, and I’m pretty sure no one does, then HAMP wasn’t supposed to help 3-4 million homeowners avoid foreclosure.  Are you sitting down, because this is going to give you Exedrin Headache #22.

You might remember me writing about Herb Allison’s testimony from March 25, 2010, but click that link and you can relive how distorted a human being’s though process can become.

“At the time we launched HAMP in March 2009, President Obama said that the program would “enable as many as 3 to 4 million homeowners to modify the terms of their mortgages.”

“The President’s statement about ‘enabling’ modifications is the reason that we have continued to report offers of trial modifications – the offer is when a homeowner is able to get a modification, and 1.4 million offers have been extended in the first twelve months.”

“A very similar picture of progress arises from the number of actual trial modifications begun, over 1.1 million in twelve months. Actual trial modifications are the point at which homeowners begin a lower mortgage payment — an average reduction of around $500 per month.”

“In a program scheduled to last nearly four years (March 2009 until the end of 2012), either the 1.1 million or 1.4 million in the first year places the program well on schedule to the goal announced by President Obama.”

“The Administration has never said that the program would implement 3 to 4 million permanent modifications, which take place only after the homeowner has been offered a trial modification, has performed for at least three months in a trial modification, and has met the full documentation requirements for the permanent modification.

One important reason for having permanent modifications in the first place was a recognition that not all trial modifications would become permanent, such as when a borrower does not make the three payments needed to receive a permanent modification.

Herb, Herb, Herb… no you didn’t.  You did not just say that when President Obama said that HAMP would help 3-4 million homeowners by modifying their mortgages, he wasn’t talking about “PERMANENT” modifications, he was talking about trial modifications?  Herb, do you understand that even the “permanent modifications,” offered under HAMP are really only lowered for five years, after which time the interest rates do go up again?  So, even HAMP’s permanent modifications are only temporary, Herb.  And now you’re saying that Obama only meant 3-4 million trial modifications?  You are a jackass, Herb.

When you get home after work does your dog bark at you?  It’s because he doesn’t trust you, Herb.

So, you see everybody… everything’s going just great with HAMP and the whole foreclosure thing.  Stop being such Gloomy Gus’s, or Downer Dan’s… We held a hearing and the bankers said everything is fine… it was even on C-Span.  One crazy guy named Pinto made some points but obviously there’s nothing to worry about.

And there’s no way that 20 million foreclosures, trillions in evaporated equity, near 20% unemployment and a basket of insolvent financial institutions could ever turn into another Great Depression.  We’re fine I tell you… there’s nothing to fix here.  What foreclosure crisis?  I don’t see any foreclosure crisis.  And don’t worry… I’m sure Congress will check with the bankers in a few months if they’re unsure how things are going.

I guess I’m going to have to find something else to write about.  Bummer.

In a related story, I understand that the Gulf of Mexico is actually doing very well also.  Yes, it’s true… people are swimming in it again.  Apparently our guys in Congress asked the oil barons and they said…

The other day, I posted an article about how a deal had been negotiated in Congress that would make available $1 billion in federal bridge loans for homeowners who, due to unemployment or illness, are unable to make their mortgage payments.  You can find it here: New Legislation to Offer $1 Billion Fund for Unemployed

I came out saying I support the idea, basically because my expectations of what my government is capable of have been reduced to essentially nothing.  Everyone knows how much I love sarcasm… or at least have come to love sarcasm writing about the foreclosure crisis… and on this article I think I might have taken my sarcasm to such a level that readers, especially those that read quickly, may have missed it.

Anyway, I say this because I received an email last night from a reader and our conversation back and forth follows.  I thought it would be worth reading it for numerous reasons… but, it’s of course up to you… Mandelman

THE MANDELMAN MATTERS READER WRITES:

How can an unemployed person taking on even more loans, for what is most likely a well-underwater home mortgage situation, be a good thing?  I still believe the only thing that will work to help resolve this gigantic mess is principal forgiveness, not more loans.  Use a tax on banks, hedge funds, Wall Street firms of all types, to help reduce principal.  Start with those of us who had fully documented income when we got our loans, have lost income due to the negligent (and intentional egregious behavior of various banking types), and help us out with reductions.  I’m surprised that you would think this new program is a good idea (unless I’m reading it wrong).

