Sense on Cents Calls Out Jamie Dimon, Vikram Pandit, Brian Moynihan, Michael Carpenter, and John Stumpf
Posted by Larry Doyle on May 17, 2011 9:30 AM |
(This commentary is a little lengthy, but not overly so. I strongly encourage you to read and ponder the details embedded here as I firmly believe America’s core principles of decency and justice are on the line. Let’s stand up for America!!)
What would be the outcry in America if a foreign government or corporation knowingly and willingly abused the personal finances of multiple tens of thousands of our fellow citizens? Imagine if that entity were a large Chinese national bank or a Russian financial conglomerate? What if it were a division of an organization involved in illicit activities or even worse?
Do you think the United States government would intervene very aggressively on behalf of our fellow brethren? Might the media be up in arms with headline stories on a daily basis? Would the personal assaults precipitate an international trade embargo or a discontinuation of diplomatic relations? Does this sound like the stuff of a Harrison Ford virtuoso performance? Even better, this must be the plot to the next James Bond thriller, right?
I do not believe the scenario I paint in my introductory paragraphs is all that far fetched. Americans take real pride in defending the honor and integrity of our fellow citizens. Then why I ask does the American government, the American media, and the American electorate – largely speaking – stand idly by when the entities which have financially assaulted our fellow citizens are not based overseas but have their home offices in New York, Charlotte, and San Francisco? Why is it that to the best of my knowledge—and I watch very closely—only one journalist from a major media outlet calls these organizations on the carpet? Why, why, why?
I have written previously about the ongoing travesty and nightmare encompassing the mortgage foreclosure mess and the accompanying horrendous practices of the mortgage servicing entities within our large money center banks. I have often questioned, Did Wall Street Violate the Racketeering Act? in a variety of its mortgage practices. These financial titans and the executives running them would just as soon pay a relatively modest fine (while still being able to borrow funds from the Federal Reserve at next to nothing), impede real disclosure and discovery, sweep the nightmare under the rug, and get back to the benefits and easy pickings of the oligopoly which currently defines Wall Street.
For those of us who embrace the virtues of truth, transparency, and integrity, I have little interest in allowing the assaults on our fellow citizens to pass without greater attention and focus. On that note, let’s navigate and highlight the findings of The New York Times’ fabulous journalist Gretchen Morgenson (a surefire first ballot inductee into the Sense on Cents Hall of Fame) as she recently detailed how the Wall Street banks would care to make A Low Bid for Fixing a Big Mess:
As the Rajaratnam verdict captivated many on Wall Street last week, the institutions that service about two-thirds of the mortgages in this country offered to pay $5 billion to settle allegations about robo-signing and other shady practices that quick-step troubled borrowers out of their homes.
That figure is a fraction of the $20 billion that state attorneys general had apparently floated. If regulators accept the lowball offer, perhaps that would be because they haven’t dug deep enough.
Because evidence of extensive and abusive servicing practices does in fact exist. It is piling up at the offices of the United States Trustee Program, the arm of the Justice Department that monitors the bankruptcy system. Over the past six months, the trustee has drawn material from 95 field offices covering 88 judicial districts. The findings should dispel any notion that toxic servicing practices were atypical or have done no harm.
Clifford J. White III, director of the executive office of the United States Trustee, discussed some of the findings in an interview last week. But before we recount the ugly details, it’s worth noting the immense pushback the banks have mounted against the trustee office.
Banks have repeatedly tried to thwart the program’s actions, filing lawsuits and court motions to prevent officials from compiling evidence. Never mind that part of a trustee’s job is to investigate possible improprieties in foreclosures to determine if they are poisoning the bankruptcy system.
“We have faced consistent opposition by all of the major servicers,” Mr. White said. “We are currently facing 200 motions to quash our discovery requests. We also are facing upwards of 20 appeals either in district courts or in circuit courts.”
Those pushing back include Bank of America, Citigroup, G.M.A.C., JPMorgan Chase and Wells Fargo, he said.
The banks typically make two arguments. First, they say the trustee program has no legal standing to delve into individual cases between lenders and borrowers because it is not a “party” to these disputes. Every court has rejected this claim. Nonetheless, the tactic has allowed servicers to stall trustees’ discovery requests.
