Big Shitpile Data Point

/in /by

Last week I noted that Tommy K, Duke Cunningham’s briber, dealt at least $50 million of his fraudulent mortgages to one of the companies buried deepest in the mortgage meltdown shitpile, Washington Mutual. I’m not suggesting that WaMu knew they were buying up Tommy K’s greek shitpile–though I do suspect that the same things that enabled WaMu to create its own corner of the shitpile (like lax oversight) made them an easy mark for a guy like Tommy K.

But the coincidence got me wondering: I wondered whether WaMu had been similarly bilked by others. And who were the other companies getting cheated in mortgage fraud leading up to the explosion of the shitpile?

So I decided to check the other politically-tainted mortgage fraud case, that of Democrat Katheryn Shields in Missouri. The day before she filed to run for Mayor of Kansas City, Shields and her husband got indicted for mortgage fraud by none other than Brad Schlozman, who replaced Todd Graves after he refused to take bogus cases against Democrats. Shields and her husband were recently acquitted of the charges.

As it turns out, it wasn’t WaMu that got stuck with the over-valued mortgage after Shields sold her home. But it was another of the mortgage companies stuck deep in the shitpile: Fieldstone Mortgage, which just filed for bankruptcy.

Mind you, I doubt this means the mortgage companies were in on the fraud. Rather, I suspect that Fieldstone, like WaMu, may have been pushing to over-value mortgages. Which is how you end up getting buried under the shitpile. So, for the moment at least, this data point remains a curiosity.

But it does make you wonder: were federal prosecutors seeing the same mortgage companies get bilked over and over? Because if they were, you’d think they might warn the rest of us about the lax appraisal standards employed by those companies.

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  2. fahrender says:

    “……..were federal prosecutors seeing the same mortgage companies get bilked over and over? Because if they were, you’d think they might warn the rest of us about the lax appraisal standards employed by those companies.”

    they were paying attention the same way that Alan Greesepan was paying attention …….

    and i’ll raise you a Waxman, Loo Hoo.

  6. bmaz says:

    Unless they were going to open either a prosecution or a formal investigation, it would not be particularly appropriate for Federal prosecutors to comment on this. So I dunno.

    • prostratedragon says:

      That makes sense. But I think that bank regulators along the line should have taken notice of this and many, many, many other bad practices long before now, and they are within their rights at least to warn the public what to look out for, even if they shouldn’t name names outside of proof. Tha this didn’t happen, or perhaps that information gathered by lower-level regulators was not followed through at higher levels, is what keeps my pilot lit.

  7. MadisonGuy says:

    The thing about the shitpile is that if they had just left it alone, out there behind the barn, it would still have been nasty and all that, but they didn’t leave it alone. They went and built the foundation of our whole new shiny free-market, deregulated, derivative-based financial system right in the middle of the shitpile. Now that it’s getting cold, it turns out frozen shit doesn’t make for a very stable foundation. The picnic is over, winter is coming and, no, we’re not just talking about the weather.

  8. marksb says:

    I dunno if you-all read the article saw this article yesterday in the LA Times, or if it was mentioned here, but judges in Ohio have been throwing out foreclosures on the basis of the shitpile being so deep no one knows who actually owns the loan. Really.

    A U.S. District Court judge in Cleveland tossed out 14 foreclosure cases Oct. 31 on the grounds that the bank suing to repossess the properties, Deutsche Bank National Trust Co., didn’t actually own them. Deutsche Bank held debt securities that were linked to the mortgage loans on the properties, not the mortgages themselves. And the judge ruled that a security backed by a mortgage is not the same as a mortgage.

    • prostratedragon says:

      Remember in the CIA leak case how Ew and others schooled us in the importance of accurate detail (at the same time that they were running laps around most of the CW press in getting the story right in both the large and the small)? That valuable lesson should be transferred to anything having to do with The Shitpile that gets near a court (at least).

      To make a really, really long story short, the issue in the Ohio case and a couple like it since is not the actual ownership of the loans, but whether the filer of the FC action can prove ownership using the mandated documents with proper date stamps and so forth. The FC actions were not dismissed with prejudice, meaning that the judge will hear them if Deutschbank returns with the correct paper.

      Here’s a much better run-down from Tanta at Calculated Risk, who knows from such matters professionally. If you don’t want to get all weedy right off with someone you hardly know, here’s a choice quote Tanta takes from Judge Boykin’s decision:

      Counsel for the institutions are not without legal argument to support their position, but their arguments fall woefully short of justifying their premature filings, and utterly fail to satisfy their standing and jurisdictional burdens. The institutions seem to adopt the attitude that since they have been doing this for so long, unchallenged, this practice equates with legal compliance. Finally put to the test, their weak legal arguments compel the Court to stop them at the gate.

      The Court will illustrate in simple terms its decision: “Fluidity of the market” — “X” dollars, “contractual arrangements between institutions and counsel” — “X” dollars, “purchasing mortgages in bulk and securitizing” — “X” dollars, “rush to file, slow to record after judgment” — “X” dollars, “the jurisdictional integrity of United States District Court” —“Priceless.”

