Banks behaving badly

“A banker is a fellow who lends you his umbrella when the sun is shining, but wants it back the minute it begins to rain.”
Mark Twain

Reformed Broker: “Inside the Credit Card Robosigning Scandal

Credit card accounts get charged-off when a customer falls several months behind on payment. The issuer then sends the file to a collection unit, either an internal division or a debt collection company that it’s hired. If the issuer still can’t get the customer to pay up then it might sell the file, along with millions of others, to a debt collection agency. In fact it’s common for the file to be sold on from agency to agency, with each buyer hoping that it can finally make the debtor pay, even if it needs the help of a court to do so. Going to court might actually be part of the agency’s strategy. And that’s where robosigning comes in.

As with judicial foreclosures the card issuer or collection agency usually needs to have records showing that a contract existed with the customer, that the customer breached this contract and that the company suffered damages as a result. Furthermore the “preparer of records” must prove that s/he has actual knowledge of the events recorded – and that’s even harder to do with credit cards than with mortgages. I might have the right documents proving I lent you money to buy a house, but what kind of documents would prove that I lent you money to buy movie tickets or to fill up your car? As one lost court case for JPMorgan reads, “credit card statements contain information that is conveyed from multiple entities, from the reporting merchant through various intermediaries” before actually reaching the issuer. How can an issuer, let alone a collection agency once or multiple times removed, prove that its employees have actual knowledge of these events ? Of course they can’t, but why let a little thing like that stand in the way?

Instead the issuer or agency shows up in court and hopes that the debtors don’t so that it can get a default judgment in its favor. (Which happens a lot since they often send correspondence to the wrong address to begin with.) Or as Peter Holland of the University of Maryland Law School describes, they take the smaller balances to small claims court where rules of evidence are more relaxed and where informal proof, like affidavits, are more readily accepted.

And it turns out that a lot of these affidavits are highly suspect.

Main Street: “Why We Need an Investigation: Alissa’s Story

In the spring of 2009, just after the federal program to assist homeowners was established by the Obama Administration, my mortgage company sent me a notice saying that I may qualify for home mortgage remodification. I called my bank, and it took them just ten minutes over the phone before they let me know that I qualified for a modification, and they gave me a lower payment.

After following the modification payment plan, to my surprise I received a foreclosure notice in the mail. The bank informed me that my modified payments did not actually apply to my mortgage. I was then “re-modified” several times, each time at a different amount. I again maintained my payment agreements, yet still continued to receive foreclosure notices. None of the payments that I made went to the balance of my mortgage or the interest that I owed, they were applied to “fees” that the bank added to my account for late and missed payments and my tax escrow account.

After receiving my third foreclosure notice I contacted my State Representative who sent me to Community Action Southwest. They assisted me in dealing with the bank to ensure they followed the remodification guidelines they had been ignoring. I was finally refinanced, with no credit check or financial documents.

I am now stuck with a mortgage that is fifteen years longer than it originally was. The bank took all the modification payments I made and, after applying them to escrow, kept the rest as profit. They decided those months were “missed payments” and added that sum to the original mortgage, increasing it by $25,000. My equity is completely gone and my credit is destroyed.

Daniel Becker: “Bill Moyers interview of Mr. John Reed regarding banking fixing the game

John Reed, former Citi Bank CEO … knows what happened. He knows why it happened. I am certain he knows where the culpability lays. But, as they say in our neck of the woods: He wouldn’t say [σκατά] even if he had a mouthful.

What happened and what these people did was not a benign experience as the word “mistake” implies and as Mr. Reed is using it. It was intentional and wanton action taken on behalf of money.

Gaius Publius: “A Primer on Mortgage Fraud

The mortgage business, as it evolved during the housing bubble, had two ends and a middle. Fraud related to the mortgage market crash occurred at each end.

The two ends are — (1) The consumer end. Home-buyers contracted with banks and mortgage sellers like Countryside for loans. These are debt contracts. (2) The banking end. Banks sold “securities” using bundles of mortgages as the underlying “thing of value” to its largest (and often, most gullible) customers. There’s fraud at both ends.

Michelle Conlin: “Old mortgages rise from the dead, haunt homeowners

Diane Thompson, an attorney with the National Consumer Law Center, says she has defended hundreds of foreclosure cases, and in nearly all of them, the homeowner was not in default. “The record-keeping on the part of the mortgage servicers is not to be trusted.”

The problems grew from a lot of sloppy recordkeeping that began during the housing boom, when Wall Street built a quick-and-dirty back-office operation to process mortgages quickly so lenders could sell as many loans as possible. As the loans were later sold to investors, and then resold around the world, the back office system sidestepped crucial legal procedures.

Now it’s becoming clear just how dysfunctional and, according to several state attorneys general, how fraudulent the whole system was. …

No one collects statistics on wrongful foreclosures, or how many people are facing the phantom mortgage debts. But as the industry enters its fifth year of unwinding its mortgage morass, consumer groups, homeowner attorneys and foreclosure-fraud investigators say they are seeing more cases where people who don’t owe the banks a dime are getting ensnared in the same hell as those who have missed payments.

