The Freddie Mac/Bank of America Settlement: Billions of Reasons to Actually Investigate the Loans

As Gretchen Morgenson tells it, the headline story from an FHFA Inspector General report on a $1.35B deal Freddie Mac made last year with Bank of America is that the analysis behind the deal was flawed.

Freddie Mac used a flawed analysis when it accepted $1.35 billion from Bank of America to settle claims that the bank misled it about loans purchased during the mortgage boom, according to an oversight report scheduled for release on Tuesday.

The faulty methodology significantly increased the probable losses in Freddie Mac’s portfolio of loans, according to the report, prepared by the inspector general of the Federal Housing Finance Agency, which oversees the company.

It’s not until the 11th paragraph that Morgenson reveals the underlying issue: Freddie Mac  refused to examine whether certain later-defaulting mortgages with unpaid principal amounting to $50 billion–ones originated during the peak of the housing boom–were defaulting because of bank representation and warranties defects before it settled with Bank of America. While it’s unclear how many of the 300,000 loans in this category were Countrywide loans covered in the settlement, of the Countrywide loans Freddie did review, they made buy back requests on 24% of them. So this might represent several billion in problem loans they didn’t make BoA buy back.

Back in March 2010, a senior examiner noted that a bunch of mortgages originated during the 2005-2007 period, when Option ARM and Interest Only mortgages were popular, were defaulting later than traditional mortgages–3-5 years after origination rather than during the first 3 years. He posited that the later default date might be because teaser rates were only beginning to end at that point, meaning that mortgages that had affordable for the first 3 years would become unaffordable after reset, leading to default.

[I]t would be reasonable to assume that many of the borrowers, faced with significantly increasing payments in the near term and very little equity in their home, made the decision to default before their [payments reset to higher levels]. It would also be reasonable to assume that the stated income and stated asset underwriting requirement played a role, but neither assumption can be tested without a review of the loans.

He raised this possibility with his supervisors and later, with Freddie’s senior managers, suggesting they review these later loans to test his theory (they attributed the atypical default pattern to falling house prices). Doing so was important, the senior examiner argued, because at that point Freddie only reviewed loans that had defaulted by the 2-year mark for reps and warranties defects.

In effect, Freddie might be exempting a whole class of the most exotic mortgages from reps and warranties review because they didn’t default until after Freddie’s review process stopped tracking them.

As an FHFA memo made clear, Freddie wasn’t reviewing for defects 93% of the loans originated in 2005-6 that had defaulted in the first half of 2010 (the graphic above shows the portion of loans that weren’t examined).

In response to the senior examiner’s concerns, in June 2010, a Freddie senior manager (someone who would report to Freddie’s CEO) agreed to do a review of these loans. But then, weeks later, a different senior Freddie manager stated he was “vehemently against looking at more loans.” That senior manager offered no justification, though others thought such an examination would make little difference and that doing the investigation might lose Freddie BoA’s business.

The senior examiner kept raising this issue–to at least 12 different FHFA people, including Acting Director Edward DeMarco. And when Freddie’s internal auditors reviewed the proposed settlement with BoA–which effectively settled all outstanding reps and warranties issues pertaining to Countrywide–they raised this sampling issue, too, and recommended Freddie do a sampling to see what might be included in these other loans. Because they were rushing to close the BoA deal, Freddie looked at a non-representative sample of mortgages (these came from all originators, not just Countrywide, which had a much higher defect rate than other banks) and declared everything kosher.

So to review: a senior examiner found $50B worth of defaulted mortgages that Freddie had not examined for reps and warranties and raised a plausible reason they might want to do so. Freddie agreed, then refused, to do so. Then, as Freddie was rushing through this BoA deal last December, Freddie’s auditors suggested they might want to check their math on these loans, so Freddie checked their math on a completely different set of mortgages. In spite of having a 6-month warning that up to $50B worth of loans might be a problem, Freddie signed away any BoA liability for good for the piddling price of $1.35B.

