Who's the Big Bad Wolf Now on Foreclosure Fraud and Abuse?

three pigsWe all know the story of the three little pigs and the big, bad wolf.

Little pig, little pig, let me come in.
No, no, not by the hair on my chinny chin chin.
Then I'll huff, and I'll puff, and I'll blow your house in.

To date that's been the story of the banks as the big bad wolf, blowing houses down all over America with fraudulent foreclosures, viewing home owners as tasty piglet snacks of profit.

Will we ever see role reversal in this never ending grim tale? Will the big bad wolf finally be our government, blowing down the Banks' house of mortgage and foreclosure fraud? Can the government at least hand Americans just a few bricks at least? It's yet to be seen.

The latest seems to be dueling events. One the one hand, there is a foreclosure fraud settlement in the works for all 50 States, which supposedly gives banks immunity and waves all future legal actions. Yet at the same time, the New York Attorney General filed a civil fraud lawsuit against three major banks over MERS.

New York filed a lawsuit against various units of JP Morgan, Bank of America, Wells, MERSCORP and MERS over their use of MERS in foreclosures. This civil suit alleges that the use of MERS has “resulted in a wide range of deceptive and illegal practices,” most importantly, over 13,000 foreclosures in MERS name where MERS “often” lacked standing to foreclose. The suit claims that an undetermined number of foreclosures that were not made in the name of MERS were also deceptive by virtue of MERS “certifying officers” making improper assignments prior to the foreclosure. The suit includes the use of robosigners who failed to review the review the underlying records as required, and served to disguise gaps in the chain of title.

mersThese banks literally made $2 billion dollars by utilizing fraudulent foreclosure methods. On top of things, the NY Attorney General, Eric Schneiderman, is a co-chair of Obama's newly announced financial fraud unit.

Supposedly the 50 state deal will be decided on Monday, and some are suggesting bank immunity is out of the settlement agreement. Bloomberg is reporting more subtle terms:

Lenders including Bank of America Corp. and JPMorgan Chase & Co. and state attorneys general agreed to ensure that states signing a nationwide accord on foreclosures will be entitled to improved terms won later by states that opt out, two people familiar with the matter said.

That sure doesn't sound like a good deal for harmed former homeowners. The state who dares to go solo, pursing a civil lawsuit against the deep pocket banks, will assuredly have a long protracted and expensive legal battle. Only after that civil case win by a state who did not sign the settlement can other States then proceed to obtain justice for financial institutions wrong doing. What was that phrase about justice delayed is justice denied?

We might even have a pack of wolves now, huffing and puffing down the home owner's door. Naked Capitalist is reporting both the New York Attorney general lawsuit and the 50 state settlement are stealth bank bail outs.

Let me stress: this is a huge bailout for the banks. The settlement amounts to a transfer from retirement accounts (pension funds, 401 (k)s) and insurers to the banks. And without this subsidy, the biggest banks would be in serious trouble.

In the midst of all this, out comes a New York Times analysis shows the SEC gave a free pass to big banks 350 times.

Even as the Securities and Exchange Commission has stepped up its investigations of Wall Street in the last decade, the agency has repeatedly allowed the biggest firms to avoid punishments specifically meant to apply to fraud cases.

By granting exemptions to laws and regulations that act as a deterrent to securities fraud, the S.E.C. has let financial giants like JPMorganChase, Goldman Sachs and Bank of America continue to have advantages reserved for the most dependable companies, making it easier for them to raise money from investors, for example, and to avoid liability from lawsuits if their financial forecasts turn out to be wrong.

Other civil suits are proceeding. The case against Goldman Sachs was just granted class action status:

A suit against Goldman Sachs Group Inc. (GS) may go forward as a class action on behalf of all investors in a $698 million mortgage-backed securities offering, a federal judge in Manhattan ruled.

The above legal battle deals are happening while history reveals itself. Fannie Mae and Freddie Mac were repeatedly warned about the mortgage and foreclosure fraud but did absolutely nothing.

