Cities and Neighborhoods Catch a Break in Beating Banks

New Orleans   In a rare surprise over the dozen years that conservative US Supreme Court Chief Justice John Roberts has run the nation’s highest court, he joined the four more liberal justices on an issue, delivering a 5-3 vote. Even more shocking the decision was a slap in the face to big banks, in this case Bank of America and Wells Fargo, on a complaint brought by the City of Miami. The court ruled that Miami had standing to sue and to further pursue its claims concerning the discriminatory lending practices of these banks and their allegation that such practices led to decreased property values in neighborhoods, and therefore reduced property tax revenue to the city as well as increasing blight in the community.

This is big, really big, because it powerfully opens the door to a broader interpretation of the Fair Housing Act and its prohibitions against racial discrimination in preventing different standards between one neighborhood and another in cases like redlining, but it also speaks to differing and discriminatory standards in mortgage lending because of income as well, which was at the heart of broker driven exploitation that fueled abuse and outright fraud in the subprime market. There can’t really be too much doubt that Bank of America and Wells Fargo didn’t pause to even take a breath in lower income neighborhoods as they altered their supervision and standards willy-nilly to drive volume on refinancing as well as new purchases much as often as new purchases. Wells Fargo has already become poster child for not supervising its sales staff, but neither does the record of Bank of America and Wells improve when examining the way that they mishandled mortgages underwater during the Great Recession, exacerbating foreclosures.

There’s settled evidence that property values decrease when homes are abandoned in communities, and foreclosures in Miami and other cities led to increased abandonment. The scandalous disregard that big banks showed in refusing to modify the mortgage terms to prevent foreclosures as well as paying little attention to managing and maintaining the properties where they were foreclosing directly lowered values in those properties and whole neighborhoods. Miami has the lead role in proving this now that the Supreme Court has sent the case back down to Atlanta and the 11th Circuit Court of Appeals, and clearly the odds are still stacked against the city and favor the banks, but the door is open and common knowledge and a drive-by to any lower income community establishes the facts on the ground.

The banks are hoping they can prove that they were just one of many crooks, and not the ones pulling the trigger to rob the neighborhoods of their value. In criminal courts this might be a case where the banks might not get a sentence for murder, but they would definitely do time for manslaughter, because there is no doubt that they hurt these communities and the people who live there, whether they were driving the getaway car, acting as the lookout, or holding the gun.

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Bad Boy Banks Running Wild While Creating Credit Desert

New Orleans  Rather than learning something about proper corporate behavior in the banking meltdown they triggered with their housing securitization schemes and unwillingness to supervise mortgage brokers, the gazillion dollar bailout seems to have taught the banking establishment that they could act in all ways with impunity. As we move towards the ten year mark of this national and community disaster, there are too many examples that come readily to mind.

One of the most disturbing is the way banks are now flaunting the Community Reinvestment Act of 1975 by creating a credit desert in lower income and minority neighborhoods. We are now reading regularly about complaints being filed against banks for outright racial discrimination.

The giant Wells Fargo was finally called to account in a rare exercise by the Office of the Controller of the Currency of its authority in reviewing the annual CRA records of all regulated lending institutions. Wells Fargo was given a “needs to improve,” and given the watered down nature of the CRA now, a bank really has to mess up to get such a negative rating by the OCC. The CEO said he was disappointed, but to quote one banking newsletter:

10 government inquiries over the past decade prompted the OCC to lower its overall score of the company’s compliance with community banking laws to “needs to improve.” Enforcement cases cited by the OCC faulted the bank’s treatment of minority neighborhoods, military personnel and women who had recently given birth. “Bank management instituted policies, procedures and performance standards that contributed to the violations for which evidence has been identified,” the OCC wrote in a report. Abuses occurred in “multiple lines of business,” the regulator said.

This will hurt Wells Fargo because it is a critique of the pervasive and arrogant culture of the bank. Whether it will get them to modify their behavior is uncertain.

Another case in point with another giant based North Carolina this time rather than based in California, found a bankruptcy judge administering a beat down to the Bank of America for its thuggish handling of a foreclosure in California.

