Why Hasn’t Anyone Gone to Jail?

The 50-State Foreclosure Settlement

by MIKE WHITNEY


Under the terms of the 50-state mortgage foreclosure settlement, US taxpayers could end up paying billions in penalties that were supposed to be paid by the banks. That’s the gist of a front-page story which appeared in the Financial Times on Thursday, February 17. The widely-cited article by Shahien Nasiripour notes that the 5 banks that will be affected by the settlement — Bank of America, JPMorgan Chase, Citigroup, Wells Fargo and Ally Financial – will be able to use Obama’s Home Affordability Modification Program (HAMP) to reduce loan balances and “receive cash payments of up to 63 cents on the dollar for every dollar of loan principal forgiven.”

And that’s not all. If borrowers stay current on their payments after their loans are restructured, the banks could qualify for additional government funds which (according to the FT) “could then turn a profit for the banks according to people familiar with the settlement terms.”

How do you like them apples? Leave it to the bank-friendly Obama administration to turn a penalty into a windfall. In effect, the settlement will help the banks avoid losses on mortgages that are vastly overpriced on their books and which were probably headed into foreclosure anyway.

Taxpayers will stump up the money for the principle writedowns that will allow the banks to extract even more tribute from underwater homeowners. What kind of penalty is that?

Here’s how Mark Gongloff sums it up over at Huffington Post:

“Banks will get government cash as an incentive to work down mortgages as part of a settlement that is supposed to punish them for their malpractice. Banks have been getting taxpayer money under loan modification programs like HAMP all along: $615 million in modification incentives so far. Those incentives were tripled on Jan. 28 just days before the mortgage settlement was announced, making the deal appear even sweeter for the banks. 

“You can’t say this settlement has anything to do with deterrence or is punitive in nature if money is flowing into banks from taxpayers as part of the settlement,” said New York University Law professor Neil Barofsky, former special inspector-general of the Troubled Asset Relief Program.” (“Mortgage Foreclosure Settlement: Who Pays?”, Huffington Post)

Of course, no one knows for sure how many perks and “bennies” the banks will eventually nab, because the written copy of the settlement still hasn’t been released. Our guess is that the banks’ will come out smelling like a rose and that the 50 Attorneys General will end up looking like fools for taking their victory lap too soon.

Keep in mind, that the banks are really only on the hook for $5 billion in cash. The rest of the $25 billion settlement will be shrugged off onto investors in mortgage-backed securities (MBS) many of whom are retirees and pensioners. They’re going to get clobbered while the perpetrators of this nationwide crime walk away Scott-free.

It’s also worth reviewing what this case is all about, which is industrial-scale fraud directed at millions of people whose lives have been ruined by the banks. Here’s a clip from an article in Reuters that helps to put it all in perspective:

“A report this week showing rampant foreclosure abuse in San Francisco reflects similar levels of lender fraud and faulty documentation across the United States, say experts and officials who have done studies in other parts of the country. 

The audit of almost 400 foreclosures in San Francisco found that 84 percent of them appeared to be illegal, according to the study released by the California city on Wednesday. 

“The audit in San Francisco is the most detailed and comprehensive that has been done – but it’s likely those numbers are comparable nationally,” Diane Thompson, an attorney at the National Consumer Law Center, told Reuters. 

Across the country from California, Jeff Thingpen, register of deeds in Guildford County, North Carolina, examined 6,100 mortgage documents last year, from loan notes to foreclosure paperwork. 

Of those documents, created between January 2008 and December 2010, 4,500 showed signature irregularities, a telltale sign of the illegal practice of “robosigning” documents.” (“Foreclosure abuse rampant across U.S., experts say”, Reuters)

Repeat: “84 percent of them appeared to be illegal …(and) those numbers are comparable nationally.”
So, why are we talking about “mortgage foreclosure settlements” instead of criminal prosecutions? Why hasn’t anyone gone to jail with evidence this compelling?

Look: The banks have been foreclosing on homes they don’t even legally own. That’s what robosigning is. Would you be willing to accept a measly $2,000 for being tossed out of your home and onto the street by someone who doesn’t even own the mortgage? Of course, not.

9 million homes have been lost to foreclosure since 2007, and there will be another 9 million before we’re done. Homeowners have lost $8 trillion in home equity (in the last 4 years) and 11 million people are currently underwater on their mortgages. All of this is unprecedented. All of this is the result of fraud.

Forget about the mortgage-foreclosure settlement. It means nothing. Someone has to go to jail. That’s what matters.

