I think my disgust over federal housing policy is just about complete. As you know, we’re still waiting for the actual terms of the foreclosure fraud settlement, more than one month after the announcement. But more information has dribbled out, not much of it to the good. Michael Hiltzikrounded up some of the more troubling issues. He mentions that OCC penalties will get folded into the settlement, basically charging $0 for their violations. The Federal Reserve did the same thing. He mentions the Ted Gayer study showing that only 500,000 borrowers will even be eligible for the principal reduction in the settlement, half of what HUD and other regulators promised. And he adds that the Treasury Department restored all HAMP incentive payments for servicers who failed to meet their obligations under the programs. As Hiltzik writes, “If the banks had shown as much forbearance toward their struggling borrowers as these three agencies have shown toward the banks, the foreclosure settlement wouldn’t have been necessary in the first place.”
But it gets worse. Remember those whistleblower lawsuits announced last week, alleged fraud in how Bank of America abused HAMP? iWatch News expanded on those reports, showing the different strategies BofA used to delay and deny loan modification claims for eligible borrowers:
The suit claims Bank of America:
Told borrowers and regulators that a complaint was “under review” while internally classifying the files as incomplete.
Parked cases with terminated or vacationing employees and sent payments to a “partial account” instead of crediting them to the loan, artificially inducing or prolonging a delinquent status.
Tried to persuade borrowers that did qualify for HAMP to take a proprietary loan that came with much less favorable terms, a violation of the bank’s agreement with the government when it took the bailout money.
And there was another whistleblower case, unsealed last month documenting appraisal fraud at Countrywide, now part of BofA. And there was a third whistleblower case documenting underwriting fraud on FHA loans. These whistleblower lawsuits, along with the investigations we know about on foreclosure fraud and securitization fraud and other servicer abuse, paint a picture of a complete and utter criminal enterprise at Bank of America and elsewhere in the mortgage industry.
Well, guess what. The whistleblower suits were folded into the settlement, which is why they were recently unsealed:
The $25 billion foreclosure settlement released Bank of America from a lawsuit charging the bank with fraud violations under the Home Affordable Modification Program.
Gregory Mackler, a former contractor with the servicing outsourcer Urban Lending Solutions, filed the lawsuit as a whistleblower on behalf of the U.S. in July. BofA contracted with companies like Urban for scanning documentation and working with borrowers seeking assistance through HAMP [...]
A BofA spokesman said the bank received no evidence the allegations in the Mackler suit were true, and it focused on improving borrower experience through HAMP.
“At Bank of America, HAMP is the first of numerous programs we extended to our customers in need of assistance, and it is central to our ongoing efforts to assist our customers who continue to struggle with economic factors, including unemployment and under employment,” the spokesman said.
How could a private citizen’s whistleblower suit get extinguished in a federal settlement? We haven’t seen the terms, of course, but apparently the Mackler suit could have been filed under the False Claims Act on behalf of the US government, which was being defrauded. Mackler probably got a payout for his services, but the suit sought $5,500-$11,000 in fines per violation, which could have ranged into the billions. So when faced with documented proof of noncompliance with and abuse under HAMP, the government simply passed it off and folded it into their settlement, and for good measure gave back all the incentive payments owed to the same banks alleged to have defrauded them in this lawsuit.
That would not have worked differently if Bank of America executives were in charge of the government’s actions. The government could have mandated principal forgiveness under HAMP, armed with proof of abuse as well as the associated foreclosure fraud investigations. And they didn’t do a damn thing. In fact they threw more money at the banks to encourage principal reductions, and will allow them to use those HAMP modifications as part of the settlement.
If there’s anything approaching accountability in the Obama Administration’s actions against the banks, I’m not seeing it. And as for that vaunted task force, co-chaired by Eric Schneiderman, check out this revealing but little-noticed piece of testimony before the Senate Banking Committee. Sen. Sherrod Brown (D-OH) questioned Attorney General Eric Holder about the size of the investigative panel. He cited Phil Angelides’ recent op-ed on the panel, known as the RMBS working group, and how Holder committed only 55 lawyers and investigators to the panel which is about half of the investigative force put just to the Dallas Bank Fraud Task Force during the savings and loan scandal, a much smaller fraud. He asked Holder if the Justice Department needed more funds to hire more investigators for the task force. And Holder said, “No, we’re cool”:
BROWN: And you of course are aware of the public sentiment of — of anxiety, frustration, outrage, pick your noun, towards the fact that so few people have been prosecuted. Talk to me about the working group, the dollars you’re dedicating of the $55 million increase you’re asking for. Is it going to go into the RMBS working group?
HOLDER: The — I will say first off that this whole mortgage fraud problem — scandal that we are dealing with is something we have taken extremely seriously. We brought charges against about 2,100 people last year — over the course of the last few years in connection with the mortgage problem. The number of people who — I guess you mentioned there are 55 federal personnel to vote (ph) to this new the (ph) RMBS task force. That’s the federal component.
But one of the things that I think is unique about that is that we’re working with our state and local partners, and in particular state attorneys general. And so the number of people who are ultimately devoted to that task force will be, I think, substantially greater than that. And I suspect we will also be adding people from various U.S. attorneys offices around the country.
I think we’re looking at four or five that will be intimately involved in this. So I think that number will ultimately go up. We’re going to have adequate resources in terms of the numbers of people to do the job that we need to do with regard to the residential mortgage-backed securities working group.
Brown also asked about extending the statute of limitations on some of these crimes (many statutes are nearing the end right now), and Holder said he’d have to talk to the prosecutors.
In other words, this isn’t a priority for Justice at all. They could give a damn about accountability or deterrence. The Administration wants to hold some press conferences where they can tout relief for a couple individual homeowners, maybe with big novelty checks, while nobody who committed this total disaster that led to millions of foreclosures and millions more unemployed, the ones who broke the US residential housing market and engaged in a mass scheme to cover up their crimes, will in any way feel pain for any of this. That guarantees that we’ll be back here again, maybe in the near future. Because protecting corrupt and criminal banks only invites more corruption and crime.