A bankruptcy judge in California fined Bank of America $45 million over the bank’s mistaken foreclosure on a family’s home and mishandling of the loan modification process on their mortgage calling it “brazen” and “heartless.”

In this case Bank of America’s standard trick of losing the loan mod paperwork was exposed for the duplicity that has been infamous in their handling of modifications and ruthless, and sometimes, incorrect foreclosures.

If this is the way the big letter, top of the list banks are handling loans to lower income and imperiled families across the country, is it any wonder that hedge funds and other financial vultures are swooping into our neighborhoods with one predatory lending instrument after another, feeling confident that they can rob and steal without any consequences, preferring to pay the fines, rather than do right?

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Wells Fargo, Criminal Enterprise

ct-wells-fargo-settlement-questions-oversight-20160910New Orleans   I’ve never been a fan of Wells Fargo. We fought them endlessly over predatory lending practices in mortgages and subprime products. They don’t listen, they obfuscate, stonewall, and hide behind layers of lawyers in stubborn refusal even when faced with evidence of clear misdeeds. We were able to fight Citicorp, Bank of America, HSBC, and a ton of subprimes, even Countrywide, and succeed in reforming practices and achieving decent settlements, but Wells Fargo, even when they settled did so narrowly and without conviction. I was clear for ACORN and our members, you just can’t trust a bank like that with your money.

It is some relief that now everyone in the United States is getting a crash course in learning that Wells Fargo is not the community banker it has claimed to be, but a criminal enterprise.

Let’s review the facts, now being widely reported. For five years employees of Wells Fargo opened up to 2 million bank and credit card accounts willy-nilly without any permission from anyone. Often the accounts were closed fairly quickly which is why the penalties now being paid by the bank are less than $200 million. It was a penny ante, amateur scam with employees making up email addresses and sometimes virtually opening up the accounts from Wells Fargo internet domains. The bank has now fired 5300 employees who were involved in this fraud. As the New York Times’ columnist, Andrew Sorkin, points out, “that’s not a few bad apples.”

Wells Fargo has taken out ads apologizing and taking responsibility, but they clearly, as usual, have their fingers crossed behind their backs. A couple of months ago before all of this criminality became public, they allowed Carrie Tolstedt, a 27-year veteran and their head of “community banking,” to retire and walk away with over a $120 million going away present. Various banking analysts are calling for a “clawback” since Wells has rules allowing them to recover monies from executives where there were ill-gotten gains. The Wall Street Journal was so grossed out by all of this that they reported the calls for clawbacks and showed a picture of Ms. Tolstedt, but couldn’t bring themselves to mention the $120 million she took away with her office plants for fear that all of us Visigoths would be clamoring at the gates.

What will they learn? Likely nothing.

But, it’s easy to explain how this happens, and it is the same way that it happened when mortgage brokers were writing fictitious so-called, “lair’s loans,” where many observers of the 2008 financial meltdown are still confused and some think it was the borrower fibbing, rather than the underwriter. In the current Wells Fargo case on cards and accounts, as well as their own and many other situations previously on loans, it is crystal clear that once you link pay to simple production, you can guarantee there will be fraud. The only question will be how long it takes you to be caught, and how much money the bank makes in the interim.

For managers there, just like Carrie Tolstedt, there is a disincentive to impose the kind of controls that would weed out these problems. Top dogs get paid on the numbers, just like the runts of the litter. In bank after bank, once you get them across the table for all of their talk about protection using sophisticated algorithms, risk management, and blah, blah, blah, they simply are culturally and systemically unable to tightly manage on performance and standards, once production is all, and pay is linked to such incentives.

They are all smart enough to know this, but it’s the nature of capitalism in some ways to ignore it. You can only conclude that they didn’t care or thought that they wouldn’t be caught. None of which recommends a bank like Wells Fargo as a place to trust your money, since they are clearly committed to themselves first and their customers last, as little more than numbers being crunched in their back rooms somewhere.

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Please enjoy Phish’s Breath and Burning. Thank you KABF.