Of course, Tom Miller–with his $7.8B servicing deal with BoA–and Bank of New York Mellon–with their $8.5B investors deal with BoA–are trying to do this again. They’re rushing through settlements without taking the time to actually investigate the loan level data to see what the settlement should actually be. As the FHFA IG noted in its report,

Regardless of the cause of these defaults, the search for representations and warranties defects is the point of the loan review process; and if the search does not begin, then the defects will not be found.

Like Tom Miller and BNYM, Freddie was “vehemently opposed” to actually examine what they were settling with BoA on. And while we don’t know the cost, we might start calculating that amount in the billions.

And in the case of the possible bailout Freddie gave BoA because it refused to look at the loans, US taxpayers paid the bill.

Update: I originally conflated the amount of total loans that Freddie hasn’t been reviewing–$50B–with the amount of Countrywide loans in question. For other banks, Freddie should be able to do the analysis and make buyback requests for these exotic loans.

FHFA Shows TurboTax Timmeh Geithner What a REAL Long Weekend Is

Because after the bomb they just dropped on the finance world, I would imagine Geithner will be busy.

Here’s the listof banks they’re suing:

  1. Ally Financial Inc. f/k/a GMAC, LLC
  2. Bank of America Corporation
  3. Barclays Bank PLC
  4. Citigroup, Inc.
  5. Countrywide Financial Corporation
  6. Credit Suisse Holdings (USA), Inc.
  7. Deutsche Bank AG
  8. First Horizon National Corporation
  9. General Electric Company
  10. Goldman Sachs & Co.
  11. HSBC North America Holdings, Inc.
  12. JPMorgan Chase & Co.
  13. Merrill Lynch & Co. / First Franklin Financial Corp.
  14. Morgan Stanley
  15. Nomura Holding America Inc.
  16. The Royal Bank of Scotland Group PLC
  17. Société Générale

FHFA explains,

These complaints were filed in federal or state court in New York or the federal court in Connecticut. The complaints seek damages and civil penalties under the Securities Act of 1933, similar in content to the complaint FHFA filed against UBS Americas, Inc. on July 27, 2011. In addition, each complaint seeks compensatory damages for negligent misrepresentation. Certain complaints also allege state securities law violations or common law fraud.

Finally, someone calls it fraud.

Update: Just scanned the BoA suit. Their suit is based on $6B of certificates, between Fannie and Freddie. The defaults and foreclosures range from 7.6 to 61.6%, perhaps averaging 30%.

To emphasize what a stinker BoA was, the complaint notes that even Countrywide thought BoA was going after high-risk loans very aggressively (note FHFA sued Countrywide in separate capacity).

BOA was one of the most aggressive competitors in the mortgage origination market. Even the top executives of Countrywide Financial Corp., the notorious mortgage lender singled out by the FCIC for having originated high-risk loans destined to bring “financial and reputational catastrophe,” FCIC Report at xxii, complained to each other at the time that BOA’s appetite for risky products was greater than that of Countywide. In a June 13, 2005 e-mail Countrywide CEO Angelo Mozilo wrote to President and COO David Sambol: “This is the third deal in the last 10 days that BoA has offered that is impossible to beat. In fact the other two were substantially worse than this one. It appears to me that BofA is making an aggressive move into mortgages once again.” [Emphasis in the complaint]

Yet in spite of the fact that they lay this out in detail, they specifically do not make any claim of fraud.

Plaintiff realleges each allegation above as if fully set forth herein, except to the extent that Plaintiff expressly excludes any allegation that could be construed as alleging fraud.

I find that rather curious–are they going easy on BoA because they’re already broke?

Though that can’t be it–they allege fraud throughout the Countrywide complaint.

