Banks behaving badly

Matt Stoller: “Mortgage Servicers: Getting Away with the Perfect Crime?

The bad behavior is so rampant that banks think nothing of a contractor programming fraud into the software. This is shocking behavior and has led to untold numbers of foreclosures, as well as the theft of huge sums of money from mortgage-backed securities investors.

Here’s how the fraud works: Mortgage loan notes are very clear on the schedule of how payments are to be applied. First, the money goes to interest, then principal, then all other fees. That means that investors get paid first and servicers, who collect late fees for themselves, get paid either when they collect the late fee from the debtor or from the liquidation of the foreclosure. And fees are supposed to be capitalized into the overall mortgage amount. If you are late one month, it isn’t supposed to push you into being late on all subsequent months.

The software, however, prioritizes servicer fees above the contractually required interest and principal to investors. This isn’t a one-off; it’s programmed. It’s the very definition of a conspiracy! Who knows how many people paid late and then were pushed into a spiral of fees that led into a foreclosure? It’s the perfect crime, and many of the victims had paid every single mortgage payment.

Pat Garofolo: “Banks May Have Illegally Foreclosed on 5,000 Members of the Military

For months, major banks have been dealing with the fallout of the “robo-signing” scandal, following reports that the banks were improperly foreclosing on homeowners and, in many instances, falsifying paperwork that they were submitting to courts. Banks have been forced to go back and re-examine foreclosures to ensure that homeowners did not lose their homes unlawfully.

In the latest episode of this mess, the Office of the Comptroller of the Currency has found that banks — including Bank of America, Wells Fargo, and Citigroup — may have improperly foreclosed on up to 5,000 active members of the military. …

Yves Smith: “Federal Judge Refuses to Dismiss Bank Break-In Case Against JP Morgan, Lender Processing Services

One case that got national attention was that of Nancy Jacobini. A company hired by JP Morgan to manage properties broke into her home while she was inside even though the property was not in foreclosure:

And to add insult to injury, the bank broke in a second time, after Jacobini had filed suit in Federal court. The lame excuses made, that she was not paying her utilities and had abandoned the house, were simply untrue. …

JP Morgan had no legal relationship to Jacobini at the time of the break ins. It has filed a robo-signed assignment of mortgage that post-dates the break-in. The practical implication is that random financial institutions are being allowed to barge into people’s properties, and the only recourse they have is a slow, costly adjudication.

Mike Konczal: “The Fed Scrambles to Save Banks, Stalls on Unemployment

If we were to replace the FRB with a group of monkeys armed with darts, one would imagine that they would make at least a few projections above the actual rate of unemployment. It’s funny — the FRB tried to revise how bad unemployment is but doesn’t revise it anywhere near enough to lower it to where the economy actually is.

So to recap: Lehman Brothers goes worse than the Federal Reserve’s projection and the Fed goes to the most extreme lengths it can find to extend emergency lending. Every single unemployment number turns out to be worse than all of the Federal Reserve’s projections, and it finds every excuse to look the other way.

Nick Kristof: “A Banker Speaks, With Regret

One memory particularly troubles [former Chase Home Finance vice president James] Theckston. He says that some account executives earned a commission seven times higher from subprime loans, rather than prime mortgages. So they looked for less savvy borrowers — those with less education, without previous mortgage experience, or without fluent English — and nudged them toward subprime loans.

These less savvy borrowers were disproportionately blacks and Latinos, he said, and they ended up paying a higher rate so that they were more likely to lose their homes. Senior executives seemed aware of this racial mismatch, he recalled, and frantically tried to cover it up.

Bryce Covert: “Dealing With Credit Card Companies Is a 99% Problem

The newly operational Consumer Financial Protection Bureau established a Consumer Response office and a system for addressing consumer complaints [about credit card companies] when it launched in July. … Between then and October, consumers submitted 5,074 credit card complaints, which amounts to over 50 a day.