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Supreme Court Sinks More Homeowners into Permanent Debt

dead_economy-300x199New Orleans    In a startling unanimous decision, the US Supreme Court overturned an 11th Circuit Court of Appeals decision finding in favor of Bank of America that even bankruptcy protection does not allow underwater homeowners the ability to escape the obligations of second mortgages.  The impact of the decision allows zombie banks to continue operating on the basis of balance sheets reflecting virtually lifeless real estate holdings and makes these beleaguered homeowners into walking dead debtors with virtually no hope of a second chance.The Supreme Court once again reminds Americans that the Constitution is fundamentally about property rights and that the sanctity of a contract trumps all vestiges of common sense.

Generally speaking, a home is commonly classified as “underwater” if the value of the outstanding mortgage is 25% higher than the current market value of the home.  Remember the mortgage we are talking about here is the first mortgage.  The second mortgage is satisfied after the first is fulfilled.  Many of these second mortgages are home improvement loans.  Others arose from the need to finance children’s education or medical emergencies by attaching what has historically been the primary asset creating citizen wealth for the vast majority of low and moderate income families in the country.   Bank of America in their court filings estimated that there were 2.1 million underwater homeowners with second mortgages at the end of 2014.   Others like Zillow estimated that there are still 8 million homeowners who are underwater and most real estate experts estimate that it is likely that half of them have some kind of “second” on their homes.  This is not an insignificant problem in either the economic recovery or the hope for narrowing the equity gap.

Of course not all of these families had declared bankruptcy, partially because banks and others have done an amazing job over recent years with Congress in making bankruptcy both harder to achieve for desperate families and less valuable as a chance for a clean slate and a second chance.  Filing for bankruptcy does not allow someone to wipe out a mortgage debt or a student loan debt for example.  The mortgage obligation is what forces an underwater homeowner into foreclosure.  The best hope for the debtor is that surrendering what used to be an asset to the bank, calls quits to that debt.  In 2007 and 2008 when ACORN was negotiating with big banks and mortgage loan servicers as the implosion began, I was at some of those meetings.Executives then believed that they would just have to wipe out their second mortgage portfolios as worthless.

The Supreme Court’s decisions says, “no way, you’re stuck.”Hey, some day in the by and by, real estate values may go back up, allowing the loan to be collected.  Some of these properties are so far underwater that it won’t be a year but a generation for that to happen.  For the banks paying a dollar on that loan every 90 days allows them to still call it a performing loan, helping their zombie balance sheets, and leaving the debtor, desperate for a clean start, carrying even more weight. The Justices say, “dude, it’s a contract, didn’t you get that?”  The debtors, like millions of others, were on the merry-go-round being pushed by these same bankers and promoters in the real estate bubble into these sucker bets.  These weren’t contracts as much as cons.

Only death relieves some of these debts.It’s already legal for 25% of someone’s social security to be attached.  Now the Supreme Court has just locked another ball and chain onto untold numbers of families with little hope for the future but dragging the weight behind them, sentenced to a life as walking dead, not in debtors’ prison, but in a permanent debtors’ probation of sorts with little or no chance of escape.

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Johnny Cash – Folsom Prison Blues (Live)

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Bank of America Record Settlement with Remorse

BANK OF AMERICA SIGN ON BRANCH - MIDTOWN MANHATTAN NEW YORK CITY USAMissoula     Accurate reports seem to indicate that the Justice Department is in the final drafting of a record setting, highest corporate penalty ever paid with Bank of America for mortgage related abuses. The price tag is going to be slightly north of $16 billion with $9 billion going to the government by way of a fine and $7 billion being some modest relief for some of the homeowners caught in the misdeeds.

At one level part of me says, hah, got the bastards finally! The Justice Department had hard bargained Bank of America to almost its original demand. Bank of America had been trying to organize a pity party for itself claiming that they had done the government and the rest of us big favors by picking up Countrywide and Merrill-Lynch so they should be in line for an attaboy rather than billions in fines, so that bubble was finally burst.

But, closer reading still gives me buyers’ remorse on closing the deal with Bank of America.