Update: Here’s an interesting detail. The naming convention used for most of these complaints is FHFA v. [BankName]. But it’s different for five of them. Société Générale is a big long number (including, but not limited to, today’s date). Morgan Stanley and GE (two of the last ones uploaded) have some version of “Final Complaint.” And Countrywide and Ally have that plus a “Filing Copy” in the name.

I’m guessing that suggests additional iterations for those banks.

If Bank of New York Mellon Has So Many Tax Shelters It Doesn’t Pay Taxes, How Is It NY’s “Main Street”?

Update: Kelly just stepped down, citing “differences in approach.”

A number of outlets have carried the report on the number of CEO’s getting paid more than their companies paid in taxes last year, but few have linked to the actual report, which means just the usual suspects, like GE’s Jeff Immelt, are getting the bulk of the focus.

Yet if you look at the appendices (pages 31-33–click the picture to the right to enlarge it), the report not only lists all the companies paying their CEOs more than they pay Uncle Sam, but provide details like the company’s political spending.

Among those listed in the report not getting much attention is Bank of New York Mellon’s CEO Robert Kelly, who got millions while his company got a $670 million tax refund.

Bank of New York Mellon CEO Robert Kelly took home $19.4 million in 2010. The bank, the same year, claimed a $670 million federal tax refund, despite $2.4 billion in U.S. pre-tax income.

Kelly’s compensation has skated above $10 million during each of the past three years of financial crisis. The CEO artfully managed to avoid the salary limits President Obama’s “pay czar” imposed on bailed-out banks by making sure Bank of New York Mellon repaid the taxpayer funds before those restrictions went into effect.27 The bank raised the money to pay back its $3 billion in TARP assistance by taking on uninsured debt, slashing dividends, and issuing new stock.28

The Bank of New York Mellon, with 10 subsidiaries in tax havens, did not pay a dime in federal taxes in 2010. However, the banking giant did devote $1.4 million to lobbying over the year. The bank’s lobbyists worked diligently to exempt currency trading from new transparency and oversight rules.29 In related news, officials from eight U.S. states are conducting inquiries or pursuing litigation against Bank of New York Mellon for ripping off state pension funds by overcharging for currency trades. The Securities and Exchange Commission and Justice Department are also investigating the allegations.

Screwing pension funds on currency trades is not the only anti-social behavior the federal government gave BNYM a refund to engage in. They’re also the trustee on the controversial Bank of America settlement.

That’s relevant because of the terms the settlement’s chief defender, Kathryn Wylde, has used to defend it, particularly in the face of Eric Schneiderman’s lawsuit to stop it.

The lawsuit angered Bank of New York Mellon, and as Mr. Schneiderman was leaving the memorial service last week for Hugh Carey, the former New York governor who died Aug. 7, an attendee said Mr. Schneiderman became embroiled in a contentious conversation with Kathryn S. Wylde, a member of the board of the Federal Reserve Bank of New York who represents the public. Ms. Wylde, who has criticized Mr. Schneiderman for bringing the lawsuit, is also chief executive of the Partnership for New York City.


Characterizing her conversation with Mr. Schneiderman that day as “not unpleasant,” Ms. Wylde said in an interview on Thursday that she had told the attorney general “it is of concern to the industry that instead of trying to facilitate resolving these issues, you seem to be throwing a wrench into it. Wall Street is our Main Street — love ’em or hate ’em. They are important and we have to make sure we are doing everything we can to support them unless they are doing something indefensible.”

Now, as I’ve already pointed out, it’s sort of odd for Wylde to defend Bank of America, a North Carolina corporation, in her role as NYC’s chief booster.

But if BNYM is paying nothing in the US–rather is getting tax refunds–on its $2.5 billion global profit, then presumably it’s a corporate resident of some other place, not New York, not the United States. So maybe, in addition to North Carolina, Wylde has added the Cayman Islands to the list of places whose corporations she defends as her own Main Street?

In any case, Wylde says Schneiderman shouldn’t sue to prevent BNYM’s scam settlement with BoA. Why is she protecting such a giant corporate deadbeat?