Five years earlier, Fannie seemed to have taken a different view. That was when Mr. Lavalle pointed out legal lapses by some of its representatives. Among them was the law offices of David J. Stern, in Plantation, Fla., which was handling an astonishing 75,000 foreclosure cases a year — more than 200 a day. In 2005, Mr. Lavalle warned Fannie Mae that some judges had ruled that the Stern firm was submitting “sham pleadings.” Nonetheless, Fannie continued to do business with the firm until it closed its doors last year, after evidence emerged of rampant forgeries and fraudulent filings.

O.C.J. Case No. 5595 found that Stern wasn’t the only firm working for Fannie that seemed to be cutting corners. It also found that lawyers operating in seven other states — Connecticut, Georgia, New York, Illinois, Louisiana, Kentucky and Ohio — had made false filings in connection with work for Fannie Mae or the Mortgage Electronic Registration System, or MERS, a private mortgage registry Fannie helped establish in 1995.

Lest we forget, the long shadow of Attorney General Eric Holder casts an empty net. The Obama administration and his attorney general haven't prosecuted pretty much anyone over the entire financial crisis, derivatives, mortgage and foreclosure fraud.

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The Nye Lavalle story is absolutely devastating

The story surfaced this morning in Gretchen Morgensen's column in the NY Times. Mr. Lavalle became involved in trying to save his family's home in a suburb of Detroit in the 1990s. Despite the fact that the family was wealthy and paying its mortgage on time, the note holder, EMC, kept insisting it was behind on payments and foreclosed anyway. The Lavalle family sued but the judged ruled for EMC, apparently because a bank wouldn't lie about such things.

An incensed Mr. Lavalle then spent most of his spare time and $500,000 of his own money investigating the mortgage broker industry, Fannie Mae and Freddie Mac, the bank servicers, the securitization process, MERS, and the foreclosure process. What he found horrified him: routine errors in mortgage documents, banks submitting falsified statements regarding their foreclosure rights, notes missing or suddenly showing up after the bank told the court they were missing, notes held by banks that should have been marked cancelled and returned to the homeowner, but were instead kept in bank files and exposing the homeowner to a foreclosure even though they paid off the mortgage.

In 2003 Mr. Lavalle packaged his findings together and sent them off to Fannie Mae and its board of directors, showing them how they could be liable to hundreds of billions of dollars of lawsuits for failure to police itself, brokers, servicers, and the banks. Fannie Mae's board hired a law firm to study the matter, and the resulting 147 page report is what has been unearthed or given to Gretschen Morgensen. The report confirms much of what Mr. Lavalle exposes, but it argues in some cases that Fannie Mae need do nothing. For example, the law firm believed homeowners did not have the legal right to know which bank now owned their mortgage and note, because securitization made that impossible. In other cases, the law firm said that Mr. Lavalle was correct - for example that MERS did not have legal standing to file foreclosures in many states, even though it claimed it did and was filing foreclosures anyway. The law firm pointed out that case history through the courts left this matter very unsettled.

What we have now is the smoking gun of all smoking guns. Mr. Lavalle's work was also sent to the big bank servicers, and nothing was done by them to stop what he described as fraudulent behavior. Fannie Mae is now owned by the federal government, so it will be difficult to sue them for what they knew but did nothing to correct. But the banks? That's another story. The problems that Mr. Lavalle predicted have all come to pass, but the banks ignored his warnings. He was one lonely voice out there, showing how corrupt and unstable the mortgage system was in the US, but to do anything about it would disrupt the enormous revenue stream the banks were reaping from the system.

Lawyers now have yet another substantial piece of evidence that shows systemic failure to correct illegalities and flaws in the mortgage business.

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systemic fraud and abuse

It is astounding and to this day nothing really is being done. It's like the Banks decided that people's homes were casino chips and something to do a catch-22 on, even if one fabricates a catch-22 on the fly, to take people's homes.

Not to diminish Mr. Lavelle's efforts under what must have been the more stressful circumstances, but this seems to happen in other areas.

Even when the law is one your side, few have money to pursue legal action. Even when you have the law on your side and the anger, money to do something, the judge ignores the law. I'm thinking of other civil cases, from ripping off contractors, consultants to pretty much any civil suit where the funds being screwed over on are less than $500,000.

