For Banks the Party Never Stopped

indexHouston        Seven years after the wheels started coming off the bank’s mad money train, it seems clear that settlements for mortgage abuse, which is euphemism for fraud, Dodd-Frank legislation, and what should have been the awesome weight of having collapsed the US and world economy and upended the lives of millions, have essentially been water off a duck’s back for the banking industry and Wall Street.

Let’s just tick off a few recent cases in point.

  • The City of Los Angeles, yes, not the Justice Department, SEC, or Federal Reserve, sued Wells Fargo for pressuring employees in its retail bank with sales quotas to fraudulently enroll people in new customer accounts without their approval.  Plain and simple, shake and bake, no permission needed.
  • Two big banks rather than settling for some hand slaps and big fines, Nomura, a Japanese bank, and the Royal Bank of Scotland, both presumably figuring their home country customers probably didn’t give much of a flip about whether or not they had packaged bad mortgages in the USA, went to trial claiming the dog-ate-their-homework, the economy did it, not them.  The judge found against these miscreants and essentially said their behavior was disgusting.
  • And of course there is the whole cabal of banks that engaged in price fixing and chicanery to fudge the LIBOR rate for interbank and corporate lending including HSBC, JP Morgan Chase, Citi, and a rogues’ gallery of the biggest banks in the world.  Their fines are in the billions, and reportedly they are going to finally have to actually plead guilty as institutions.

Many have argued that part of the problem was the legal double standard that found law enforcement playing paddy cake with the criminal enterprise that banking has become rather than prosecuting them aggressively from the top down.  If anything was administered more than simple detention, it was from the bottom-up.  The bigger the guy at the top of the bank, the bigger and more obscene the paycheck continued to be.

More proof that bad behavior and thuggery is the norm in banking is emerging in a new study as well.   According to the Andrew Ross Sorkin at The New York Times,

“...about a third of the people who said they made more than $500,000 annually contend that they ‘have witnessed or have firsthand knowledge of wrongdoing in the workplace.’  Just as bad:  ‘Nearly one in five respondents feel financial service professionals must sometimes engage in unethical or illegal activity to be successful in the current financial environment.’”

Such statements take your breath away.  Not only has it not gotten better, it may have gotten worse!   And, the President wonders why Senator Elizabeth Warren is willing to go to the wall on a trade bill that had hardly interested her until she noticed the language leading her to believe that it would allow even more transnational banking criminality?

There oughta be a law, but there probably are plenty of them, just no one seems to care, and the party goes on, and we all pay for it.

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The Beermats – A Workers Song

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More Evidence Emerging of the Big Banks Role in Mortgage Meltdown

0New Orleans      If there is anyone over the age of 10 years old that has any doubt that the pure and simple, unchecked greed of banks caused the mortgage meltdown triggering the Great Recession, please read, and listen carefully.   Information now coming out on the dealings between Morgan Stanley, the Wall Street behemoth that acted as the primary financier, facilitator, and purchaser of tranches from high-flyer New Century whose fall in 2007 signaled that the party was over make it crystal clear that they funded the mess until it broke the economy and almost bankrupted them as well.  Follow the big money and the trail becomes impossible to miss.

Reports are emerging from of all places an ACLU lawsuit, representing some buyers who lost their homes,  of emails and other information that has come from the discovery process.  Morgan Stanley tried to squash the suit, but a federal judge has now ruled that there is more than enough to push the matter forward.  The Justice Department and local prosecutors are also smelling blood in the water and predicting that Morgan Stanley will settle for a pretty penny before summer gets too hot.

Once again resources and their availability from Morgan Stanley seem to have been irresistible to New Century.  I’m in danger of starting to develop a global theory of how money and resources more than any other factor moves – or halts — not only too much of the work of social change but virtually all of what we see in not only this mess, but also tech, research, medicine, and a lot of other fields, so that’s a warning of things to come.

In this case,  Morgan Stanley was the biggest buyer of New Century subprime loans from 2004 to 2007, about $42 billion worth, and insisted that they wanted packages that were heavily weighted towards adjustable rate, ARM loans, or what the New Century CEO and co-founder once referred to in a negotiating session with ACORN and his own personal situation as “drinking his own Kool-Aid.”  Oh, and make sure they have pre-payment penalties as well, ok?  Risk and compliance factors low on the Morgan Stanley totem pole, in other words, not at the trading desks where sales are sex and everything else is road kill,  and were consistently ignored, even when the big bosses knew better.