Paul Kanjorski: Government Can’t Control Multinationals Anymore

I confess. When I read Zach Carter’s account of his interview with Paul Kanjorski, my first response was to wonder why HuffPo had decided an interview with the former Congressman would make for the (admittedly very fascinating) article that resulted.

Turns out the reason is Bank of America’s woes; as one of the champions of breaking up the banks in Dodd-Frank, this ought to be an “I told you so” moment for Kanjorski, because had we already broken BoA up, it would have forestalled some of the difficulties we’re likely to experience in the near term.

And Kanjorski did address that, intimating that regulators who had left the Administration, like Sheila Bair, had been willing to entertain taking such step, but those who remain (Carter notes that Tim Geithner recently decided to stick around) basically made an agreement with the banks not to use Dodd-Frank’s authority to break them up.

But Kanjorski framed all this within the larger question of whether multinational companies have simply become too big for mere governments to control anymore.

“Because [corporations] have become so international and global in nature, it’s highly questionable whether governments can actually control corporations to a sufficient degree to prevent them from controlling governments,” said Kanjorski,

And he then demonstrated that principle in his discussion of discussions about a tax holiday, which would allow tax cheating corporations to bring money back into the US but only pay cut rate taxes.

“I’m not saying we shouldn’t adjust our tax code otherwise — there are thing we need to do there — but to give them a free ride, what are you encouraging? The next guy who doesn’t like the law will just do the same thing,” Kanjorski said of the proposed tax holiday. “The reality is, why should we be bargaining with super-national corporations who are actually acting against our interest in avoidance of what our law is? We are impotent to get them to respond.”

This takes the argument of Treasure Islands–that corporations are using secrecy havens to avoid taxes–to the level where a former senior legislator of the world’s economic powerhouse admitting to impotence in the face of the corporations because of their size and multinational status.

And he notes something often forgotten in DC: that these are no longer American companies, and their interests do not coincide with our interests.

Of course, that’s not necessarily going to help us, given that Kanjorski’s watching from the private sector as top financial regulators still do act as if these multinationals’ interests coincide with ours.

IA AG Tom Miller: Playing “Survivor” with Homeowners’ Futures

You may have heard that the Obama Administration and IA Attorney General are playing a giant game of Survivor with the homes of struggling Americans as the grand prize: they’ve kicked NY AG Eric Schneiderman off the island.

The New York Attorney General’s office was removed from a group of state attorneys general that is working on a nationwide foreclosure settlement with U.S. banks, according to a state official.

New York Attorney General Eric Schneiderman, who has raised concern about terms of a possible deal, was removed from the executive committee of state attorneys general, according to an e-mail today from Iowa Assistant Attorney General Patrick Madigan.

Only they made a key mistake in their little game of Survivor.

Update: I obviously misread IA Asst AG Patrick Madigan and IL AG Lisa Madigan. Meaning Miller’s the one making this public, not AG Madigan.

Well then I guess he’s just being a dick.

Update: Wow, in the longer version of the Bloomberg story, Miller gets even more dickish:

“New York has actively worked to undermine the very same multistate group that it had spent the previous nine months working very closely with,” Miller said. For a member of the executive committee, that “simply doesn’t make sense, is unprecedented and is unacceptable,” Miller said.

[And I removed my earlier screwup.]

Fed Lending: Bailing Out Banks over People

Bloomberg has a good summary and even better visual database of the various forms of Fed lending that have been revealed over the years since the bailout.

I encourage you to go play around in the database. For example, check out this summary of how the Fed lent Hypo Real Estate Holding AG, a German real estate company, $28.7B to keep the German banking system afloat after HRE’s subsidiary Depfa crashed in Ireland. Germany had already given HRE $206B; the Fed’s lending amounted to $21M for each of HRE’s 1,366 employees. And at its height, just the Fed’s lending represented 15,000% of HRE’s market value. And yet all of this remained a secret for three years after the Fed first started lending to HRE.