Only 50 a day? I guess they’re just getting started. …

Robert Johnson on “The bias toward creditors

But the thing that surprises me most right now is why the big banks and bondholders aren’t much more aggressive in favor of fiscal stimulus. I mean things like 10-year infrastructure programs. I understand there are different philosophies of government between the right and the left, but I’m surprised more bankers aren’t saying we need to get people back to work. Austerity is never the endgame. It never works in the long run.

Merrill Knox: “While Reporting on Mortgage Fraud for KLAS, George Knapp Discovers He Was a Victim

KLAS chief investigative reporter George Knapp made a disturbing discovery while reporting on Nevada mortgage fraud for “Desert Underwater,” the station’s series for sweeps: he was a victim of the very mortgage fraud he investigated.

As part of his reporting, Knapp interviewed a foreclosure attorney who told him that many people who purchase homes out of foreclosure have fraudulent paperwork associated with their chain of title.

“I gave her my address, because I bought a home out of foreclosure three years ago this month,” Knapp said in his report. “It took her all of about five minutes to call up the documents and identify the problem in the chain of title. The Attorney General’s office confirmed to me that I don’t own my home because of bogus signatures and improper filings.”

Brad DeLong: “Yes, the U.S. Government Ought to Own the Banks Now

Without the Fed and the Treasury, the shareholders of every single money-center bank and shadow bank in the United States would have gone bust. …

When you contribute equity capital, and when things turn out well, you deserve an equity return. When you don’t take equity — when you accept the risks but give the return to somebody else –y ou aren’t acting as a good agent for your principals, the taxpayers.

Thus I do not understand why officials from the Fed and the Treasury keep telling me that the U.S. couldn’t or shouldn’t have profited immensely from its TARP and other loans to banks. Somebody owns that equity value right now. It’s not the government. But when the chips were down it was the government that bore the risk.

David Cay Johnston: “Closing Wall Street’s casino

Credit default swaps that are just bets on which one party wins and which one loses would vanish if we restored the ancient, time-tested and therefore profoundly conservative rule that government will not enforce the collection of gambling debts.

Making gambling debts unenforceable produced its own problems. For one, it created work for people like the late Harry Coloduros, who sat in my kitchen 25 years ago, bouncing my little Molly on his knee as I made coffee, and told me about gamblers he beat up to make them pay up.

I cannot imagine Goldman Sachs hiring the likes of Harry to collect on bets when the losing party fails to pay up. So, unless taxpayers cover the bets, as they were forced to at 100 cents on the dollar in the AIG wagers, Goldman would likely get out of speculative bets and stick to actual hedging.

And that shows the immense value of restoring the sound policy of making losing bettors suffer their losses without any help from government.

It’s a good idea, although I don’t share Johnston’s confidence that Goldman Sachs wouldn’t “hire the likes of Harry.” Or simply hire Bloomberg’s “army” to act like the likes of Harry.


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  • Jenny Islander

    I remember that!  I didn’t think it was an unfunny comedy–more a drama with a lot of bitter humor-cum-political commentary.  The part where his cousin from Juanbobo de las Boonies is so ignorant that he thinks the answering machine is the voice of a statue of Jesus was over the top IMO, but the rest of it just seems to be a sort of El Norte for people who don’t want to be that depressed.

  • Don Gisselbeck

    Have they tried to deport any Native Americans yet?

  • Probably as a rough guide the projected inflation rate plus a percentage point or so to take care of default risk, late payments, etc.

  • Don Gisselbeck

    That some how needs to be treated as theft. Of course; “steal the coal from along the tracks-go to prison, steal the railroad-get a knighthood.”

  • I don’t have anxiety but I do know what it’s like living with depression. I really hope you get to feeling better soon. 

  • Lori

     Doesn’t mean that it can’t be done, or that someone didn’t change the system from honest to dishonest programming.  

    I remember the changes that has to be made to implement Sarbains Oxley. They rolled out the changes and they weren’t being stupid about it or anything, but the implication was “and now no one can cheat”. I looked at my coworker and we both did the eyebrow thing. After the meeting we compared notes and found that between the two of us, without even trying hard, we had 4 or 5 ways to get around the system in our area alone. And our are was tangential to finance. 