They add that such problems are likely to intensify. Former industry employees have testified that they knowingly pushed through foreclosures on the wrong people.

See also:

 

  • http://apocalypsereview.wordpress.com/ Invisible Neutrino

    I’m starting to wonder if the chain-of-ownership issue that I’ve referred to a few times is getting so bad that the post-German unification solution or post-Communist generally solution is the best way:

    The place you make your usual residence is, from a specified date, yours, free and clear. No encumbrances attach and no debts exist.

    Done.

    The banks will probably squall like stuck pigs, and people who paid their mortgages back in the 1980s will go HROMPH GLOMPH WHY SHOULD THOSE WHIPPERSNAPPERS GET A FREE RIDE I TELL YOU.

    The deal might be sweetened if the law extended to cancelling all outstanding credit card balances for the same reason of lack of proper documentation by the card companies.

  • http://stealingcommas.blogspot.com/ chris the cynic

    I’m confused.  The financial system consists of various organized entities which engage in many systemic illegal activities.  How is this not racketeering?

  • http://stealingcommas.blogspot.com/ chris the cynic

    Oh, and on this page is an ad for credit monitoring, you know a, “Nice credit score you’ve got there, hope nothing happens to it,” ad.  Again, I ask, how is this not racketeering?

    Is the protection racket ok so long as you call it the monitoring racket?  Of course that’s being charitable.  At least with a protection racket they promise not to do bad things if you pay.  With credit monitoring they say that they’ll do bad things to you either way, but if you pay them they’ll tell you what those bad things are so you can attempt to cope with them.

  • Anonymous

    It is. But they’re too big to fail, and if we look too hard at their illegal activities, they might fail. So we have to just keep our mouths shut and hope, because we can’t assail those in power because they might come down on our homes and… wait a second, I thought we decided feudalism was over a couple centuries ago. What gives, civilization?

    Meanwhile, the queen’s response: http://www.antiguaobserver.com/?p=70747

  • http://www.metagalacticllamas.com/ Triplanetary

    “A banker is a fellow who lends you his umbrella when the sun is shining, but wants it back the minute it begins to rain.”
    – Mark Twain

    I love this quote, although it seems to apply even moreso to 21st century American health insurance companies.

    But as the industry enters its fifth year of unwinding its mortgage
    morass, consumer groups, homeowner attorneys and foreclosure-fraud
    investigators say they are seeing more cases where people who don’t owe
    the banks a dime are getting ensnared in the same hell as those who have
    missed payments.

    When I read things like this, I think of all the conservatives in my life who keep loudly insisting that it’s the foreclosed-upon peoples’ fault in pretty much every case. The people who instinctively take the side of money and power over individual humans just trying to get by, haves over have-nots, employers over employees. And I want to punch them.

    I’m starting to wonder if the chain-of-ownership issue that I’ve
    referred to a few times is getting so bad that the post-German
    unification solution or post-Communist generally solution is the best
    way:

    [etc.]

    I think this is absolutely justified, because per your point in your final paragraph, the banks and credit card companies haven’t been issuing these debts in the proper, legal way. As such, in a sensible world the government would simply declare those debts void. It’s the banks’ goddamn fault, after all. They’d whine and cry, being the entitled asses they are, but if they’d maybe try striking a balance between making a profit and providing genuinely beneficial services, they wouldn’t have this problem.

  • Hawker40

    With all due respect for Mr. Twain, he has it backwards.  A banker is a fellow who’ll hold your umbrella for you when the sun is shining, but won’t give it back when it begins to rain.

  • http://twitter.com/EyeEdinburgh EdinburghEye

    One of the truly infuriating memes in British politics is the line that any problems with the banking industry are strictly due to a few bad apples – formerly-Sir Fred Goodwin has just been stripped of his knighthood – and that the recession has been caused by Labour government spending “too much” on public services and welfare.

    But the very same people being brought in to “rescue” the financial services have careers deeply intertwined with the securitisation that caused the crash – Stephen Hester, appointed the head of the Royal Bank of Scotland in 2008, to be paid £40M over five years, is one of the big players in the field – one of the people who very likely knew there was a crash coming. Hester is as responsible as Fred Goodwin, but he happened to be in a clean seat when the music stopped.

  • http://www.metagalacticllamas.com/ Triplanetary

    That’s the way of things. Let a few prominent people take the fall, then move along and pretend the system itself is basically sound and doesn’t need to be reformed or constrained.

    Meanwhile blame welfare recipients, despite being economically and politically powerless. ‘Cause, y’know, that makes sense. Surely they’re far more capable of tipping the system than the ultra-powerful bankers.

  • Lori

     
     formerly-Sir Fred Goodwin  

     

    I have apparently read too many of Gail Carriger’s books, because my first response to this was, “He’s a ghost?”

    On the serious business of your post, ITA. We’re having a version of this same problem here in the US and it’s pretty much a guarantee that a similar crash will happen again in the future. 