According to a report in the New York Times

another lower-ranking due diligence officer, Bernard Zahn, who wrote detailed emails to both Ms. [Pamela] Barrow [a top diligence officer] and Mr. [Steven] Shapiro [head of the trading desk] explaining, in increasingly urgent terms, problems with the loans they had bought.  “It isn’t ‘just a couple of typos or ‘mistakes’ as it was suggested, the more we dig, the more we find.”  Ms. Barrow congratulated Mr. Zahn: “good find on the fraud :).” But rather than pursuing his findings, she immediately went on: “Unfortunately, I don’t think we will be able to utilize you or any other third party individual in the valuation department any longer.”

Hard to miss that message.   You can ask, just don’t tell.

Barrow in another exchange was pretty clear about what they thought of the quality of their borrowers as well, when she…

wrote to a colleague in 2006 sarcastically describing the “first payment defaulting straw buyin’ house-swappin first time wanna be home buyers.” “We should call all their mommas,” Ms. Barrow added in the email. “Betcha that would get some of them good old boys to pay that house bill.”

Well, yeah, and if loan affordability had ever been a criteria rather than bonuses and greed on Wall Street, millions might not have suffered. How do you explain all of that and what you did to your mommas and papas, Morgan Stanley big whoops?

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New and Better Mortgage Lending Standards Maybe

rs-2New Orleans               The press is making a big deal of Mel Watt’s comments as the chief housing regulator at the Federal Housing Finance Agency to the Mortgage Bankers Association’s convention in Vegas.  He claims he has a new plan to loosen up the rules so that banks finally lend some money to first-time buyers and lower-and-middle income borrowers.  There’s a problem though.  The bankers are applauding, but there are no real details to the plan available, so what’s the story here?  Frankly, I don’t trust this.

Too much of this seems like a suck-up to the bankers and the equivalent of a “get out of jail” quickly ticket for them to blame their fast and loose behavior on the borrowers, which has been part of their narrative since the meltdown of the Great Recession.  Under the so-called “plan,” the housing finance agency would ease up on the rules that require the banks to buyback mortgages “that show evidence of fraud or other flaws in the underwriting process.”  Supposedly the buyback now would be based on the ability of the feds and the prosecutors to prove a “pattern of misrepresentations and inaccuracies.”  Furthermore the bank rip-offs would have to be “significant” enough to have disqualified the borrower from a Fannie Mae or Freddie Mac guarantee on the loan.

There’s a rumor of approving loans with as little as 3% down payments, and maybe that’s a good thing, but who really knows without the details.

To me this looks like a bank stickup with the bankers holding the gun against the government’s head and refusing to make loans until they get enough promises that they are not going to have to pay billions in fines and buybacks if they rip-off their borrowers yet again.  My argument would once again focus on one of the least corrected causes of the meltdown:  brokers.

As long as lenders refuse to supervise their broker networks even while all of the incentives are left in place for brokers to act independently and to be paid at the point of production regardless of affordability of the loan to the borrower, the conditions remain in place for fraud and predatory behavior.  Allowing this much finger pointing away from themselves, lets the bankers juice up the market without any accountability.  Even better, but only for them, they’ll get to still blame the victims, rather than take responsibility for their own thievery.

We need a subprime market.  We need for low-and-moderate income families to have the choice of buying a home, if it makes sense for them financially.  But, do we really want to make it easier for bankers to look the other way and claim their hands are clean when they are financing the fraudsters?

Many of the advocates are applauding this so-called plan.  I’m hoping they know a lot more of the down-low than has been made public, because at this point it looks like a deal made on our knees with the bankers where we’re once again begging for money for our people and they, once again, are dictating the terms and setting the table for more mischief and mayhem.

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Little Change on Foreclosure Modifications but Subprime Loans are Back

mortgagedeniedNew Orleans        In the US we are seven years out from the Great Recession, depending on how you count the pain and mark the scars.  Homeowners have lost their homes through 7 million foreclosures in that period.  More than 9 million homeowners are still underwater, owing more than the value of their homes now, with the banks, like vultures, still knocking on their doors even while they pay billions in penalties for their bad, which is to say criminal, misbehavior.