In other cases, the banks agree to turn over information in specific matters of interest to the trustee program but refuse to provide details on their overall policies and procedures, which could show deep and systemic flaws.
Why are these institutions so afraid of a little sunlight? (LD’s edit)
To be sure, the nationwide investigation by the United States Trustee’s office represents an aggressive tack that big financial institutions are unaccustomed to. “The bankruptcy system provided an early warning sign of problems in mortgage servicing,” Mr. White said. “We began looking a few years ago at some of the violations of mortgage servicers, on a case-by-case basis. What’s different from the past is, if we find a facial discrepancy” — something that’s a problem on its face — “we are off the bat seeking discovery.”
When the banks have provided information, lawyers for the trustee program have often found extensive errors in amounts owed and charges levied. Needless to say, these mistakes do not typically favor the borrowers.
Mr. White declined to get specific. But the mistakes that his office has found fall into two broad categories. One involves inaccurate amounts that the banks say borrowers owe. The accuracy of these documents, which are filed with the courts, is crucial. Borrowers and bankruptcy judges overseeing their cases use them to determine payment schedules to cure defaults, for example.
Inaccuracies often arise because loan servicers fail to reflect that borrowers are in trial loan modifications, like those offered by the government, Mr. White said. As a result, though borrowers are paying the proper amounts, the servicer shows them falling behind. Then the bank moves to restart foreclosure.
In other cases, proofs of claim filed by servicers are just wildly off base. In one matter, a bank claimed to the court that a borrower owed $52,043. After the borrower objected and a trustee asked for documentation, the amount owed dropped to $3,156.
Imagine what would have happened if the amount hadn’t been questioned?
The other problematic area showing up in the trustees’ inquiries relates to what Mr. White calls improper default servicing fees. These include charges for legal work, property inspections, insurance and appraisals.
Often, the fees charged to troubled borrowers are not even specified. Trustee program officials found a defaulted borrower who was charged $10,260.50 in “prior service fees” with zero documentation. In another case, a borrower fell behind after the lender doubled his escrow payments with no explanation or justification. Then the bank filed a motion to lift the bankruptcy stay so that it could foreclose.
“In fewer than 20 judicial districts,” Mr. White said, “we have identified hundreds of facial deficiencies, including cases in which we seek to investigate inflated or improper escrow charges and cases in which the mortgage servicer sought relief from stay so it could foreclose on a debtor’s home.”
Mistakes happen, of course. And loan servicers like to contend that if errors occur, they are rare and honestly made. But after sifting through the data produced by this investigation, Mr. White disagreed that problems are rare. “In Senate testimony, an executive from Countrywide said its error rate was 1 percent,” Mr. White recalled. “The mortgage servicer industry error rate might be 10 times higher, based on the number of cases we are looking at.”
“There are continued flaws in the process, and they are not merely technical,” Mr. White continued. “Those flaws undermine the integrity of the bankruptcy system. Many homeowners have been harmed, including where the lender has come in and said ‘we want to lift the stay and go back into foreclosure proceedings,’ even though they lacked a sufficient basis to do it.”
He went on: “There are enough examples of this to know that we are not dealing with small numbers.”
So an authoritative source with access to a lot of data has identified industry practices as not only pernicious but also pervasive. Which makes it all the more mystifying that regulators seem eager to strike a cheap and easy settlement with the banks.
Is your blood boiling? Why aren’t the banks willing to provide real disclosure and proper discovery? What are they trying to hide? Imagine if a foreign entity operating within our borders engaged in these types of practices? Would our officials in Washington bow down and roll over? Would the regulators overseeing these entities accede to these financial behemoths? Is our nation still being held captive by these institutions under the guise that the banks need the capital more than our nation needs its principles?
I implore the attorneys general in our great land to stand their ground. I call on Congress to hold a public hearing and bring the chief executives to Washington for serious and open questioning. Let’s hear from JP Morgan’s Jamie Dimon, Citigroup’s Vikram Pandit, GMAC’s (Ally Financial) Michael Carpenter, Bank of America’s Brian Moynihan, and Wells Fargo’s John Stumpf.
America deserves nothing less.
Thank you Ms. Morgenson for your continued fabulous work.
I have no affiliation or business interest with any entity referenced in this commentary. The opinions expressed are my own. I am a proponent of real transparency within our markets so that investor confidence and investor protection can be achieved.