$6 Billion in Reinsurance Kickbacks to the Banks – Un-reported, Un-Acted Upon & Un-believable

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.

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