Even when one has a mufti-million dollar lawsuit, it will be buried in litigation, delays and no justice for years. Then, even if you win, trying to collect the judgment is almost impossible.

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RoboSigning Foreclosure Documents - Lavalle

What would Woody Guthrie have done with Robo-Signing Frauduent foreclosures?

"As through this world you travel,
you'll meet some funny men
Some will rob you with a six-gun,
and some with a fountain pen."

-Last lines of Ballad of Pretty Boy Floyd

The computer is the weapon of the robbers.mot the fountain pen.
Have the fundamentsal economics of banking changed? What should bother all
remaining decent folks is that every small time punk and wiseguy
can never hope to compete with the sheer scale of robbery that
the banks now do.

-

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Burton Leed

updated to include new details

I updated this article with Naked Capitalism pointing out both of these recent developments are stealth bank bail outs in disguise.

Here is NC's original post.

Naked Capitalism is a great watchdog resource for what's going on here, but hoodwinking seems to be the state of play. Lovely.

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Lavalle Story from NY Times

There is this link which is pretty good and has references to the original Fannie Fraudsters. Basically it tells how Lavalle fought back, sued them, lost, then exposed the bastards. It's axiomatic that Newt is toast. The story has some fascinating references to a 'Bane' Company - like someone having fun with Bain as the Bane of Capitalism in the company name. Lavalle is one more cassandra in the Mortgage Swindle.This is much bigger than it looks at first glance.

http://www.nytimes.com/2012/02/05/business/mortgage-tornado-warning-unhe...

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Burton Leed

FYI, link already in post

When ever you see a quote in a post with a link referring to it above, that is the reference link. In other words the New York Times article is the one quoted in this post.

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Office of Corporate Justice Case No 5595 - Document

Here is the entire internal investigation by Fannie Counsel: })();

 

 OCJ Case No. 5595, whistleblower EXECUTIVE SUMMARY The Office of Corporate Justice has retained Baker & Hostetler LLP to conduct an independent investigation of concerns expressed by Mr. Nye Lavalle, a Fannie Mae shareholder, about several Fannie Mae business practices in connection with single-family mortgages.

1 Mr. Lavalle accuses Fannie Mae of “aiding, abetting and sanctioning predatory lending and servicing schemes,” as well as committing accounting and securities fraud, and racketeering violations. He views Fannie Mae as responsible for damage inflicted on single-family borrowers by unscrupulous lenders and servicers because Fannie Mae approves lenders and servicers, maintains servicer profiles and ratings, approves mortgage document terms and servicing requirements, and benefits from the income stream created by wrongdoing. He fears Fannie Mae’s alleged failures could result in both civil and criminal liability that would affect shareholder value. Through a series of communications to members of the Board of Directors and others starting in December 2003, Mr. Lavalle called for an independent investigation of his allegations

2 The Board of Directors decided to conduct an internal review of these concerns. On September 12,2005, the Office of Corporate Justice retained Baker & Hostetler LLP. Mr. Lavalle began investigating the mortgage industry after his parents, Anthony and Matilde L. Pew, had a dispute with mortgage servicer EMC Mortgage Corporation (“EMC”), a subsidiary of Bear Stearns Companies (“Bear Stearns,,).

3 EMC ultimately foreclosed on the Pews’ property, even though, according to Mr. Lavalle, his family is wealthy and made repeated efforts to repay the loan.

4 The dispute motivated Mr. Lavalle to investigate and publicize his allegations that EMC engaged in predatory servicing practices, which has resulted in several lawsuits between Bear Stearns and Mr. Lavalle.

5 Mr. Lavalle then broadened his focus to include the single-family mortgage industry as a whole. Mr. Lavalle considers himself a gadfly of the mortgage industry. He claims to I have been investigating, analyzing and exposing mortgage fraud, predatory lending and servicing, and securitization schemes since 1993.

6 He has a website that details his complaints, and has posted information on several other sites. 

7 He claims to have spent more than 20,000 hours and nearly $500,000 investigating predatory lending and servicing. 8 He reports that he is a consultant to plaintiff lawyers who sue lenders and servicers and to homeowners. Mr. Lavalle’s view is that since Fannie Mae is such an important force in the mortgage industry, it has both the responsibility and means to end abusive lending and servicing practices.