Meanwhile Jacob Lew, the new Treasury Secretary, amid notices that his predecessor, the Wall Street flunky, Timothy Geithner, even admitted he wished he had done a little bit more about millions of Americans that lost their homes, announced an update on the billions approved for foreclosure modifications.   Seems that of the $38 billion set aside to help these desperate homeowners there’s still $24 billion left unspent after all of these years.  I don’t want to go all Tea Party on this, but the answer to the riddle about when was the last government funded program that was unable to spent over 60% of its money in over 5 years when millions are suffering is any program to help homeowners controlled by banks pretending to help their victims.  Oh, and what was Lew’s pronouncement.  Well, damn, he’ll extend the program another year until 2016 and make a couple of small changes, none of which include finally allowing what everyone agrees is the only solution, being principal reduction.

And, if you want to buy to buy a home now and are on the wrong side of the 1%, getting a loan has been “forget about it!”   Credit evaporated a long time ago and given the setbacks in the jobs market and the general economy we could almost count the number of people with perfect credit on one hand.  Working with families for whom the dream of unblemished credit is less likely to ever be experienced than an all-expenses paid visit to Shangri-La or the chance of winning the lottery, subprime loans opened the door to home ownership at the price of a couple of extra points of interest until you could refinance and prove out.  In fact, one of the biggest obstacles to rebuilding New Orleans after Katrina and the dawn of the recession was the disappearance of a subprime loan market that could have significantly helped repopulate whole areas of the city where people were still short $20 to $40000 and with damaged credit couldn’t fill the gap.

News that there might be a return of the subprime market is something I see as a good thing.  The fact that some of the companies making the return are headquartered in Calabasas, California, the Los Angeles suburb that was the Mecca of Countrywide Mortgage, also means that some of those hotshots might be trying to sneak back through a crack in the windows as well.  But, as I used to say in one negotiating session after another during those days, our members needed these loans, we just didn’t need the predatory abuses by the brokers and many of the companies paying bonuses for loans more fiction than fact and more about coercion than credit.  The demand is real.  According to the Times,

More than 12.5 million people who might have qualified for a home loan before the crash have been shut out of the market, Mark Zandi, the chief economist for Moody’s Analytics, estimates. Members of minority groups have especially suffered; blacks and Hispanics are rejected by mortgage lenders far more often than whites.

Has Treasury made note of any of this?  Are we doing anything to help lower income, working families, especially African-American and Hispanic borrowers to recover the huge losses of citizen wealth in the recession.  Oh, no way!

As one of the newly minted subprimers says,

 “If you’re self-employed, you’re hosed…If you just started a job, you’re hosed. If you get a bonus, you’re hosed. Just got a severance payment? Can’t count that. I don’t have to do a lot to be a lender. I just have to be normal.” Banks have forgotten that loans are collateralized by the home itself, he said.   Some employees of conventional banks might agree. Barry Boston, for example, recently left one of those banks for a job at Athas, frustrated by having to turn down so many perfectly fine borrowers and because of the endless paperwork involved in closing a loan. “I couldn’t stand it anymore,” he said. “The wind had been completely sucked out of my sails.”

When bankers are even disgusted with banks, how can even the head of the Treasury Department miss the memo that things have to change, and now!

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Some Affordability Finally Coming to Mortgage Lending but Is Fraud Protection Enough?

New Orleans    The new Consumer Financial Protection Bureau (CFPB) released its outline of new mortgage lending rules that will take effect in 2014.  The new rules are interesting, though in some ways not reassuring.

After years of arguing with big banks and subprime houses that “affordability” had to be the key test regardless of all of their fancy algorithms, the CFPB has rightly stepped up to worship at that altar.  Although their new standard finally makes affordability, or more simply the ability to repay, the central factor in judging a loan the numbers are very high at 43% of pre-tax gross income.  With taxes and insurance a family with this “affordable” loan would be paying more than 50% of their gross income for a mortgage, and since taxes for working families usually take 20% or more, a family could be left with an “affordable” mortgage and hardly one-third of their income to actually live on.  Is that affordable?  Maybe if that’s the way CFPB defines it, but there’s no question it’s a hard and difficult standard for a working, moderate income family to make if they hope to own a home.

All of which makes this standard of affordability more about the banks than about the consumers.  It almost seems like the CFPB wrote a standard simply to put an upper limit on how crazy banks could get in lending money, rather than how to protect consumers.  They are trying with this standard to protect banks and other mortgage lenders from themselves without worry about protecting consumers and borrowers from themselves.  If 43% of gross income defines affordability then we need to rethink advising low-and-moderate income families that home ownership should ever be part of their American dream.

