Four years after the banking industries reckless lending practices and criminal schemes led to a near collapse of of the economy, taxpayer funded bailouts and secret Federal Reserve loans totaling trillions of dollars; federal prosecutors are still turning a blind eye even as judges around the country are pointing fingers at possible wrongdoing.
The Justice Department claims that hard evidence is hard to come by but according to a new Reuters report that is not the case.
Foreclosure-related case files in just one New York federal bankruptcy court hold at least a dozen mortgage documents known as promissory notes bearing evidence of recently forged signatures and illegal alterations, according to a judge’s rulings. Altered notes have appeared in courts all around the country.
In the past two years banks have refused to halt forecloses on thousands of active-duty U.S. soldiers homes who are legally eligible to have foreclosures stopped. Refusing to grant foreclosure stays is a misdemeanor under federal law. The U.S. Treasury stated in November that it is conducting a civil investigation of 4,500 such foreclosures. Attorneys representing service members estimate banks have foreclosed on up to 30,000 military personnel in potential violation of the law.
Last month in Alabama, a federal bankruptcy judge ruled that Wells Fargo & Co. filed at least 630 sworn affidavits containing false “facts,” including claims that homeowners were in arrears for amounts not yet due.
Wells Fargo “took the law into its own hands” and disregarded laws banning perjury, Judge Margaret A. Mahoney declared.
In thousands of cases, documents required to transfer ownership of mortgages have been falsified. Mortgage servicers who needed the originals to foreclose simply drew up new ones, falsely signed by their own staff as employees of the original lenders, many of which no longer exist.
Most of the major banks have been able to somehow avoid federal prosecution thus far but Reuters has identified one pending federal criminal investigation into Florida-based Lender Processing Services, the nation’s largest subcontractor of mortgage servicing duties for banks. People close to the investigation said indictments may come as early as the end of this month.
Officials in state attorneys’ general offices and lawyers in foreclosure cases say they have seen no signs of any other federal criminal investigation.
“I think it’s difficult to find a fraud of this size on the U.S. court system in U.S. history,” said Raymond Brescia, a visiting professor at Yale Law School who has written articles analyzing the role of courts in the financial crisis. “I can’t think of one where you have literally tens of thousands of fraudulent documents filed in tens of thousands of cases.”
Justice Department and Federal Bureau of Investigation officials say they have brought mortgage-fraud criminal cases through their “Operation Stolen Dreams.” None, however, were against big banks. All targeted small-scale operators charged with defrauding banks with forged mortgage applications or for taking advantage of homeowners by falsely promising arrangements to get them out of default and then keeping their money.
Justice Department spokeswoman Adora Andy declined to comment on the absence of prosecutions for foreclosure practices by big banks.
She said in a statement: “The Department of Justice has been and will continue to aggressively investigate financial fraud wherever it occurs, including at all levels of the mortgage industry and, when we find evidence of a crime, we will not hesitate to pursue it.”
Some judges have accused banks of falsely stating in court that they are working on loan modifications for homeowners in default.
“Bank of America issues constant press releases about how it is responsive to their borrowers on these issues. They are not, period,” said Judge Robert Drain, in a case involving homeowner Richard Tomasulo, a pharmacist from Crompond, New York. Judge Drain said Bank of America had not been working to modify Tomasulo’s mortgage despite telling the court that they had been since January.
“Whoever is in charge of this program and their supervisor, who should be following it, should be fired” because “they are frankly incompetent.”
Bank of America spokeswoman Jumana Bauwens said the bank has completed “nearly one million” modifications since 2008. The U.S. Treasury suspended loan modification incentive payments to the bank this year because it was “seriously deficient” in responding to requests for modifications.
Mounting evidence of foreclosure fraud has convinced judges and state regulators that servicers have harmed homeowners and the investors who bought mortgage-backed securities.