First, there are few of us that don’t realize that the “soft” $7 billion part of the settlement is as much accounting tricks helping Bank of America’s own balance sheet as it is real relief for the homeowners who faced – and continue to face – foreclosure. There’s still not much relief in store for them as these chapters close and everyone else moves forward, while family’s hopes and homes are both in tatters.

Secondly, it turns out that Judge Jed Rakoff, a Manhattan federal judge, is once again a hero to those of us who would like real justice from Wall Street. According the Times his recent decision for 17000 home owners awarding a $1.2 billion against Bank of America punctured the last of their lawyers’ lame rationales, and brought them within 24 hours to a deal with Justice that had been slipping away.

And, here’s the hurting part about this. Even with a record settlement it seems there is also the likelihood that many more multiples of billions may have been left on the table!

The bank’s top lawyers and executives, who made the ill-fated decision to fight that case in Judge Rakoff’s court rather than settle, appeared to recognize that another courtroom battle would not only be futile but extremely expensive, according to two of the people briefed on the matter. The remaining cases, which by contrast would involve billions of dollars in securities backed by home loans, could have cost the bank multiples more than Judge Rakoff’s penalty, perhaps even more than a settlement with the Justice Department.

Let’s just face it. There’s never going to be a way or a day that this will all feel good.

Banks and Wall Street got over. They’re paying to play now essentially, but the victims are not going to ever be made whole and none of us are ever going to feel happy about any of this at this point.

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Bad Math and Foreclosures are Twin Towers of Banking

zzbofaNew Orleans  I know you are sick about hearing about foreclosures.  I sure am!  This has all gone on so long and so painfully, and now even the so-called settlements and cleanup of the mess is extending the tragedy.

            What do we have now?   Bank of America makes an accounting error and the miscalculation adds $4 billion in assets that don’t exist, so, big whoops, there goes the stock buyback program, a whooping percentage of its stock price, and any discussion of improving the dividend.  You know how much their big brass at the top of the financial pyramid are paid?  Do this at home on your tax returns or loan applications, then plead that the rules were confusing and you didn’t get, it and you could be facing fraud charges, brothers and sisters.   I think we can agree that the strengths of big bankers may be sitting on their paychecks, but clearly it is well proven now that math is not one of their close friends.

            Now new government reports on the mess banks made in mismanaging the foreclosure modification program for their friends at the Treasury Department are once again proving what we already knew about banking math mayhem.  Remember the tragic problem where the Federal Reserve and the Office of the Comptroller found that overly burdensome and lengthy reviews by bank-hired consultants were costing hundreds of mega-millions and needlessly dragging out compensation for borrowers who had been victimized by banking errors, often forcing them into needless foreclosures, while the bank buddies ran up the bills.  Sure you do, even if you don’t want to admit it.

            Correctly figuring that this crony self-regulation was going to make the bill for finding the mistakes almost as high as the bill for correcting the mistakes, the regulators figured the preliminary error rate at 6.5% and made a deal with 15 banks for $10 billion to give some, and frankly too few, foreclosure victims a modicum of relief.   Well, now it turns out that an unnamed bank that had completed more reviews found an error rate of 24% compared to a look at borrowers’ files for 11 banks having done less.  Controversially, of the $10 billion only $3.9 billion was going to involve cash payments to 4.4 million victims, which was small potatoes for big pain anyway you look at it.

            What if real investigators had been doing the work, and getting it done quickly, rather than bank buddy consultants milking the process?  What if the rate was really closer to 24% than to 6.5%, which is to say 3.7 times higher?   Well, then, everything being equal, which we’re finding out in the US is never true anymore, the settlement should have been $37 billion and 4.4 million victims would have shared almost $14 and a half billion within the terms of the deal. 

            I know we’re not supposed to deal with math and banking in the same breath anymore, but your average foreclosure victim might have noticed the difference in one check that was $3295 dollars versus the one they got which was only $886 bucks.  None of which seems enough for losing your house, but one seems more like a rounding error than justice to me.  Either way, it’s time to stop believing any math coming from banks that has to do with foreclosures or anything other than the accuracy of their own paychecks and what they pay their buddies.

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