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Archive for the ‘Mortgage Fraud’ Category

My oh my what’s this?!

Attorney General Chris Koster today announced that the state of Missouri and Lorraine Brown, former President of DocX, LLC, have reached a plea agreement.  Under the agreement, Ms. Brown will plead guilty to one felony count of forgery, one felony count of perjury, and one misdemeanor count of making a false declaration.

Brown will be sentenced to a term of imprisonment of not less than two years and not to exceed three years in the Missouri Department of Corrections.

Ms. Brown is the former President of the company DocX, LLC.  During the period of March to October 2009, DocX, at the direction of Brown, instituted a surrogate signing policy whereby employees signed, not their name, but the names of other employees on thousands of mortgage documents that were notarized and filed across the country.  Prior to 2009, similar signing practices were also employed at DocX.  Brown concealed these practices from her clients, the national mortgage servicers, and the parent company of DocX.  The practices of DocX were brought to national attention by a “60 Minutes” report and resulted in several major lenders temporarily suspending foreclosures in 2010.

And that’s not all!  It be Federal too….

The guilty plea of Lorraine Brown, 56, of Alpharetta, Ga., was announced by Assistant Attorney General Lanny A. Breuer of the Justice Department’s Criminal Division; U.S. Attorney for the Middle District of Florida Robert E. O’Neill; and Michael Steinbach, Special Agent in Charge of the FBI’s Jacksonville Field Office.

The plea, to conspiracy to commit mail and wire fraud, was entered before U.S. Magistrate Judge Monte C. Richardson in Jacksonville federal court.  Brown faces a maximum potential penalty of five years in prison and a $250,000 fine, or twice the gross gain or loss from the crime.  The date for sentencing has not yet been set.

“Lorraine Brown participated in a scheme to fabricate mortgage-related documents at the height of the financial crisis,” said Assistant Attorney General Breuer.  “She was responsible for more than a million fraudulent documents entering the system, directing company employees to forge and falsify documents relied on by property recorders, title insurers and others.  Appropriately, she now faces the prospect of prison time.”

Ah, look what showed up…

So now about all those destroyed chains of title and alleged “mortgage trusts” that actually have no mortgages in them….

Countrywide Financial was one of the subprime lenders at the heart of the financial crisis; its predatory lending practices resulted in disgustingly large payouts for executives while sticking low-income borrowers with explosive mortgages they hadn’t a hope of paying back. The New York Times‘ Gretchen Morgenson called Countrywide, “Exhibit A for the lax and, until recently, highly lucrative lending that has turned a once-hot business ice cold and has touched off a housing crisis of historic proportions.”

Eileen Foster was an investigator in charge of Fraud Risk Management at Countrywide when the ticking time bomb of its bad loans detonated. The practices she discovered shocked her and have also shocked those who’ve heard her story—including the producers of “60 Minutes,” who asked her on the program last December to discuss the lack of prosecutions of any of the bankers responsible for the crisis. But instead of cleaning house and admitting guilt, Bank of America—which purchased Countrywide as the financial crisis grew, in what the Wall Street Journal calls “one of the worst deals ever struck in corporate America”–drove Foster out and tried to discredit her findings.

In 2011, the Department of Labor ruled that Foster had been illegally fired. It said that her firing was retaliation for her whistle-blowing and ordered that she be reinstated and paid compensation. There have still been no prosecutions, and no officials have asked to hear Foster’s story—so she’s taking it public. Earlier this year, she was honored with a Ridenhour prize for truth-telling from the Nation Institute and the Fertel Foundation, and this week she spoke with AlterNet in an exclusive interview discussing what she saw at Countrywide—and what happened to her as a result.

“Rampant Fraud”

“This is a mountain that people think is a molehill,” Foster told AlterNet. “As far as this type of financial crime, things are far worse than I would have ever imagined. In my furthest imagination I would have been challenged to come up with the things I have seen play out.”

Foster applied for the job as the head of the internal investigations department after 18 months at Countrywide’s corporate office. When she got in, in March 2007 she found a department in disarray, with multiple divisions responsible for investigation and little oversight—or worse, investigators reporting to the salespeople they were investigating. “That created quite a conflict, a general inability to do an effective job,” she said.