MANDELMAN RESPONDS:

Well, when you look at it from the perspective of coming from a federal government that has not even come close to doing anything that even gets down the runway, let alone launches…

Bush’s Hope-4-Homeowners plan, which had a $320 billion authorized by American Jobs Creation Act of 2008, ended up modifying one loan and spending essentially nothing.

Obama’s HAMP was authorized at $380 billion and more than a year into it, has spent essentially nothing… $200 million.

Obama’s 2MP program, which was launched 14 months ago, has NOT modified one single solitary second mortgage.

Um, what else… I’m sure there’s more, but I’m tired. When you consider that kind of track record, and the fact that federal employees from two administrations, the entire congress and God knows how many others have been working on this for 3 years… Well, it would seem to me that you either leave the country, eat a gun, or start having some pretty diminished expectations as to the potential for competency that exists.

I mean, it’s like if you were listening to a game of one-on-one being broadcast on the radio, and you were rooting for your player, but he never seemed to be able to hold onto the ball, let alone shoot or score, and then you found out that the guy you were rooting for was playing against Kobe, but was actually a 7 year-old autistic dwarf with Down Syndrome… Well then you clap when he manages to bounce the ball and it doesn’t hit his own foot and rolls out of bounds… Right?

So, with that in mind… A billion in loans for people without jobs, while you allow the market to remain in a freefall with millions of foreclosures ongoing, and at this point nothing even on the drawing board that could potentially stop them… After three years and that many working on the problem…

So… YAY! loans for the unemployed!! YAY! Look, honey, he almost bounced the ball that time. Almost! I know, he hit his toe again, and Kobe got the ball, but the last time he just threw it directly out of bounds, while he shit his pants, slipped on the excrement and fractured his femur… So look how much better this time was!!!

So, YAY!!!’ Loans without jobs!!! That’s the way guys!!! GOOD JOB!!! Assuming they actually do end up making any of the loans that is. If I find out that there’s a requirement attached to the program that says that it only applies to unemployed homeowners with 700 FICO scores and above, and that the bill forgot to consider who the loan originator might be and then they forget to either print or distribute the applications… Well, then that will just be more of the status quo and I’ll have to stop cheering.

AND THE READER REPLIES:

No, it’s another useless program. You’re not applauding a handicapped kid; it’s applause for the Emperor-with-No-Clothes. Its not a kid that can’t do any better; it’s another administration who cant push through a difficult but necessary program.  More loans to underwater homes is simply pushing back the day of reckoning by a few months to a couple years. Another misguided program is worse than doing nothing.

AND MANDELMAN RESPONDS:

Well, of course it’s a useless program, in the sense that it is entirely devoid of thought or potential.  As in, more loans targeted for people without the ability to repay them?  That’s the answer?  Well, if they weren’t going to lose their homes, they certainly will now.  But then, maybe that’s the goal right?  (My sarcasm on this point may have gone too far.  Hey, is it okay if I print our interchange if I leave your comments anonymous?  MA

ONE MORE THING FROM MANDELMAN TO THE READER…

Oh, one more thought… I should add that in some ways, I am quite seriously in favor of the program.  Because our government has proven itself so entirely incompetent, people have taken their own lives and perhaps this program will delay even one person from committing suicide.  It probably won’t stop them from doing it, but maybe because of this program, they’ll do it a year later, and at this point… since this is the best case type of accomplishment I’ve come to expect from the government in this country… then good.

It’s the absolute pinnacle of incompetence… something I’d expect in a novel by George Orwell, or Ray Bradbury… a people conditioned to be happy because at least their government managed to delay one suicide by spending a billion dollars… because the other untold billions they’ve spent or tried to spend, accomplished even less.