In September of 2010, evidence surfaced that employees of Ally Financial Corp. were guilty of “robo-signing,” which is the act of low-level workers signing and swearing to the facts in thousands of affidavits they hadn’t read or checked. The affidavits were then notarized outside the signers’ presence, a violation of state and federal criminal laws.
A unit of the Justice Department that oversees bankruptcy court cases, the U.S. Trustees Program, said in its 2010 annual report that there were “pervasive and longstanding problems regarding mortgage loan servicing,” which “are not merely ‘technical’ but cause real harm to homeowners in bankruptcy. According to the Trustees Program, banks falsified affidavits by claiming homeowners owed fees for services never rendered and by overstating how much owners were behind on payments.
In October 2010, members of Congress pressed the Justice Department to investigate. Attorney General Eric Holder said investigations were best left to the states, with help from the Justice Department.
The Office of the Comptroller of the Currency, the top bank regulator, quickly negotiated settlements with the 14 largest servicers, requiring changes in practices and “remediation” for homeowners. That settlement allows the banks to choose their own contractors to determine who was harmed and by how much. Lawmakers and homeowner advocates have criticized the arrangement, contending that it will let the banks avoid making all wronged homeowners whole, because the contractors are paid by and answer to the banks.
Last year the FBI’s Las Vegas office shut down its mortgage fraud task force, even though Vegas has been one of the hardest hit areas of the crisis. Tim Gallagher, chief of the FBI’s financial crimes section, said that the Las Vegas office had asked to transfer agents to other duties.
The most serious potential foreclosure violations involve falsified mortgage promissory notes, the documents homeowners sign vowing to repay mortgage loans. Courts have ruled that unless a creditor legally owns the promissory note, it has no legal right to foreclose. For each mortgage there is only one promissory note.
Bankruptcy court records reviewed by Reuters show that at least a dozen different documents purporting to be the authentic promissory note have turned up in foreclosure cases involving six different properties in the federal bankruptcy court for the Southern District of New York.
In one, Wells Fargo is attempting to foreclose on the Bronx home of Tindala Mims, a single mother who works as an ambulance driver. In September 2010, Wells Fargo filed a promissory note bearing a signed stamp showing that the note belonged to defunct Washington Mutual Bank, not Wells Fargo. The judge threw out the case.
In a second attempt, the court was given a different version of the note. But inspection showed physical alterations. A variety of marks on the original were missing and altered on the second. The second version had a stamped endorsement, missing on the first, that appeared to give Wells Fargo the right to foreclose.
The judge threw out the second attempt too. Wells Fargo is trying a third time and declined to comment on the case.
Linda Tirelli, Mims’ lawyer, in October sued Wells Fargo, for “fabrication of documents.”
“It seems to me that Washington is deathly afraid of the banking industry,” Tirelli said. “If you’re talking about filing false documents and filing false notarizations, do you really think that the U.S. Attorney would find it too difficult to prosecute?”
The office of Attorney Preet Bharara in Manhattan has routinely brought charges involving forgery and filing false documents against smaller targets.
In April, the FBI arrested seven employees of the USA Beauty School in Manhattan. Bharara’s office alleged that the seven suspects had forged documents such as high school diplomas, attendance records and applications for financial aid for students taking cosmetology classes.
In August, Bharara’s office filed felony charges against a sports-memorabilia company’s CEO, accusing him of auctioning jerseys falsely advertised as “game used” by Major League Baseball players.
In a press conference, a U.S. Postal Inspection Service official said prosecution was important because “victims felt that they had a piece of history only to be defrauded and left with a feeling of heartbreak.”
Given the record of Bharara’s office, and those of his fellow U.S. Attorneys around the country, to aggressively pursue violations both big and small, the absence of cases involving the foreclosure fiasco seems to stand out.
“Why there hasn’t been more robust prosecution is a mystery,” said Brescia, the visiting professor at Yale.
What is Obama’s stance on all of this? In classic political double speak, President Obama spoke out of both sides of his mouth in a 60 Minutes interview about the issue.
Hey Mister President Reuters has a new report out that makes for an interesting read, you should check it out.