Despite the disarray, at first she was hopeful—the department had been working on a “fraud reengineering plan” that was supposed to reorganize investigations and provide better oversight. Yet that feeling didn’t last. “Hair did start to stand up on the back of my neck when the reengineering plan was finalized on March 31,” she said. Before accepting her new position, she had not been aware she’d be expected to sell the new plan to the company executives—but one of the first things on her agenda was to get executives in each division to agree that there should be a single group that did investigations, with investigators reporting to Foster instead of to them. She said, “I kind of wondered, is this just a sham?”

Executives, somewhat predictably, were less than thrilled with the idea of more oversight, and the plan wound up being shelved. At about the same time, Foster got a call on her internal fraud hotline from a former employee of Countrywide’s subprime division, Full Spectrum Lending (or FSL for short). This former employee described rampant fraud in FSL’s Boston division.

“Normally this would be something that would get handed off to the fraud control unit in FSL,” Foster said. “It didn’t feel right to hand off something of that level. One of the comments was ‘This has been going on for years, nothing’s ever done.’”

And perhaps nothing would have been done, but, Foster said, her counterpart in the fraud control unit within FSL was on vacation. “That made it pretty easy for me to step into a leadership role, take over and call the shots on how the investigation was going to be conducted.” And as the investigation went on, all the allegations the tipster made were vetting out.

A team of investigators went to Boston to look into the complaints in person and were shocked by what they found. “Typically when you’re looking for fraud you’ve got to really look because one of the primary components of a fraud is concealment,” Foster said. “These people weren’t concealing it. They were concealing it from corporate, but every person who walked into those branches every day was a participant.”

“One process was to cut a signature off one document, paste it and make a photocopy so it looks like an original signature,” she continued. “A part and parcel of everyday business was to do anything it took to fund a loan.”

They had templates for fabricating documents, cases of Wite-Out for changing names and a method for gaming the automated underwriting system—plugging in income values until they got one that worked and allowed them to underwrite the loan. They’d keep a template bank statement from each bank, then plug in different borrowers’ names and an asset amount to prove that the borrower could make the payments on the loan.

The Department of Labor report that vindicated Foster described “multiple incidents of egregious fraud spread throughout the entire region, including loan document forgery and alteration, manipulation of borrower’s assets and income, manipulation of the company’s automated underwriting system, the destruction of valid client documents, and evidence that blank templates of bank statements from several different financial institutions were emailed back and forth among loan officers in various branches for use in forging proof of borrower income and assets.”

“I initially was thinking, ‘God this is a big problem,’ it’s not one little thing where you send an email out and it fixes it,” Foster said. “I recognized it as a huge problem but in my mind I was questioning if this was why they put together this fraud reengineering plan.”

Investigating the Investigators

Forty-five days into Foster’s investigation, she got a phone call from the president of the FSL division. “He just went on a rant on the phone,” she said, saying he was “sick and tired of these witch hunts” and demanding to know what she was doing. (Greg Lumsden, the executive in question, toldiWatch News that he didn’t remember Foster or the phone call.)

Foster, meanwhile, was trying her best to come up with reasonable explanations for the things she’d seen. “In order to know that what you’re seeing is what you believe you’re seeing, you have to play devil’s advocate with yourself,” she said. But in this case, the fraud was undeniable—Countrywide wound up closing six of its eight branches in that region and firing around 44 people because of what she’d found.

To some degree, the pushback didn’t really surprise her. “Most places that I’ve worked for the past 25 years there’s always been the sales people and the fraud people, really on two different sides of the spectrum,” she explained. “They say that we’re loan prevention. Their goal is to get as many loans funded as they can and in their mind our goal is to stop the loans from funding. Neither side can go crazy but what clearly happened here was this side was going crazy, their goal seemed to be to eliminate any interference with their revenue, bonuses and commissions.”

Foster moved to try to get the fraud reengineering plan, which had been shelved after intense pushback within the company, reinstated so that she could conduct a more thorough investigation. When the company decided to conduct an internal audit, she took that opportunity to tell auditors her suspicions about the rest of the subprime department. She’d found so much wrongdoing in the Boston division, she had a hard time believing that the few referrals she was getting each month were the only incidents happening across the company. “It seemed like there were two incidents of fraud taking place every five minutes in that Boston region,” she pointed out.