  10. eyesonthestreet says:

    Here is another are-they-connected: re: “University accuses RIAA of ’spying’ on students
    Oregon attorney general backs UO in its claims that MediaSentry violated students’ privacy in its investigations”

    Now is MediaSentry in anyway connected to the larger story of the telecoms- Mediasentry’s task was to do the actual “internet investigation”- any chance they also helped the telecoms with there mission?

    RIAA: Recording Industry Association of America

    And I found this interesting: ” Meaning MediaSentry may not be able prove that users actually shared the copyrighted data or how the songs were obtained, whether legally or illegally.” Isn’t this the heart of both the telecoms and RIAA- just because your IP address shows activity it is not showing “users” doing anything inapporppriate. Is your IP address YOU?

    • emptywheel says:

      Yup

      I’m just curious how many of them also have been willing victims of mortgage fraud over the last little while.

      Looking at the political cases isn’t the way to figure out–they’re just the ones that get the press.

  13. readerOfTeaLeaves says:

    The prosecutors can’t do anything if there’s no evidence. Who collects that? Presumably, the FBI, b/c this fraud is clearly interstate — and almost certainly international. (One of my real estate agent friends sold several houses in 2006 and 2007 to people outside the USA who had found the properties online; in her case, to American citizens who were being relocated. Who’d have guessed? Classic case of government not keeping up with technology and social shifts. )

    From July 5, 2007:

    FBI lacks resources to fight boom in mortgage fraud
    2,500 agents reassigned to terrorism weren’t replaced

    Mortgage fraud cost banks and consumers at least $1 billion last year, but neither the Bush administration nor the Democratic Congress is giving the FBI the resources it needs to combat the problem, according to an industry group.

    http://seattlepi.nwsource.com/…..age05.html

    Hmmmm… we had ads all over the Internet for online bank apps, and no one thought to fund more fraud investigators for the FBI? Jesus, Mary, Joesph, and all the saints and angels, how dumb was that?

    —————

    marksb, Preview also not working on Safari, but I assume the site is still in beta.

  14. alank says:

    I found a more detailed blog on the same subject by emptywheel. It’s very complex.

    I gather, Coastal Capital was another one:

    Coastal Capital – Mortgage Banker

    2007-02-16

    No mainstream story, but I have received private confirmation of the discussion found here. No word on what fraction of their portfolio was subprime, nor how large their originations or holdings were.

    About the company:

    Coastal Capital is a privately owned mortgage banker that was established in June of 1988. There is a diverse family of companies under the CCAP umbrella such as subservicing, collections and our mortgage banking division. We have over 600 employees and are licensed in 43 states and have grown via referrals only through our network of Account Managers and Brokers.

    Here is some more background info sent to me by an industry source:

    [Coastal] used to be a large East Coast lender, but recently they were only closing around 12 million a month. The owner sold off all his holdings over the last few months. He was indicted earlier this week for his role in the Duke Cunningham scandal. They started going downhill last year when he closed the subprime unit, sold off his collection companies, and his servicing company. At it’s height in 2003 Coastal was closing 75 million a month.

    Here is a story on the ties between coastal and Duke Cunningham:

    A common thread in the Cunningham case is a mortgage company, Coastal Capital Corp.

    Virginia’s Bureau of Financial Institutions lists John T. Michael as the chief executive officer for the Greenville, N.Y.-based company. According to news reports, Michael is the nephew of Kontogiannis’ wife. In an earlier interview, Kontogiannis told the North County Times that his daughter is also a principal in the company. A source close to the investigation has confirmed that Michael is alleged to be co-conspirator No. 4.

    The Washington Post also has the indictment of Coastal’s John Thomas Michael.

    Yes, I think it’s a likely a case of someone getting caught out doing stuff that was fairly common in the housing bubble of Alan Greenspan’s making, in cahoots with the hedge funds that’ve been buying up all manner of things and turning them into empty eggshells. Mind how you go!

  15. masaccio says:

    More for those interested in what lies in the weeds. A mortgage broker sets up a loan. The documents show it as the payee of the mortgage note, and show it as the mortgagee. It assigns the note, which is done either by endorsement on the note itself, or by way of an allonge, a separate document of transfer which has to be physically attached to the note. The mortgage has to be assigned as well. The mortgage follows the note, so that if the note is transferred, it isn’t necessary to record the assignment of the mortgage, as long as one can show that the note is actually the one secured by the mortgage.

    If the mortgagee (the borrower) files bankruptcy, someone has to prove they own the note, and has to prove exactly how much is owed on the note. The process is that some one who thinks they own the note files a proof of claim, and a motion for relief from the automatic stay. In both, they are essentially swearing that they own the note. The Trustee examines the documents submitted with the proof of claim or the motion. You would just laugh (or cry) at how many of them don’t prove anything about ownership. One problem is that the allonge is endorsed in blank. Another is that the note just isn’t there. A third is that the note is endorsed to one person, and another files the proof of claim. There are plenty of others.

    Even where the company eventually proves that they own the note, they are rarely able to provide a complete payment history, which is necessary to prove the amount actually owed. In many cases you can find untrue charges tacked onto the payment history or into the claim.

    Get away from the big shitpile. Remember to look at the assets of your money market fund.