With the scope of all that in mind–with a way to visualize the incredibly leveraged house of cards this secret lending held up–now read what I consider to be the most important line in Bloomberg’s summary.

By 2008, the housing market’s collapse forced those companies to take more than six times as much, $669 billion, in emergency loans from the U.S. Federal Reserve. The loans dwarfed the $160 billion in public bailouts the top 10 got from the U.S. Treasury, yet until now the full amounts have remained secret

Fed Chairman Ben S. Bernanke’s unprecedented effort to keep the economy from plunging into depression included lending banks and other companies as much as $1.2 trillion of public money, about the same amount U.S. homeowners currently owe on 6.5 million delinquent and foreclosed mortgages. The largest borrower, Morgan Stanley (MS), got as much as $107.3 billion, while Citigroup took $99.5 billion and Bank of America $91.4 billion, according to a Bloomberg News compilation of data obtained through Freedom of Information Act requests, months of litigation and an act of Congress.

“These are all whopping numbers,” said Robert Litan, a former Justice Department official who in the 1990s served on a commission probing the causes of the savings and loan crisis. “You’re talking about the aristocracy of American finance going down the tubes without the federal money.” [my emphasis]

That is, the money the Fed lent out to these highly leveraged risk takers could have paid off (much less merely guaranteed) the 6.5 million delinquent and foreclosed mortgages that are currently dragging down the American economy.

But instead of offering money to homeowners who would have used it to stay in their homes and sustain their neighborhoods, the Fed instead loaned it to the banks that were leveraged to the hilt.

So here we are worried about the moral hazard of modifying principal on loans that were vastly overvalued. Here we are shredding the rule of law to try to let Bank of America (which borrowed $91.4B) off for its crimes for a mere $20B or so.

And, for the most part, all those corporations that secretly sucked of the Fed’s teat are still in business, gleefully lecturing others about moral hazard.

Register of Deeds Curtis Hertel: “If you or I committed this kind of fraud, we’d go to jail.”

In Lansing today, Ingham County (Lansing Area) Register of Deeds, Curtis Hertel and State Rep Jim Ananich presented a bill to introduce judicial foreclosure in MI.

As part of the press conference, homeowner Bill Donahue described how he almost lost the home he has lived in for 25 years because Fannie Mae, which had not claim to his loan, foreclosed on him as he was being processed for a HAMP modification (which he ultimately got).

Last May, he applied for a HAMP modification. After submitting a second round of paperwork in June, he was told in July he was in underwriting, which might take six months. During that period, Bank of America’s collection people kept harassing Donahue and his wife. By late summer, they received a foreclosure notice from Fannie Mae, which explained it was just a formality since he hadn’t made a payment in so long. BoA told him to ignore it, but it turned out his house was sold in a sheriff’s sale. In December, he got the HAMP modification, which cut their payment in half. Nevertheless, this April, a process server came to his house with a foreclosure notice. When Donahue showed him the document proving he had a mod, the process server congratulated him for being of the 5% or so who actually got mods. The server took copies. But in May, Fannie Mae sent a packet giving him 3 days to contest a foreclosure. Finally, by early June, Fannie dismissed the foreclosure. (I hope to have video from Donahue later.)

In his presentation explaining the importance of replacing MI’s current foreclosure by advertisement with judicial review, Hertel explained,

You can literally walk into my office and tell me you’re committing a crime and there is nothing I can do to stop you except report it. I still have to submit the documents.

Hertel later elaborated on this, revealing among other details that he recently received an FBI subpoena relating to foreclosures.

There were a few people at the press conference (including my own county clerk) who complained about the cost of instituting a judicial foreclosure system. Representative Ananich had the best response to those questions:

Due process isn’t a system that only works when it’s affordable or it’s convenient.

It’s nice to hear that sentiment from a few public figures.