But the audit report was a disappointment. “The audit said that FSL has a reporting problem and they should prepare an action report,” she said. “Anybody reading it would’ve thought they said they needed to vacuum the carpets. It was just made to look like a total nonevent instead of the serious issue that it was.”

It was at this point that Foster started to wonder how much other executives within Countrywide actually knew and were covering up. “I stopped looking at some other executives as victims and considered whether they were actively colluding, or were the architects of the problem. That became very daunting.”

Things got even worse when, in 2008, Foster received a complaint from a Nashville, Tennessee consumer markets division branch—prime lending, not subprime. “It was a pretty shocking thing to read,” she said, with employees saying that the manager of that branch was out of control, that they’d been complaining for years and nothing had happened. “Essentially it contained the same allegations as did the branches in Boston.” (The Department of Labor report indicates “forgery, alteration and destruction of documents, loan manipulation, knowing submission of false documents, and conspiracy with outside business partners to obtain loans for their businesses.”)

Foster was also running into problems with Countrywide’s Employee Relations department, which, according to the DOL findings, did not address complaints of retaliation against whistleblowers and compromised the anonymity of those who tried to report misconduct. Employee Relations was getting in between Foster and her investigations and interfering with the mechanisms in place at Countrywide for anonymous reporting of fraud. Foster noted, “There was very little that was anonymous at Countrywide, it was sometimes too easily used to identify the people and get rid of them.”

At the same time these internal investigations were going on, the broader mortgage market was melting down. By January 2008, when Bank of America reached a deal to buy the sinking Countrywide, it had lost some $1.6 billion over the previous six months. Bank of America may have thought it was getting a good deal—the original price was $2.5 billion—though it wound up costing, in one estimate, about $30 billion when the cost of legal settlements and mortgage writedowns was factored in.

But at the time, at Countrywide, Foster looked forward to Bank of America coming in. “I thought, the people who are doing what they are not supposed to be doing, they can be controlled now.” She applied for a promotion at Bank of America, which only had a few mortgage fraud investigators.

At the same time, she continued to press Countrywide about its problems, going to the managing director of the internal audit department—which reports separately to the president of the company—with her allegations. Instead of looking into her reports, they authorized an investigation of Foster herself. “They did not ask me the details,” Foster said. “This was a notifications email; what should have happened is an investigative team should be assigned and at that point I would share the information that I had collected. Instead they tried to find a reason to get rid of me.”

According to the DOL report, somewhere around April 14, 2008, Employee Relations began questioning Foster’s employees about her conduct—sometimes grilling them for hours. The DOL also noted that Foster’s own boss, Mark Miller, questioned the reasons for ER’s investigation. His concerns grew as the investigation progressed.

In July, meanwhile, the deal with Bank of America was finalized and Countrywide was dissolved into the larger bank. Foster was given a promotion, after a long vetting process, to senior vice president, Mortgage Fraud Investigations Division Executive. And one of the first things BofA did was dissolve the whole subprime division. “It would’ve been exhausting to try to change that culture,” Foster noted. Instead, she thought that Bank of America was sweeping out the old and bringing in the new—and she still had hopes for her new position.

That didn’t last. “Bank of America essentially just jumped on board and tried to shut me up,” she said. In September, she was scheduled to talk to federal regulators from the Office of the Comptroller of the Currency—but she ended up fired instead. “It was on September 2nd they told me I was going to be talking to regulators. It was on September 5th that I refused to be scripted and by September 8th I was fired,” she said. “They handed me a 14-page document saying ‘We don’t think you’re right for this role, if you sign this and don’t talk about it we’ll give you $228,000 and you can be on your merry way.’ I wouldn’t even look at it.

“Their misguided hope was thinking I would take the money.”

Corruption and Consequences

The Department of Labor found that Foster was “a high-performing employee with no history of poor performance or conduct issues,” and ordered Bank of America to pay her back wages, interest and to reinstate her. But that fight took three years and the bank still doesn’t want to make it right. For two of those years, Foster was unemployed.

