Blind to the bankers’ fraud
Waiting for the Obama administration to take action on foreclosures is futile.
THE UNITED States is facing its gravest housing crisis since the Great Depression.
By at least one measure, today's crisis is worse. Housing prices have now fallen 33 percent from their peak, compared to 31 percent during the depression. Yet despite the almost unprecedented nature of the housing collapse, the Obama administration has remained stunningly passive if not utterly disinterested.
This inaction is criminal given the fact that the largest U.S. banks have used illegal means to file and carry out foreclosures. From illegal notary signatures to filing claims without proof of being the legitimate lending institution, the banks are being allowed to flout the legal process and literally steal people's homes.
This isn't just banter from critics of the Obama administration. It was the finding of an internal review conducted by the Department of Housing and Urban Development (HUD). According to an investigative report by Shahien Nasiripour last May, HUD launched an undercover investigation into the whether the nation's five largest mortgage lenders--Bank of America, JPMorgan Chase, Wells Fargo, Citigroup and Ally Financial--had defrauding taxpayers in their handling of foreclosures on homes with government insured loans.
The HUD investigation found that the banks had cheated the public--and in doing so, had broken the law. Specifically, the banks "filed for federal reimbursement on foreclosed homes that sold for less than the outstanding loan balance using defective and faulty documents," Nasiripour wrote.
Other probes have revealed further wrongdoing by the banks--for example, investigators found that lenders who were pursuing foreclosures improperly handled 49 percent of Federal Housing Administration loans. And in a random review of several thousand foreclosures serviced by the 14 largest mortgage firms, government officials found 50 active-duty military personnel in foreclosure, which is a violation of federal law.
The Bank of America (BoA) has been singled out for particularly nefarious behavior. BoA is the largest holder of mortgages in the U.S. and the prime perpetrator of using fake documentation to illegally foreclose on homes.
Its use of illegal documents became so widespread and obvious that the bank imposed a moratorium on its foreclosures last October. Despite this brief reprieve, BoA quickly restarted its foreclosure mill. The HUD investigation charges that even after the moratorium, BoA continued to use illegal means to foreclose on homes.
HUD turned its findings over to the Justice Department, but to date, the federal government's main law enforcement body hasn't decided to pursue charges. Not only has the Obama administration not taken this opportunity to stand up for homeowners and taxpayers by exposing the banks--it is appears to be preparing to let them completely off the hook.
The HUD investigation suggested the banks could be charged with a Civil War-era law called the False Claims Act, which was passed to stop companies from swindling government funds. The penalties for crimes committed under the False Claims Act allow the government to collect three times the actual damages.
But instead of trying to make the banks pay for their behavior, the White House has teamed up with the Treasury Department, HUD officials and bank supervisors to compel the 50 state attorney generals to negotiate a weak settlement that would end all future legal action against banks for mortgage fraud.
THE TERMS of the settlement proposed by the Obama administration are criminal.
The administration initially proposed a settlement of $20 billion to be paid by the five major banks into a fund to modify loans and helped homeowners who are in trouble. Laughably, the banks countered with an offer of $5 billion.
Both sums are outrageously low considering the amount of money the banks have raked in. Consider that HUD's investigation into fraudulent claims on FHA-insured loans found that BoA alone submitted $5.7 billion in claims, just between October 2008 and September 2010. One report estimated that the banks had already saved at least $20 billion through shortcuts in the foreclosure process.
New York Attorney General Eric Schneiderman has thus far refused to agree to the settlement, rightfully saying that such an agreement will prevent any future legal action against the banks. In response, the Obama administration is turning up the pressure on Schneiderman to cave.
Kathryn Wylde, a member of the board of directors of the New York Federal Reserve, made the priorities of the Fed and the Obama administration crystal clear when she told him--reportedly at a funeral service for former Gov. Hugh Carey, no less:
It is of concern to the industry that instead of trying to facilitate resolving these issues, you seem to be throwing a monkey 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.
Apparently, bilking millions of people out of their homes, selling junk securities, filing billions of dollars in false claims from the federal government and setting off a financial crisis that has spread around the world doesn't rise to the level of "indefensible."
And the investigations of fraud haven't touched the full scope of the banks' behavior. For example, the federal government hasn't looked at these same banks' role in perpetuating the use of predatory sub-prime loans in African American communities throughout the 1990s and well into the new millennium, even though it is widely known that banks routinely singled out African Americans for sub-prime loans.
THE INACTION of the Obama administration on charges of fraud fits with its incompetent response to housing collapse more generally.
The centerpiece of the administration's foreclosure prevention plan is the Home Affordable Modification Program (HAMP). To date, HAMP has only used 4 percent of the funds allocated to it three years ago.
The program's impotence is easy to understand. While it was established to allow homeowners to modify their original mortgage loans, it was left up to the banks to decide who qualifies. But the banks have no incentive to modify any loans. If homeowners can't pay the full amount, the government guarantees that most banks will have their loans fully reimbursed--at the taxpayers' expense.
A recent exposé published by the Detroit Free Press broke the news that the Federal National Mortgage Association--commonly known as Fannie Mae--has, in fact, been pressuring banks to foreclose on homeowners.
Fannie Mae was a private entity, though with federal government sponsorship, before the financial meltdown in 2008--at that point, it was taken over by the federal government for fear that the banks couldn't cover the wave of home mortgage defaults. Fannie Mae owns more than half of all mortgages in the U.S. and two-thirds of all new mortgages.
According to its own rules, Fannie Mae is supposed instruct the banks that service its loans that each homeowner potentially in foreclosure must be considered for loan modification under the HAMP. Instead, internal memos found that a vice president of Fannie Mae made it clear to lenders that between 10 and 12 percent of homes in foreclosure were expected to proceed to sale. Fannie Mae even encouraged banks to foreclose on homeowners who were actually in the process of qualifying for mortgage modifications--violating its own policy.
Valparaiso law professor Alan White explained that Fannie Mae has an interest in dealing with problem loans before it reverts back to private institution:
Fannie just wants to clean up its balance sheet and get these loans off the books while taxpayers are eating these losses...And Treasury and the [Federal Housing Finance Agency] are letting them get away with it. It's a huge waste. Wealth is being destroyed, people are losing houses needlessly, and taxpayers are losing money.
If Fannie Mae can use public tax dollars to pay off bank losses before the federal government ends its takeover, it won't be responsible for the cost. So far, foreclosures have cost the federal government $141 billion, but that number is expected to rise to almost $400 billion before the bottom of the housing crisis is reached.
So why is the administration looking the other way when it comes to the banks' corrupt practices?
Consider the fact that Obama and his advisers have stated they plan to raise $1 billion for the upcoming presidential election. Only a few institutions have the kind of funds that can help Obama get to that figure--Wall Street and the banks are certainly among them.
Obama has spent the last year currying favor with Corporate America in general by refusing to raise corporate taxes, keeping the Bush tax cuts from expiring, and pledging to reduce federal oversight and regulation. The inaction of the administration on the foreclosure crisis fits the pattern.
Yet while the Obama administration refuses to act, there is a growing grassroots movement of anti-eviction and anti-foreclosure organizations that are challenging bank foreclosures--and encouraging homeowners and tenants to stay put. This movement has had high-profile victories in Chicago, New York City and Rochester, N.Y.
Activists have used an assortment of tactics--from challenging the bank's ownership of a particular mortgage, to simply refusing to move and organizing neighborhood blockades that physically prevent evictions from being carried out.
Given the growing number of people affected by foreclosure and eviction, now is the time to organize that movement--because waiting for the Obama administration to do anything to stop the needless suffering of homeowners is futile.