Read more

Bank of America Offers to Pay $8.5 Billion to Stay in Business

DDay and Masaccio and Yves Smith have already covered Bank of America’s offer to pay 2 to 3 cents on the dollar to make good on its securitization misrepresentations. But I wanted to point out one issue of timing.

In her coverage of it, Yves notes the following:

So with all these considerations arguing for fighting a few more rounds, and BofA in the past taking a very aggressive posture on disputing these cases, why would it settle?

The other side has no ability to judge what it might get since it has not gotten access to the loan files (the Clayton reports that everyone makes noise about which found pretty significant violations of representations, did not look at which were significant from a risk of loss perspective. So they may make for great headline, but they aren’t very helpful in this context.

Put it simply: BofA can judge what its risks are VASTLY better than the investors. There are a lot of reasons why it would make sense for BofA not to settle now. Yet it was all over this like a cheap suit. That says it must regard this settlement as a real bargain.

While DDay alluded to this in his post, I wanted to make an explicit reminder. BoA has agreed to this settlement just weeks after Abigail Field did the work the Attorneys General and other regulators should have been doing. And she found that for a sample of NY foreclosures, Countrywide had endorsed none of the notes of Countrywide-generated mortgages.

Last November, a decision in a New Jersey bankruptcy case brought to light the testimony of Linda DeMartini, operational team leader for the litigation management department for Bank of America, which intended to prove the bank had the right to foreclose on a debtor’s mortgage. Instead, her testimony was key to the judge’s ruling that Bank of America (BAC) couldn’t foreclose, and along the way DeMartini made two statements that called into question the securitization of Countrywide loans. She testified that Countrywide didn’t deliver the notes to the securitization trustee, and that Countrywide notes weren’t endorsed except on a case-by-case basis generally long after securitization ostensibly occurred. Both steps are required, in one form or another, under all securitization contracts.


To check DeMartini’s testimony, Fortune examined the foreclosures filed in two New York counties (Westchester and the Bronx) between 2006 and 2010. There were 130 cases where the Bank of New York (BK) was foreclosing on behalf of a Countrywide mortgage-backed security. In 104 of those cases, the loan was originally made by Countrywide; the other 26 were made by other banks and sold to Countrywide for securitization.

None of the 104 Countrywide loans were endorsed by Countrywide – they included only the original borrower’s signature. Two-thirds of the loans made by other banks also lacked bank endorsements. The other third were endorsed either directly on the note or on an allonge, or a rider, accompanying the note.

The lack of Countrywide endorsements, combined with the bank’s representation to the court that these documents are accurate copies of the original notes, calls into question the securitization of these loans, as well as Bank of New York’s right, as trustee, to foreclose on them.

Shortly after Field’s report, NY Attorney General Eric Schneiderman started an investigation of the problem. And, as Field notes in her article,

And if Countrywide’s mortgage securitizations systematically failed as it appears they did, Bank of America’s potential liability dwarfs its shareholder equity, as the Congressional Oversight Panel points out.

In other words, the proof–which we all knew existed–is finally surfacing that Bank of America could and probably should be wiped out by its liability for Countrywide. The dog and pony show calling this a huge settlement no doubt is designed to convince everyone BoA has found a way to put this problem behind it. And remain in business.

So, yeah, $8.5 billion to remain in business is a bargain.

Security Firms Pitching Bank of America on WikiLeaks Response Proposed Targeting Glenn Greenwald

On Saturday, private security firm HBGary Federal bragged to the FT that it had discovered who key members of the hacking group Anonymous are. In response, Anonymous hacked HB Gary Federal and got 44,000 of their emails and made them publicly available.

You believe that you can sell the information you’ve found to the FBI? False. Now, why is this one false? We’ve seen your internal documents, all of them, and do you know what we did? We laughed. Most of the information you’ve “extracted” is publicly available via our IRC networks. The personal details of Anonymous “members” you think you’ve acquired are, quite simply, nonsense.