Meanwhile, the executives at Countrywide and Bank of America have faced few consequences. In 2010, Angelo Mozilo, the co-founder of the company, agreed to pay $67.5 million to the Securities and Exchange Commission to settle fraud charges against him, but no one’s gone to jail. “Who’s suffering the consequences? The good guys are the only consequences? Your bad guys suffer no consequences so that’s why they keep doing it,” Foster said. “I can’t say I knew I was going to lose my job. I thought I was going to get a pat on the back from Bank of America.”

When asked about the extent to which fraud permeated Countrywide’s corporate culture, Foster said there was a core group of people who were willing to do anything. “I don’t know if it was people with just a poor sense of morals, people who were being extorted, people who were being intimidated, coerced, threatened, but there were go-to people. They were either relatively smart or this core of people who protected it was even much larger than I can accept to believe today.”

Yet years later, we still find ourselves debating who’s at fault for the mortgage crisis, with all too many people still attempting to place the blame on the backs of borrowers who bought houses they couldn’t afford. Foster doesn’t buy that, not after what she saw. Without borrowers knowing, she noted, their documents were changed, their signatures cut and pasted onto things they’d never seen, their incomes magically multiplied. “They’d set them up with those teaser rates they could afford, put in the income they needed,” she said. “They were so confident that they could refinance, they could sell it, because property values were going up. That’s how some of the loan officers rationalized it. Another part of fraud is rationalizing what you’re doing.”

The motivation for churning those loans out was the secondary market, where the loans were repackaged and sold to investors—and Foster said the fraudulent loans hit the market just like any other. One of her investigators, in June 2008, received an email from the secondary markets division asking him to remove the flag they’d placed on certain loans so that he could pool them for sale. “I called him up and said, ‘Do you understand what this flag is?’ He was just focused on needing these 27 loans for this sale.”

Foster said that none of the loans from a division that had had six branches shut down for fraud should’ve been securitized or pooled for sale without prior re-examination. “With all of these investigations, when we found a branch or a loan officer or whomever who just had too many delinquencies due to fraud, those loans should’ve been flagged that they couldn’t without further due diligence be securitized, they couldn’t be sold, they couldn’t be transferred to an investor. Because that would’ve been the only thing that could’ve forced Countrywide to change their ways: if they’d been forced to absorb the losses from these loans. But they just passed them on, and nobody was adequately checking up on them.”

And yet regulators and government officials continue to claim that they haven’t found any crimes they can prosecute bankers for. Foster doesn’t buy that either. “There’s a lot of crime going on in these cases. Some people have made false or misleading statements to the federal investigators investigating my case, and there’s absolutely no consequence as a result.”

In the meantime, Foster noted, the banks are simply too powerful and their hold on politicians too strong. Just this month, a House of Representatives report showed that Countrywide “made hundreds of discount loans to buy influence with members of Congress, congressional staff, top government officials and executives of troubled mortgage giant Fannie Mae.” Those members of Congress included former Senate Banking Committee Chris Dodd (D-CT), Senator Kent Conrad (D-ND), Rep. Elton Gallegly (R-CA), and Rep. Howard “Buck” McKeon (R-CA).

“Even if you want to do the right thing, you can’t ignore realities. When you see somebody who goes up against the giant and gets squashed you’re not going to run under the next bootstep,” Foster said. “The only way that you get society to abide by certain rules, there has to be some sort of consequences that outweigh the benefit.”

Sarah Jaffe is an associate editor at AlterNet, a rabblerouser and frequent Twitterer. You can follow her at @sarahljaffe.

The Raw Story

I’m going to reprise a Ticker from 2011-10-18, which you can read here if you want the original, but in a political context.

There was once a nation that was comprised of fish.  The fish lived in a pond that was 64×64 in size, or 4096 square units of surface area.  As with all fish they survived on dissolved oxygen in the water, which came to the water by exchange with the atmosphere above.  Plants grew in the water, receiving their energy from the sun while recycling the waste emitted by the fish as nutrients, and the fish ate the plants. All was well in the nation of fish.

But the economy of fish was limited by its growth.  Some of the bottom where the fish lived was rather rocky, and not much suited to cultivation of aquatic plants.  Some of the bottom was fertile, and beneath still more were various rare and natural treasures, such as energy sources that the fish could use for manufacturing.

