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Eric Schneiderman: Foreclosure Settlement “Down Payment”

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Given that we’re talking about some relief for homeowners who are so far underwater that they’ve completely lost the value of the down payment they paid on their homes, I thought NY Attorney General Eric Schneiderman’s use of the phrase “down payment” to be a curious way to describe that he considers this settlement just the first step toward achieving justice.

Down payments don’t have the kind of value they used to have.

Perhaps the most interesting thing Schneiderman said other than that, though, was he thought they’d get some relief from MERS through legal means, and therefore wouldn’t need any legislation about MERS. Does that mean he thinks he can shut down MERS with his suit? Let’s hope so. That would go a long way to fix the problems in our mortgage system.

Other than that, he offered little explanation of my two main questions about this: 1) how he expects to get to the underlying problems with mortgages–the securitization problems–without using the robosigning efforts as a way to work up a chain to a real prosecution and 2) how letting banks off the hook for fraud and forgery doesn’t encourage more of the same?

In his press conference–and at more length in an interview with Greg Sargent–he said we skeptics should believe that Obama (now) takes this seriously because of assurances he gave Schneiderman and the emphasis he gave it at the SOTU.

Asked if progressives should be skeptical of the administration’s assurances, given the lack of accountability so far, Schneiderman insisted that Obama’s private and public assurances have left him convinced he is serious about a real accounting.

“He took ownership of this,” Schneiderman. “Sometimes people on the left have to take yes for an answer. The President is accepting the challenge. It’s time for progressives to say, `okay, he’s moving with us now, he’s using resources of government to aggressively pursue the malefactors of great wealth, as Teddy Roosevelt put it.’”

Perhaps most interestingly, Schneiderman said that the coalition of liberal, progressive and labor organizations that had come together to insist that the current settlement not let the banks off the hook would help force the task force to ultimately succeed.

“This will ultimately depend on the coalition that’s assembled around these principles,” Schneiderman said. “We’ve now got a progressive coalition that … can move public officials to take a more aggressive approach.”

I do have some faith Scheiderman will succeed in doing some real investigation. But when I read this description of Obama’s commitment, I couldn’t help but think of Elizabeth Warren. Sure, she got a CFPB set up. But when it came time to using a recess appointment to put her in charge of it, well, that never happened.

Also, to trust Obama on this? He’s the same guy who promised accountability on illegal wiretapping and changes to FISA Amendments Act.

I still trust Schneiderman will get some investigation here, but I’ve learned from experience that Obama may renege on his promises to progressives for accountability.

Wells Fargo, Freddie, Bank of America, and UBS at DOJ

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As a number of people have noted, Reuters has an important story on a potential conflict of interest at DOJ: Covington and Burling, where Eric Holder and Lanny Breuer worked before coming to DOJ in 2009, wrote key memos leading to the creation and title transfer abuses of MERS.

A particular concern by those pressing for an investigation is Covington’s involvement with Virginia-based MERS Corp, which runs a vast computerized registry of mortgages. Little known before the mortgage crisis hit, MERS, which stands for Mortgage Electronic Registration Systems, has been at the center of complaints about false or erroneous mortgage documents.

Court records show that Covington, in the late 1990s, provided legal opinion letters needed to create MERS on behalf of Fannie Mae, Freddie Mac, Bank of America, JP Morgan Chase and several other large banks. It was meant to speed up registration and transfers of mortgages. By 2010, MERS claimed to own about half of all mortgages in the U.S. — roughly 60 million loans.

But evidence in numerous state and federal court cases around the country has shown that MERS authorized thousands of bank employees to sign their names as MERS officials. The banks allegedly drew up fake mortgage assignments, making it appear falsely that they had standing to file foreclosures, and then had their own employees sign the documents as MERS “vice presidents” or “assistant secretaries.”

Covington in 2004 also wrote a crucial opinion letter commissioned by MERS, providing legal justification for its electronic registry. MERS spokeswoman Karmela Lejarde declined to comment on Covington legal work done for MERS.

In the two years before they joined the Administration, Holder did over $5,000 of legal work for Bank of America and UBS. Breuer did over $5,000 of legal work for Freddie Mac and Wells Fargo.

That of course doesn’t reveal whether they were involved in the key 2004 letter–but it shows they did some kind of work for the most corrupt banks during the financial crash.

But Cynthia Kouril explains why the normal 2-year disclosure rules on this issue aren’t enough.

If DOJ were to bring criminal charges against the big banks for all the mortgage fraud, it would be really tough to do so without attacking MERS and the status of the alleged transfers made within MERS. A conclusive finding that MERS is and always was the dumbest idea on earth and that any L1 law student should have been able to see that, will destroy the law firm.