So why can’t you sell this information to the FBI like you intended? Because we’re going to give it to them for free. Your gloriously fallacious work can be a wonder for all to scour, as will all of your private emails (more than 44,000 beauties for the public to enjoy). Now as you’re probably aware, Anonymous is quite serious when it comes to things like this, and usually we can elaborate gratuitously on our reasoning behind operations, but we will give you a simple explanation, because you seem like primitive people:

You have blindly charged into the Anonymous hive, a hive from which you’ve tried to steal honey. Did you think the bees would not defend it? Well here we are. You’ve angered the hive, and now you are being stung.

As TechHerald reports, among those documents was a presentation, “The Wikileaks Threat,” put together by three data intelligence firms for Bank of America in December. As part of it, they put together what they claimed was a list of important contributors to WikiLeaks. They suggested that Glenn Greenwald’s support was key to WikiLeaks’ ongoing survival.

The proposal starts with an overview of WikiLeaks, including some history and employee statistics. From there it moves into a profile of Julian Assange and an organizational chart. The chart lists several people, including volunteers and actual staff.

One of those listed as a volunteer, columnist, Glenn Greenwald, was singled out by the proposal. Greenwald, previously a constitutional law and civil rights litigator in New York, has been a vocal supporter of Bradley Manning, who is alleged to have given diplomatic cables and other government information to WikiLeaks. He has yet to be charged in the matter.

Greenwald became a household name in December when he reported on the “inhumane conditions” of Bradley Manning’s confinement at the Marine brig in Quantico, Virginia. Since that report, Greenwald has reported on WikiLeaks and Manning several times.

“Glenn was critical in the Amazon to OVH transition,” the proposal says, referencing the hosting switch WikiLeaks was forced to make after political pressure caused Amazon to drop their domain.

As TechHerald notes, an earlier version of the slide said support from people like Glenn needed to be “attacked.”

Now aside from the predictable, but nevertheless rather shocking detail, that these security firms believed the best way to take WikiLeaks out was to push Glenn to stop supporting them, what the fuck are they thinking by claiming that Glenn weighs “professional preservation” against “cause”? Could they be more wrong, painting Glenn as a squeamish careerist whose loud support for WikiLeaks (which dates back far longer than these security firms seem to understand) is secondary to “professional preservation”? Do they know Glenn is a journalist? Do they know he left the stuffy world of law? Have they thought about why he might have done that? Are they familiar at all with who Glenn is? Do they really believe Glenn became a household name–to the extent that he did–just in December?

I hope Bank of America did buy the work of these firms. Aside from the knowledge that the money would be–to the extent that we keep bailing out Bank of America–taxpayer money, I’d be thrilled to think of BoA pissing away its money like that. The plan these firms are pushing is absolutely ignorant rubbish. They apparently know almost nothing about what they’re pitching, and have no ability to do very basic research.

Which is precisely the approach I’d love to see BoA use to combat whatever WikiLeaks has coming its way.

Timmeh Geithner to House of Representatives: Fuck Off And Die

A month ago, Brad Miller and a dozen other Congressmen — including House Financial Services Committee Chair Barney Frank — wrote the Financial Stability Oversight Council to ask that they look into the systemic dangers of foreclosure fraud. The letter requested that three very specific things be included in upcoming stress tests and overall consideration of the systemic threat this represents to the economy:

  1. Examine random collateral loan files to see if they include all required documents, notably the note, the mortgage, and documents recording the assignment of the mortgage
  2. “Examine the servicing of first mortgages by servicers that hold second liens … [as some people contend] there is an indefensible conflict of interest for servicers of securitized first mortgages to hold second liens on the same property”
  3. Consider using the authority of Dodd-Frank to “require that financial companies divest affiliates or other holdings involved in servicing securitized mortgages”

Timmeh Geithner just responded to that letter. His response makes it clear he actually read Miller’s letter — because he references the first item I’ve laid out above, though rather than actually respond to that request, he describes what the FSOC is actually doing instead of examining collateral loan files. His response to the second and third requests is even more insolent; he refuses to even repeat the second one, and rather than consider either one seriously, he just says FSOC will take action “if abuses are found.”