Mr. Lavalle’s view is that Fannie Mae directs the conduct of servicers from afar. In an e-mail ofFebruary21.2006.Mr. Lavalle expresses his frustration, saying: I hate to keep using the analogies that you don’t like but it really is like a Mafia operation. The Godfather [Fannie Mae] says we got a problem, “take care of it” and the lieutenant ["the servicer"] orders the hit [foreclosure] and hires the hitman [the USFN or other lawyer to foreclose]. The hit man and lieutenant don’t want the Godfather implicated so they create layers of deniability [a typical CIA, white house, legal and political maneuver] to conceal who the real parties in interest are and who had knowledge of and ordered the hit.

While Mr. Lavalle is partial to extreme analogies that undermine his credibility, he has become knowledgeable about the mortgage industry. He has identified significant issues but, in our view, does not always analyze them correctly. In proposing solutions, he generally undervalues the benefits to homeowners of efficient mortgage markets operated at low costs and overstates the needs of borrowers to have information about the status of their loans in the secondary markets for mortgages.

Fannie Mae has already identified and is addressing many of the same issues. This report details several areas where Fannie Mae faces legal and business issues that remain to be addressed. Mr. Lavalle also claims that as a result of this work, he and his family have been harassed. He expresses considerable anger when he attributes these attacks to Fannie Mae. An investigation of his personal retaliation claim is in progress; to date Mr. Lavalle has identified no direct conduct by Fannie Mae that he considers harassing.

We have reviewed more than 1,500 pages of documents provided by Mr. Lavalle to Fannie Mae or us directly and had 17 conversations with him. We have identified six general areas of his concerns:

(1) foreclosure policies and procedures,

(2) transparency, 

(3) protection of promissory notes,

(4) predatory servicing,

(5) fraud detection and reporting, and

(6) accounting and securities issues. 

Within each area, Mr. Lavalle identifies multiple issues that are detailed in this report. In investigating these concerns, we have collected documents from Mr. Lavalle Fannie Mae and public sources, reviewed extensively eFannie.com, and interviewed at least 30 Fannie Mae employees. The company has fully cooperated in our investigation. In reviewing Mr. Lavalle’s concerns as a shareholder, we have told Mr. Lavalle that the proper scope of our investigation is to determine whether he has identified wrongdoing hy Fannie Mae officials or financial risks of sufficient magnitude to affect materially Fannie Mae’s financial statements.

We cannot resolve every case of an alleged mishandled mortgage.

1. Foreclosure Policies and Procedures Mr. Lavalle asserts that Fannie Mae’s mortgage servicers and the Mortgage Electronic Registry System, Inc. (“MERS”) routinely make misrepresentations in foreclosure proceedings. He has identified two categories of alleged misrepresentations: that MERS or the servicers are the holders and owners of the defaulted promissory notes, and that promissory notes are lost, stolen or destroyed.9 He also questions whether foreclosures in the name of MERS or servicers satisfy state laws on standing to sue. Since Fannie Mae authorizes foreclosures, Mr. Lavalle argues that Fannie Mae could be liable for these misrepresentations, including for racketeering violations under federal and state laws, and could risk having foreclosure sales unwound by the courts. 10 We have found evidence that false statements by foreclosure attorneys are being routinely made in at least two counties in Florida and appear to be occurring elsewhere. Apparently due to Mr. Lavalle’s ex parte communications, two Florida judges ordered hearings to examine MERS’s role in foreclosures. During consolidated hearings that resulted in the judges dismissing 24 foreclosure actions, three judges (including one who took the time to observe and comment) criticized MERS for routinely filing “sham” pleadings and “false” affidavits regarding its interest in promissory notes and supposed lost promissory notes. II One judge questioned whether large numbers of foreclosures would have to be reversed due to fraud on the court. [...] wordpress stat

Disclaimer: Legal information is NOT legal advice. The material and historical information herein should NOT be taken as legal advice and is NOT a substitute for the assistance of a licensed advisor. I AM NOT AN ATTORNEY.

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Burton Leed