    My point being that yeah, systems are programmed by programmers. They know software, but they don’t know the job for which the software is being used. That virtually always leads to loopholes that can be exploited by someone who does not the job and has an inclination to cheat. 

  • Amaryllis

    In passing…there was a brief article in my local paper (although I believe it was a Reuters piece, not local, sigh) about homeless people sharing the various Occupy camps. And one guy was quoted as saying that he wasn’t entirely sure he agreed with the OWS as a movement, but he liked staying with them because, “When I get back from work, my stuff is still there.”

    And all I could think was, “why does someone who has a job have to be homeless in the first place?”

  • P J Evans

    Even without intent to cheat, the systems can be broken in interesting ways.

    I deal with a GIS system at work. We’re trying to get it to where we can track the source of every piece of information that goes into it. Getting people to understand and do it correctly is… a long, tedious job. (‘2 is not informative. Please put ‘2 x at this location’.)

    I can imagine that programming banking systems is similar.

  • Anonymous

    why does someone who has a job have to be homeless in the first place?

    I hear that, of the thirty-odd beds at the local interfaith men’s shelter, over thirty are consistently filled by men with jobs.

  • Amaryllis

    Something is very, very broken here.

    ETA: I mean, I already knew that having a job is no gaurantee of being able to find an affordable place to live. But it shocks me all over again every time.

  • Anonymous

    Gee, you think?

    Mind, part of the problem is that a job that pays $12 an hour, such as mine, only pays enough to rent the cheapest apartment in the area ($400 a month, not big enough for a second bed in which someone to split the rent with might sleep) if one has zero debt to pay. And who has zero debt to pay? And note please that $12/hr is most of twice minimum wage.

  • Something is very, very broken here.

    ETA: I mean, I already knew
    that having a job is no gaurantee of being able to find an affordable
    place to live. But it shocks me all over again every time.

    Back in the mid 2000s when everybody was praising Alberta as this mega jobs mecca because of all the oil and gas, quite a few people found out that they couldn’t afford to live in a house or an apartment because housing prices began skyrocketing, especially in Calgary.

    The spotlight got turned on that especially when Alberta’s then premier, Ralph Klein, got drunk, showed up at a homeless shelter, called them all useless bums, and threw money at some men there.

    Turned out quite a few of them did indeed have jobs – just couldn’t afford rents pushing $3000 a month in some places of Calgary.

  • Lori

    In the area where I live a person working a full time job that pays $12/hour could afford a pretty nice. The catch is, good luck finding a full time job that pays $12/hour.

  • Lori

    Both your 2nd & 3rd paragraphs had my eyebrows headed for my hairline. Dang.   

  • Anonymous

    The premise was that a native born US citizen — a veteran for that
    matter — of Mexican descent is caught without identification by a
    bigoted law enforcement officer. Since he can’t prove his citizenship,
    he’s deported to Mexico.

    Of course, that was just a joke;

    You know Marin’s inspiration for that movie was something that actually happened, don’t you?

    It was an American-born kid (I think he was in high school) who spoke no English who got deported.  Link to an article referencing, in passing, the original story.

  • Anonymous

    It’s like a mirror-universe Jakov Smirnoff joke: “In capitalist America, bank robs you!”

  • Anonymous

    Except given my mental health history* they aren’t going to let me have the AK, even if I do all the legal stuff necessary.

    Buy one at a gun show, they don’t do background checks.  Of course, you’ll need a special liscense for full auto, but the semi-auto version just has a small interrupter that can be removed easily enough, IIRC.  And if you don’t actually modify it until D-day, it’s not actually illegal!
    Isn’t it wonderful?

    The premise was that a native born US citizen — a veteran for that matter — of Mexican descent is caught without identification by a bigoted law enforcement officer. Since he can’t prove his citizenship, he’s deported to Mexico.
    Of course, that was just a joke; it’s not like the they’ve created a bunch of laws to make it *more* likely.

    I’d think the Mexican government would notice at some point, at the least…