Here is Timmeh’s response to Miller’s request that the Council examine random collateral files:

With regard to your suggestion of examinations of financial institutions by FSOC member agencies, these reviews are currently ongoing as part of a foreclosure task force formed by the Administration in early September.


The main objectives of the task force are to determine the scope of the foreclosure problems, hold banks accountable for fixing these problems, protect the homeowners, and mitigate any long-term effects this misconduct could have on the housing market.

Note that even though Timmeh admits the banksters have engaged in “misconduct,” he makes no mention of holding them legally accountable. Instead, he simply repeats the Administration line that banks will “fix[] these problems.”

But rather than address Miller’s specific request — that investigators look at random collateral files — Timmeh describes how the investigators will examine other things, and then boasts of the (inadequate) number of investigators on the job.

Regulators are conducting onsite investigations to assess each servicer’s foreclosure policies and procedures, organization structure and staffing, vendor management, quality control and audit, loan documentation including custodial management, and foreclosure prevention processes. The task force is also closely reviewing related issues that include loss mitigation, origination put-backs, securitization trusts, and disclosure put-backs.

These examinations are extensive and resource intensive. For example, the Office of Thrift Supervision has approximately 80 examiners on-site at their four servicers, and the Office of the Comptroller of the Currency has 100 examiners at the top eight national bank servicers.

Now granted, some of the things the FSOC is investigating might cover Miller’s request. “Loan documentation including custodial management” might get at the issues Miller specifically requested FSOC examine. But Timmeh makes absolutely no promise that these 20 examiners per non-bank servicer or 8 examiners per bank servicer (Really, Timmeh!?!?! You think 8 people can investigate Bank of America’s morass?!?!) will actually look in detail at the actual loan files, much less a randomly selected collection of loan files.

That’s enough of a non-answer.

But here’s how Timmeh summarizes Miller’s two other requests.

You also suggest that the FSOC consider the potential risk associated with the role of large financial institutions in the servicing of mortgages and to consider requiring these firms to divest of their servicing affiliates.

Note what phrase Timmeh doesn’t utter there?

“Second lien.”

That little matter of the half a trillion dollars in conflicted exposure these banks have, which goes to the heart of the reason this is systemic issue.

In fact, Timmeh doesn’t utter the phrase “second lien” anywhere in his letter. It is, apparently, the elephant in the bank vault that shall not be named, for fear Timmeh would have to acknowledge the magnitude of the problem. Timmeh apparently wants to spin the problem of second liens as nothing more than part of the size of the institutions in question, and not the very real conflict of interest that provides motivation for all the foreclosure fraud Timmeh doesn’t want to criminally prosecute.

And while Timmeh does use the word “divest,” here’s his actual response to Miller’s description of the very real and very avoidable problem of having the banksters service the loans that threaten to expose their insolvency.

As you suggest, the Dodd-Frank Act also provides the FSOC, and its member agencies, with a variety of tools to recommend heightened prudential standards and take other remedial actions when necessary for financial stability. With that in mind, the FSOC and its member agencies will remain critically focused on working with the foreclosure task force, and will use all appropriate authorities available to them if abuses are found.

So while Timmeh can manage to at least utter “divest” (unlike his apparent allergy to “second lien”), when push comes to shove, he won’t admit that FSOC has the ability to force bankster to divest of a part of their business. More importantly, he envisions using the power granted him under Dodd-Frank (and remember, Frank is one of the recipients of this letter) only “if abuses are found.”

Because it would be too much to ask for Timmeh actually take an obvious proactive move to fix one of the problems weighing down our housing market and with it our entire economy. I guess if he did, he might actually have to think about those second liens he’s refusing to acknowledge.