  • Lori

     
    But they’re too big to fail, and if we look too hard at their illegal activities, they might fail. So we have to just keep our mouths shut and hope, because we can’t assail those in power because they might come down on our homes and…   

     

    This is the thing. Everyone knows what the problems are, but no one will do anything about it because they’re afraid that the Master of Universe will pull the whole house down rather than allow their power and profits to be cut even a little. The SEC is working so hard not to sanction any large banks that it’s starting to be positively embarrassing. 

  • Anonymous

    “Racketeering” implies that the government’s not in on it. 
    For our particular situation, we need a different, and preferably uglier, term.

  • http://apocalypsereview.wordpress.com/ Invisible Neutrino

    Well, in the case of governments actively helping in downing on people who don’t have that much we can always use Mussolini’s word: corporatism.

  • Anonymous

    How is this not racketeering?

    It’s not racketeering because they haven’t been charged with racketeering; sorta like Bush and Obama’s war crimes aren’t war crimes because they haven’t been charged with war crimes. In any case, it always helps to be able to write the laws and regulations in such a way that your business practices remain legal while your competition’s don’t. That’s the genius of regulatory capture.

  • Anonymous

    But they’re too big to fail, and if we look too hard at their illegal activities, they might fail. 

    The irony here is that the exact same thing can be said for organized crime families. Whenever the feds take down the leaders of a gang — not the street leaders, but the guys calling the shots from the top of pyramid (and usually from behind bars) — all they do is disrupt the organization, but not the crime; in fact, the crime usually gets worse as without leadership, formerly united gangs disintegrate in violets cliques competing for turf and avenging their beefs. (One example is the Gangster Disciples in Chicago. Their feuds with other gangs and within their own organization turned the Chicago projects into free-fire zones. Eventually the police, of all people, brokered a truce that held for a number of years. During this time the gangs continued to deal drugs and run their other rackets, but the murder rate dropped because they were no longer killing each other or bystanders. Then the feds took down the GD leadership and the street war started up again.

    Now, I’m not saying that the feds shouldn’t have taken the leadership down. Just that if one decides that the economic chaos resulting from holding banks accountable to the law makes them  the “too big to fail,” then the same can be said of holding organized criminals accountable given the violence and chaos that comes from disorganized crime.

  • http://www.metagalacticllamas.com/ Triplanetary

    The solution, of course, is not to let those kinds of power structures rise up in the first place. Which in this context means that “too big to fail” banks and corporations shouldn’t be allowed to exist. Remember the days when even an imperialist jingo like Teddy Roosevelt fought to enforce anti-trust laws?

  • Anonymous

    But to paraphrase Malibu Stacy, “Enforcing regulations is harrrd!”

  • Lori

    At least someone is still trying to actually do something about this foreclosure crap. This should be coming from DC, especially the stuff about MERS, but if Albany is the best we can do it’s definitely better than nothing. 

    http://www.dailykos.com/story/2012/02/03/1061447/-Eric-Schneiderman-files-suit-against-nations-largest-banks-for-foreclosure%C3%82%C2%A0fraud-

  • Alicia

    I don’t really understand the swipe at state law enforcement officials here, but speaking of badass NYers, US Attorney Preet Bharara made the cover of Time for his aggressive prosecution of Wall Street shenanigans here — How Prosecutor Preet Bharara Is Bringing Mob Squad Justice to Wall Street. Not all of the feds are asleep at wheel!

  • Alicia

    Ugh, Disqus, here’s the article:

    How Prosecutor Preet Bharara Is Bringing Mob Squad Justice to Wall StreetThey aren’t ALL asleep at the wheel!

  • Lori

    That wasn’t a swipe at state law enforcement, it was a swipe at federal regulators. There are people trying to do good work in a few of the states, including some AGs who are trying to resist incredible pressure to sign on to a terrible 50 state deal. However, there’s only so much they can do, even the ones in New York. People all over the country need help and folks in New York can’t help all of them. The people at the federal level whose job it is to do that ought to be doing it and they’re not.

  • Don Gisselbeck

    One way of dealing with these criminals would be to have a full on peasant revolt. A few million people marching on Wall Street would scare the crap out of them. Even better would be to get 50 million people to refuse to pay anything until there is reform.

  • Anonymous

    “I’m confused.  The financial system consists of various organized entities which engage in many systemic illegal activities.  How is this not racketeering?”

    The difference between a mortgage lender and The Mafia is that The Mafia has worse lawyers and better ethics.

  • Lori

     
     Even better would be to get 50 million people to refuse to pay anything until there is reform.  

     

    There have been rumblings about a student loan strike for exactly this reason. If even a slightly larger percentage of Sallie Mae’s “clients” (aka victims) refused to pay until something was done about the state of student lending they could pretty well grind the system to a halt. 

    The problem is that it’s illegal to refuse to pay your debts. Anyone who does so, and anyone advocating that people do so or organizing people to do so, faces serious legal consequences.  And you know the government would prosecute them will all the vigor it isn’t applying to the banks. Breaking the law to fight the status quo is always far, far more dangerous than breaking the law to maintain it. 

  • fraser

     Except of course, when you’re a business and you file Chapter 11 to blow off some of your debts.