Under these rules the bank is supposed to provide documents verifying income.  Undoubtedly this is designed to prevent so-called “liar’s loans,” but I can’t see anything that looks at the weakest link in this chain, which continues to be the power and unscrupulousness of brokers, the middle men in this operation.  During my years at ACORN we looked at scores of documents claiming that elderly couples with nothing but social security checks owing almost nothing on their mortgages wanted to refinance and had incomes many times their checks.  The brokers were filling in the blanks to make their quotas and the families were signing without fully understanding the numbers or the consequences, and the beat rolled on.  The new CFPB rules on first look seem to accept the popular ideology that the borrowers were lying, rather than the brokers, which was almost invariably our experience, and then to boot gives the bank legal protection for any liability after making the loan, which could once again “blame the victim.”

There’s no doubt that CFPB got some things right.  They have locked the door on “teaser” interest rates and preclude the introductory rates from affordability calculations which should hammer the adjustable rate mortgage (ARM) from regaining dominance.  They have virtually outlawed “interest only” loans that were designed for the rich, but too often sold, once again by mortgage brokers, to low-and-moderate income families as the bubble began to burst.  The most vulnerable mortgages are the super high end loans but that’s the rich man’s problem, and the banks seem to be saying that without a legal “shield,” they won’t make them anyway, but they will for favored clients I’m sure.

So, it’s a passing grade for the CFPB grading on the curve of some of the past problems, but a long way from leading the class until they take more seriously the “consumer financial protection” part of their mission and not the bank and mortgage markets security that seems to prevail here.

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Bank of America and JP Morgan Chase Fleeing Community in Face of More Accountability

New Orleans    Banks have become either near criminal enterprises or complete criminal enterprises.  This is no longer a matter of speculation.  This is now a documented fact with confessions made in the dock.   Even with the very minimal supervision being given big banks by regulators and the vast loopholes in any banking laws, some are abandoning whole lines of business when forced to be minimally accountable, which essentially means avoid outright fraud.  Let’s look at the mounting evidence once again.

A sweetheart deal was announced by 10 huge banks, including Wells Fargo, Bank of America, and JP Morgan Chase to pony up another $8.5 billion to offset their foreclosure abuses.  I criticized the deal as lightweight and a hand slap last week when it was $10 billion for 14 banks, and it is worse today.  Gretchen Morgenson of the Times added another stanza to that same song on Sunday.  Some housing advocates supposedly are saying “the devil is in the detail” or “let’s wait and see,” but may reflect existing partnerships with the players or defeat and desperation.  Morgenson is right:  the banks won again.  There are two ways of seeing this, and worse with these settlements; the game is over, there’s no longer a do-over coming for the victims.   HSBC, the huge UK and Hong Kong based international bank with significant US operations, has admitted to wild money laundering worth billions recently, so one shudders to imagine why they were not willing to agree to this last hand slap and come up with the cash for the Office of the Controller of the Currency (OCC) deal?

Bank America is so hammered at the notion of having to run a clean mortgage lending operation that it seems to have become convinced that rather than pretend they can supervise an above the board operation, they are largely deserting the home mortgage business which they briefly dominated.  Reports are that they have now shrunk from 20% of the market to only 4%.

If you think that’s wild, wait for this one.  The Wall Street Journal reported that JP Morgan Chase, led by the ever arrogant and pompous and unsurprisingly an advocate of less regulation, James Dimon, became the only one of the four largest US banks to get a downgraded rating of “satisfactory” for its lending under the Community Reinvestment Act (CRA).  CRA requires no discrimination in lending.  Let me tell you haw amazing this is for Chase to get a barely passing score.  Over the 35 years since CRA’s passage, the regulations and enforcement by the Federal Reserve has become so wishy-washy that to be downgraded Chase virtually had to send loan officers into African-American and Latino communities to moon homeowners while telling prospective home buyers from those communities to go screw themselves.  Get the picture yet?  CRA enforcement these days makes grading on a curve in Ivy League schools look like the school of hard knocks.   Recently ACORN International looked at Bank of America’s numbers in San Luis Obispo for a partner of ours and they made zero loans to African-Americans and Latinos, and they have a top CRA rating, ok?

When it came to Chase’s credit card operations, the OCC released a report based on 2011 numbers that said that the credit card lending operation showed “evidence of illegal credit practices inconsistent with helping to meet community credit needs.”  In plain English that means that the OCC found evidence of fraud.

These formerly bailed out banks are now lining up in community after community with division after division to essentially flip off consumers, dare them to complain, and then laugh at government regulators who try to curb their abuses.  There business model is now, lawyers first, customers last.

How can anyone pretend differently?

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