TARP watchdog says Treasury Department is allowing recipients to judge their own compliance with program rules

by RYAN HOLEYWELL

The Treasury Department is doing a lackluster job ensuring that some TARP recipients are complying with the conditions of their assistance, and instead has relied on the companies themselves to report any impropriety, according to the newest audit from TARP Special Inspector General Neil Barofsky.

The report concerns Treasury's treatment of six companies that received "exceptional" levels of aid through the $700 billion Troubled Asset Relief Program: American International Group, Inc.; Bank of America Corp.; Chrysler Group, LLC; Citigroup, Inc.; General Motors Company; and GMAC, LLC (now Ally Bank). The audit was requested by Sen. Max Baucus (D-Mont.)

As a condition of receiving taxpayer assistance, those companies agreed to additional requirements regarding executive compensation, expense policies and lobbying, and Treasury is charged with ensuring its compliance.

But Treasury's efforts to monitor those companies has been "slow and incomplete," according to the report. "Moreover, (Treasury) relies almost exclusively on participants to identify and report compliance failures according to their own judgment and policies," the report continues.

As part of Treasury's compliance program, the department requests that the companies document the steps they have taken to comply with the TARP rules, then meets with company officials to discuss them. Treasury then reviews the companies' own internal audits before conducting its own independent reviews, if necessary.

Though Treasury has requested the initial documents from all six companies, those requests came 6 to 14 months after those companies received aid, with the exception of AIG.

While it has met with all six companies, it has not reviewed the internal audits of four of them. The AIG and Citigroup audits have been partially reviewed, and Treasury has yet to conduct its own reviews of any of the six companies.

The report also noted that while the companies are required to self-report their material non-compliance with the TARP agreements, Treasury has "left it to the officials at each company to determine whether deviations from policy are material and therefore require disclosure."

Only AIG has self-reported deviations from the agreements, which concerned use of the company's corporate airplane and other issues. Other companies told Barofsky's office that they found deviations from TARP policies but didn't report them because they decided they were immaterial. The report cites Treasury for not providing guidance on which sort of material is serious enough for companies to report, leaving that decision to the judgment of the companies themselves.

"Treasury relies entirely upon TARP recipients themselves (in some cases upon the same managers who presided over companies as they reached the brink of failure) to abide by their various requirements in a diligent and well-judged manner," the report said.

It also noted that Treasury has said it would like to boost its staff by 15 people but has not done so yet.

"In sum, Treasury has not adopted the rigorous approach or developed the professional team necessary for an adequate compliance system to ensure that companies receiving exceptional assistance under TARP adhere to the special restrictions that were imposed to protect taxpayer interests," the report read.

Barofksy called for Treasury to conduct independent compliance checks of the companies. The watchdog also said Treasury should either develop clear guidelines for what type of violations should be reported or require disclosure of all violations.

In his response to Barofsky's findings, Timothy Massad, chief reporting office at Treasury's Office of Financial Stability, said he agrees with "a portion" of the recommendation regarding the need for increased staffing.

However, he wrote, "we strongly disagree with many of the statements and two of your recommendations in this report."

Massad did not elaborate on what specific issues Treasury takes with the report but said a more thorough response from Treasury would be forthcoming.

A Treasury official told BailoiutSleuth that Barofsky's report "fails to reflect the totality of our strong oversight efforts" but also didn't elaborate on why Treasury disagreed with its findings.

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Big Companies Allowed to Monitor Their Own Compliance with Bailout Rules
by Noel Brinkerhoff

Neil Barofsky, the special inspector general for the Trouble Asset Relief Program (TARP), does not think much of the way the Department of the Treasury has stayed on top of financial institutions that were bailed out by the government during the financial crisis.

In exchange for receiving billions of dollars in taxpayer money (categorized as “exceptional assistance”), participants in TARP agreed to comply with certain conditions, such as those involving executive compensation, expense policies and lobbying. But instead of gathering data on these subjects itself, the Treasury Department has relied on the businesses themselves to report any failures to meet TARP rules.

Barofsky’s latest report states: “Treasury relies entirely upon TARP recipients themselves (in some cases upon the same managers who presided over companies as they reached the brink of failure) to abide by their various requirements in a diligent and well-judged manner.”

It adds: “In sum, Treasury has not adopted the rigorous approach or developed the professional team necessary for an adequate compliance system to ensure that companies receiving exceptional assistance under TARP adhere to the special restrictions that were imposed to protect taxpayer interests.”

The report focuses on Treasury’s treatment of six TARP recipients: American International Group (AIG); Bank of America; Chrysler; Citigroup; General Motors; and GMAC (now Ally Bank).