And there you have it… ain’t life grand?

This morning, Reuters has reported that Bank of America has announced a program that will offer what the bank is calling an “earned principal forgiveness” of up to 30 percent for homeowners owing more than 120 percent of the value of their homes.

Bank of America says the plan will be available to homeowners nationwide beginning in May of this year.  It is certainly the first program of its kind to be announced by such a large financial institution in the sense that it takes a “systematic approach to reducing mortgage principal in an effort to tackle the thorny issue of preventing foreclosures when home values drop well below the amount owed”.

Here’s how the program will work, according to the bank:

• Forgiveness of principal will be offered in two stages for the riskiest loans, including sub-prime loans and loans which offered borrowers multiple options for how much to pay each month. 30-year fixed rate loans will NOT be eligible for the program.
• Bank of America will offer qualified homeowners an interest-free forbearance of principal that the homeowner can turn into forgiven principal annually over five years, provided they stay current on their mortgage payments.  Over the five-year period, homeowner can bring their loan values back down to 100 percent of the home’s market value.

According to Barbara Desoer, who is the president of Bank of America Home Loans, said the following:

“At the same time earned principal forgiveness helps homeowners, it also recognizes and addresses the interests of mortgage investors by ensuring that forgiveness is tied to the homeowner’s performance, reducing the probability of a future default under the modified terms, and adjusting the total amount to be forgiven in light of any gains in property values that might occur in an economic recovery.”

I think what that means in reality is that the bank is finally admitting that property values have fallen, well… for good.  No, not forever… but for a long, long time.  Sure, they’re still allowing for the possibility of home price appreciation in the next five years, but they’re hedging their bets just in case that doesn’t happen.

You see, that’s what the phrase “re-default risk,” when used in conjunction with a loan modification, is all about.  Re-default risk isn’t about a homeowner not being able to pay the modified payment in future years, it’s about the homeowner coming to their senses in future years and walking away from an underwater mortgage.

Of course, it’s worth mentioning that Bank of America’s new principal reduction program has not come as a result of the bank simply seeing the light on its own.  The pressure has been mounting and undoubtedly will continue to increase.  U.S. lawmakers and housing advocates continue to be increasingly vocal about the need for principal write-downs in order to stop the housing carnage on a national scale.

According to Reuters:

“Amid stubbornly high unemployment, homeowners are seen as more likely to simply abandon an unaffordable mortgage when they have no equity or are deep ‘underwater’ on the loan.”

Two days ago, Washington state residents filed a lawsuit against Bank of America for reneging on a promise the mega-bank made to modify mortgages when it took $25 billion in taxpayer bailout money.  According to Reuters, the lawsuit alleges that Bank of America has “seriously strung out, delayed and otherwise hindered” loan modifications because it had financial incentives to do so.

And today, Massachusetts Attorney General Martha Coakley obtained a $3 billion settlement from Countrywide/Bank of America that is to provide loan forgiveness to approximately 45,000 Massachusetts homeowners.  And that, is they say, is only the tip of the iceberg, in terms of pressures being brought to bear on Bank of America in addition to numerous other financial institutions.

Will it work?  Will Bank of America’s best laid plans turn out as planned?

I have no idea, and certainly this is not a bank in which my personal confidence in their competence, shall we say, overflows.  In fact, as a good friend of mine said on his first day at work, after accepting a fairly senior level position with Bank of America this past year… in response to my asking how he liked his new job: “There’s no adult supervision and the left hand doesn’t know what the right hand is doing.”

Reuters closed its story announcing the new Bank of America program with the following:

“A $75 billion Obama administration program aimed at helping struggling homeowners avoid foreclosure was sharply criticized on Tuesday by a watchdog, which said the program has been oversold and is likely to be a failure when it wraps up in 2012.”

Likely to be a failure in 2012?  Ya’ think?  These guys should write for Leno.