One day a bright fish that worked for a bank called “Goldfishbank” got the idea that since plants were food, and more growth is better, the nation would be served by faster “growth.”  He introduced to the pond a species of lilly that reproduced very rapidly.  In fact, it produced a new lilly once each day.  He began by placing just one lilly of one unit of size, or 1/4096th of the surface of the pond, in the water.

The next day there were two, and the fish nation cheered.  Then four, and the fish nation demanded that this fine fish be President.  Then eight, and all was even better in the world.

There were, however, some fish that became alarmed, for they had not been sleeping in school.  They knew, as well, that their very survival depended on the exchange of oxygen with the air above, and that absent this exchange all of the fish would surely die.

The great prosperity that appeared to flow, however, led the scholars to be shouted down.

Unfortunately the great prosperity resulted in the price of fish dwellings, foods and fuels rising precipitously.  The credit created by all of this growth, which had heretofore appeared to be impossible, made everyone feel wealthy.  After just eight days what was 1 lilly had become 128; both great and permanent prosperity appeared to have blessed the fish.

Two days later the pond was 12.5% covered with lillies.

But in the middle of this prosperity there was much corruption and theft.  The interest rates charged to lend money were corrupted by some of the fish banksters, who reasoned that they were merely making very smal changes in what they reported, and due to the leverage they employed, reaping billions of profits.  This they did by stealing pennies from each fish per day.  Nobody would jail them.

There were other fish that were involved in lending for dwellings, and they too scammed the public.  Some of the lenders collapsed, yet they paid only small fines while most of the fish suffered monstrous losses, with many losing their homes.

Still other parts of the fish economy were involved in health care, and they got laws passed to make differential pricing, cost-shifting and other monopoly behavior protected, for this was their way to riches.  Soon the fish nation spent twice as much on health care as a percentage of its economy as all the other fish nations, but all these monopoly protections, enacted into law, were not seen as the corruption they were.

Unemployment became a problem and the fish nation saw its standard of living decline.  This was puzzling, for the proponents of the new lily had said that such prolific growth would lead to permanent prosperity.  There were many who claimed that the lily was simply not prolific enough, and that means must be found to spur even more lilies to grow.

The three major political parties sparred over the unemployment and economic malaise.  The two largest ones offered that taxes should be increased on the most-fortunate fish and that taxes should be decreased for all fish, respectively.  But neither put forward a plan to cut down the size of the government, which was sapping an increasing amount of the economy.

The third party decided to state that it should cut the size of the government by 43%.  But it refused to address the main growth drivers of the government, that being the medical industry’s special protections.  Nor did that party appear to give a damn about all the scams and frauds, which had stolen monstrous amounts of wealth from all the fish.

Soon the political debate within that third party turned to whether fish should be able to smoke pot, which was currently prohibited under penalty of law, and whether a fish named Steve should be able to marry one named Larry.  Some fish believed this was a civil right and of the utmost importance, while others believed it was Satanic.

Yet these were the only points of political debate on which this third party focused, instead of on the financial institutions that had skimmed off all the “prosperity” that had been promised to the fish nation by the Goldfishbank and others in the financial industry, along with the medical industry that had lobbied for their special protections and which were bankrupting the fish nation’s government.

A few of the third party analysts saw that in point of fact the lily issue was soon to kill all the fish and the entire fish nation economy.  They were poo-pooed and called alarmists, for the sun was still visible in the sky above, and their rising stridency was called “divisive” or that “if you simply changes your approach you could actually influence people.”  They were even told that their commentary was “self-righteous.”

But that commentary, labeled “divisive” and in fact dismissed with “that ends our conversation and damages both our working relationship and friendship” was based the simple fact that while just 12.5% of the pond was covered, the entire fish nation was only three days from extinction, and the last two days had been wasted arguing over gay marriage and dope smoking instead of addressing the impending and mathematically-certain disaster.

Now we got something interesting going on….