Even if Holder and Breuer are not planning to return to Covington after their stint in public service, their pensions are presumable tied to the viability of the firm.

That is, whoever signed off on the legal justification for MERS is a shitty lawyer. And for DOJ to go after the banks, a key part of that argument would require arguing that their former firm is a shitty lawyer. They may have big reasons not to want to do that.

Update: Recall that during the fight over Cheney’s interview report, Breuer did not disclose that he had helped Jon Kiriakou avoid testifying about who ordered him to investigate the Joe Wilson trip at the CIA. While temporally, he complied with his ethical guidelines, it was still the kind of thing he should have disclosed.

Two MI Counties File Class Action Suit against MERS and Banks for Being Tax Cheats

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Two MI County Registers of Deeds–Curtis Hertel of Ingham (Lansing’s county) and Nancy Hutchins of Branch–have filed a class action suit against MERS, seeking the taxes the banks should have been paying to counties and the state every time they transfer property, plus penalties.

Plaintiffs are seeking money and punitive damages, tax penalties, costs, and attorney fees in the return of unpaid taxes, interest and penalties to Plaintiffs as class representatives of the 83 counties of the State of Michigan.

In addition to MERS, BoA, Chase, Wells Fargo, and Citi, the suit cites parts of the state’s biggest foreclosure mills, eTITLE, 1st Choice Title, and Attorney’s Title and Fannie Mae. The suit argues that the defendants had a duty to record the real value of property transferred in the state, and by failing to do so, they cheated counties out of the taxes on those property transfers.

Defendants, as grantors, makers, executors, issuers and deliverers of deeds or instruments conveying an interest in real property under MCL 207.507, had a DUTY to declare the true value of the property and full consideration given/received on the face of each and every property transfer documents in Exhibit 2, as well as all those other similar filings made by Defendants; or in the alternative Defendants had a DUTY to attach an affidavit to the deeds and instruments stating the true value of the property. Defendants had these same DUTIES with regard to all those other deeds and instruments filed by them in all 83 counties of the State of Michigan over the last 15 years.

Defendants made, executed, issued and/or delivered for recording with the Registers of Deeds in all 83 counties in Michigan, assignments and other real property transfer documents transferring all or part of an interest in real property without stating the actual and true value of the property on the face of the instrument; and without alternatively attaching an affidavit stating the true value of the property interest being transferred. MCL 207.504/MCL207.525(2).

As a direct consequence of Defendants’ failure to properly make, execute, issue, and/or deliver real property transfer deeds, assignments, and other documents recorded in the 83 counties of the State of Michigan transferring property and security interests, neither County nor State Real Estate Transfer Taxes have been paid on thousands of real property transfers filed by/for Defendants across the counties of the State of Michigan as required by law.

When Hutchins filed a similar suit covering just Branch County–a rural county with a population of 45,000–in August, she estimated the county had lost $100,000 in the last 5-10 years. Even in Ingham County alone, with its population of over 250,000, that number is going to be much higher. Add in the state taxes, and the money will start to add up.

But the principle will be even more important: the banks have been cheating counties and states with this MERS scheme. It’s time they finally paid taxes like the rest of us.

Liveblog: Senate Banking Committee on Foreclosure Fraud

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See Part One of this liveblog here.

Shelby was actually pretty good, but then Johanns and Bennett went to some length to try to pretend the banksters weren’t doing what they were doing.

Johnson: Does the law need to be change?

Levitin: It’s not the law, it’s compliance w/the law. What was governing securitization was private contractual law. Servicers allowed to contract around UCC in Pooling and Servicing Agreements. Generally requirements set forth in PSAs not followed. A good reason for PSAs to be written the way they are: bankruptcy remote. If you don’t have that chain of endorsements, it’s going to be very difficult to prove you’ve got the chain of transfers in BK remoteness.

Levitin: This is a problem with following the law.

Johnson: What were barriers to recognizing doc problems that exist.

IA AG Tom Miller: People coming forward in foreclosure issues.

Johnson: What are the conflicts of interest?

BOA Desoer: “We do not take seconds into consideration” when modifying a first. 2nd Lien not an obstacle, does not get taken into consideration.

Chase Lowman: Second liens do not get in way of modifying first.

Tester: [referring to cases he’s followed in MT] It’s not a pretty picture. [Describes constituent told by BoA not to make any payments] Can you tell me how servicer can ever tell homeowner not to pay a mortgage.

BoA Desoer: That is not what we should be telling homeowners.

Tester: Would you attribute this to employee that screwed up.

BoA Desoer: We will reinforce that aspect of communication to our teammates.

Tester: How can someone receive notice he’s in foreclosure before foreclosure process restarted?