Sometimes law is complex, nuanced, difficult.  Other times it’s black and white…you just read the words, look at the facts and the answer is unavoidable.  Such is the case with the simmering dispute over the fact that the notes that are part of nearly every residential foreclosure case are not negotiable instruments.  Oh sure, too many courts won’t take the time to consider the argument and…just yesterday I heard an appellate court argument where the judges just kept repeating the mantra, “this is a negotiable instrument” without ever doing any analysis at all and without any finding of that “fact” from the trial court.  The attorney needed to stop the appellate judge right there and say, “No Your Honor, it’s Not A Negotiable Instrument”.

Matt then goes into a rather complicated and technical discussion of what all this means.  I’ll try to simplify it.

A negotiable instrument is (under the UCC Section 3) something that involves only (1) the payment of money, and (2) possibly the payment of interest.  It can be payable on demand or a specific time.

Because it is an instrument that has no real interpretation available as to whether the terms were complied with or not (it’s just about money) these can be passed around as if they were cash by simply “negotiating” (signing) the back.  You can pass a check around like this; it is a negotiable instrument because it is payable on demand and it is only an instrument for a given amount of money.

A mortgage inherently contains other conditions, such as “you will maintain insurance”, “you can prepay without penalty (or with one)”, “the following things can be charged to you other than principal and interest”, and “the note might be accelerated (due in full) if I do (or don’t do!) x, y or z.”

None of these are simply the payment of money on a given schedule or upon demand, coupled with a possible payment of interest.  All involve other conditions, which make the note non-negotiable.

The reason it’s not negotiable is that the formal process of assignment transfers not only the note but also the obligations of the parties, including the beneficiary — who might have obligations.  It is thereforemuch more formal than something that is “negotiable”.  Assignments require formalities like notaries and such, because everyone has to agree – - not just the borrower.  And if the formalities are not followed then the assignment simply never happened and title to the note in question remains with the original party.

The import of this decision, assuming it stands, is significant.  It means that the “defenses” to all the fraudclosure crap may just evaporate, as once you force recognition of all of those formalities if they didn’t happen then the guy standing in front of the judge asking to steal your house fails, as he’s not the right person to be making the request — that is, he’s a thief instead of a forecloser!

And once you force these institutions to come to court with true and complete documents you find that they can’t — they have played “fast and loose” with the documents, they don’t have them at all, they try to cheat and forge them, and in some cases it appears they are trying to collect twice on the same instrument!

You can bet this ruling will be challenged, but there is hope so long as we have some real jurists that remain on the bench.  And as Matt explains, attempting to use these arguments “pro-se” is dangerous,but the fact remains that there is progress in this decision.

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No, really?

WASHINGTON –  The former Countrywide  Financial Corp., whose subprime loans helped start the nation’s foreclosure  crisis, made hundreds of discount loans to buy influence with members of  Congress, congressional staff, top government officials and executives of  troubled mortgage giant Fannie Mae, according to a House report.

Isn’t that pretty-much bribery?

The Justice Department has not prosecuted any Countrywide official, but the  House committee’s report said documents and testimony show that Mozilo and  company lobbyists “may have skirted the federal bribery statute by keeping  conversations about discounts and other forms of preferential treatment  internal. Rather than making quid pro quo arrangements with lawmakers and staff,  Countrywide used the VIP loan program to cast a wide net of influence.”

Skirted eh?  So all I have to do is make sure that there’s no record of anything I might want in return for such a thing, or simply shower Congressional offices with various “intangible” gifts, and if it happens to lead to benefit, well, that’s ok?

Yeah, right.  It may be “legal” but that doesn’t make it right!

I have written much about Countrywide and the bankster actions in general during the 2000s.  There were so many clear abuses that several States attempted to stop them with lawsuits and other enforcement action.  The Bush Administration sued to block these enforcement actions, arguing that as banks and other firms doing business across state lines the businesses in question were subject to exclusiveFederal Jurisdiction and could not be sued by The States.

In other words, at the explicit direction of the Bush White House, you got screwed.

And then under Obama you got more screwed as his White House has refused to bring charges and prosecute either.

What’s even worse is that even Gary Johnson, allegedly a Libertarian, has said “Nobody committed any crimes” and he has refused to demand that those responsible for these abusive practices face the music!

We have a Parliament of Whores with all of your choices for November being in fact Robbers in Chief, both real and prospective, and you, the common man, have been and will be in the future serially abused as a consequence — right up until you demand better politicians.

The Market-Ticker

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