BoA Desoer: [Dodges] The sale will not take place, but that customer will continue to get notices.

Tester: These particular hearings not particularly enjoyable for me. Not an isolated incident. MT is not a state where people come to Senator willy nilly. I don’t know how many people didn’t come to me and they just wound up on the street. It’s clear servicers have been a little bit glib, particularly about risks to their own balance sheets. Quite frankly, there ain’t gonna be more bailouts.

IA AG Miller: We want to work with the banks and the Feds.

Tester: Go to what Levitin said about Countrywide. This can be taken care of by the servicers. Their heads need to roll.

Merkley: GSEs say if foreclosure has begun before mod, servicer continue foreclosure during Mod. Is continued pestering on foreclosure during mod due to parallel processing.

Chase: Foreclosure sale won’t take effect.

Merkley: You don’t take the final step. [Now repeats a story on similar story of parallel processing] Can’t we just change this policy and suspend proceedings while mod going on?

Chase: New process prescribed by HAMP would necessitate that we enter into Mod process and engage prior to commencement of foreclosure.

Read more →

JP Morgan Chase’s Several Week Timeline

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In addition to dropping MERS today, JP Morgan Chase had an earnings call at which Jamie Dimon was asked questions about JPMC’s foreclosure fraud. Calculated Risk has a transcription (both the AP and WSJ attribute these comments to Dimon, though CFO Douglas Braunstein made comments about the foreclosure fraud as well). But I just wanted to note the contradictory stories Dimon is telling about timing.

Analyst: I was wondering if you could give us any sense for timing of resolution in terms of reopening these 115,000 cases?

JPM: It’s going to take several weeks to go through the files and make sure and correct any errors that are in there. The underlying stuff is all accurate. So that’s the key substance. Obviously we know there’s a lot of state AGs and we have conversations with them. We’re hoping [to get back to] the normal process — for us, the sooner the better for everybody involved. We don’t think there are cases with people have been evicted out of homes where they shouldn’t have been. These foreclosures go through multiple process, so we’re hoping it will be sooner rather than later and those conversations are starting to take place.

[snip]

Analyst: And the foreclosure stuff, outside of how it directly may impact you or somebody else, how do you look at the drag it may have on the housing market, kind of the macro impact, what do you think about that?

JPM: Again, I hope — this is a hope. This is not a knowledge. Is that when people take a deep, sigh breath, go back to the right, look to the substance underlying the files and go back to modifying, foreclosing and doing the right thing, all told, it could be a blip. Talking about three or four weeks it will be a blip in the housing market. If it went on for a long period of time it will have a lot of consequences, most of which would be adverse on everybody.

Analyst: The foreclosure suspension, it’s a matter of weeks instead of months, did I hear you say that?

JPM: No. I didn’t say weeks to clean up the files. We actually have to have little in depth conversations with regulators and AGs and stuff like that. So I don’t know exactly when. I’m hopeful that it all starts to move at one point. I don’t know if it’s going to be three weeks or five. But I think it will be a real shame if we don’t get this resolved and moving again.

Analyst: In all likelihood you should be allowed to foreclose as we go into next year.

JPM: I hope so. It’s not up to me. [my emphasis]

First, note the clear reversal. At first, Jamie Dimon says it will take several weeks to “correct any errors” (meaning, to write new affidavits with proper notarizations to replace the ones he admitted to earlier). When asked about the overall impact on the housing market, Dimon gives a classic, “nice economy you’ve got here; it’d be a pity if it died if it takes us longer than three or four weeks to fix ‘our errors.'” But based on that statement, an analyst clarifies that he imagines it will take weeks. To which Dimon response, “I didn’t say weeks to clean up the files.”

But he did.

The real reason for his squirminess–aside from the fact that he all but admits that his company had fabricated affidavits and notarizations, amounting to fraud on courts in multiple states–appears to be the awareness that 50 Attorneys General and some unnamed regulators have him by the balls and will tell him, MOTU Dimon, when he can start foreclosing again. (Nowhere does he admit to doubt that JPMC will be able to foreclose.) He seems to be hoping that if the regulators and prosecutors just look at the “substance underlying the files”–that is, look at the delinquent payments rather than the insufficient paperwork–they’ll green light foreclosures and we can all go on to pretend that the banksters haven’t been engaged in systematic fraud to hide their larger systematic fraud.

But I do find it remarkable that in an earnings call, Dimon all but admitted to fraud, admitted that the Attorneys General will dictate what happens going forward, and yet didn’t lay that out (or the underlying problem of fraud built on fraud) as an earnings risk. It’ll be interesting if JPMC admits the legal jeopardy to the SEC.