BANKS IN FLORIDA TO GET FREE LEGAL RIDE ON THEIR FRAUD

 PLEASE DON'T ALLOW THEM TO GET AWAY WITH THIS.

http://signon.org/sign/do-not-support-the-florida?source=c.url&r_by=533269

Wide Eyed Cinema With Things You're Not Likely To See In The USA

http://www.youtube.com/watch?v=Rml_k005tsU&feature=player_embedded

The Site is:
http://wideeyecinema.com/?p=105

HUD Audits Show Five Biggest Servicers Defrauded Taxpayers

HUD Audits Show Five Biggest Servicers Defrauded Taxpayers

This revelation, that HUD audits of the biggest servicers over a mere two-month period, showed extensive fraud, is proof that mortgage abuses were widespread. It also establishes that the effort by Tom Miller to settle the 50 state attorneys general investigation quickly and and the recent “see no evil” Federal consent orders are a cover up. The fact that HUD found extensive misconduct over a similar time frame as the Foreclosure Task Force, which Assistant Treasury Secretary Michael Barr described as a ““11-agency, 8-week review of servicer practices, with hundreds of investigators crawling all over the banks” proves that the latter to be pure regulatory theater. And as we’ve noted, the Tom Miller-led effort has done no investigations, guaranteeing that the negotiators would have no bargaining power.

From Shahien Nasiripour at Huffington Post:

A set of confidential federal audits accuse the nation’s five largest mortgage companies of defrauding taxpayers in their handling of foreclosures on homes purchased with government-backed loans…

The five separate investigations were conducted by the Department of Housing and Urban Development’s inspector general and examined Bank of America, JPMorgan Chase, Wells Fargo, Citigroup and Ally Financial…

The audits accuse the five major lenders of violating the False Claims Act, a Civil War-era law crafted as a weapon against firms that swindle the government. The audits were completed between February and March, the sources said. The internal watchdog office at HUD referred its findings to the Department of Justice, which must now decide whether to file charges…

The audits conclude that the banks effectively cheated taxpayers by presenting the Federal Housing Administration with false claims: They filed for federal reimbursement on foreclosed homes that sold for less than the outstanding loan balance using defective and faulty documents.

Two of the firms, including Bank of America, refused to cooperate with the investigations, according to the sources. The audit on Bank of America finds that the company — the nation’s largest handler of home loans — failed to correct faulty foreclosure practices even after imposing a moratorium that lifted last October. Back then, the bank said it was resuming foreclosures, having satisfied itself that prior problems had been solved.

Yves here. This demonstrates that the banks have not cleaned up their bad practices despite promises to do so. And notice the “improper documents” issue got national attention, led several major servicers to halt foreclosures in multiple states and were put under the spotlight in a series of Congressional hearings. The banks piously claimed these were mere mistakes and they would fly straight. This exam shows them to have lied, pure and simple.

And Wells Fargo which has repeatedly and annoying claimed to be better than the other banks, is revealed to be worse, that its abuse can’t be pinned on low level employees or lax supervision of foreclosure mills:

….the Wells Fargo investigation concludes that senior managers at the firm, the fourth-largest American bank by assets, broke civil laws. HUD’s inspector general interviewed a pair of South Carolina public notaries who improperly signed off on foreclosure filings for Wells, the sources said.

It also appears the 50 state attorneys general effort is falling apart as individual states decide to pursue their own actions. We said early on the banks were nuts not to pay $20 billion and be done with the matter. They had a weak and overeager negotiator in Miller and mistakenly overplayed their hand, forgetting that the fact that he was doing such a piss poor job meant an overly-bank-favorable deal would not fly with his fellow AGs. Back to the article:

The state of Illinois has begun examining potentially-fraudulent court filings, looking at the role played by a unit of Lender Processing Services. Nevada and Arizona already launched lawsuits against Bank of America. California is keen on launching its own suits, people familiar with the matter say. Delaware sent Mortgage Electronic Registration Systems Inc., which runs an electronic registry of mortgages, a subpoena demanding answers to 75 questions. And New York’s top law enforcer, Eric Schneiderman, wants to conduct a complete investigation into all facets of mortgage banking, from fraudulent lending to defective securitization practices to faulty foreclosure documents and illegal home seizures.

Finally, we are seeing steps in the right direction. Let’s hope the momentum continues.

http://www.nakedcapitalism.com/2011/05/hud-audits-show-five-biggest-servicers-defrauded-taxpayers.html

Matt Stoller: The Corrupt Establishment Begins Smearing Eric Schneiderman

Matt Stoller: The Corrupt Establishment Begins Smearing Eric Schneiderman

By Matt Stoller, the former Senior Policy Advisor to Rep. Alan Grayson and a fellow at the Roosevelt Institute. You can reach him at stoller (at) gmail.com or follow him on Twitter at @matthewstoller

Last month we had New York Fed Board Member Kathryn Wylde whining and meddling about Eric Schneiderman’s investigation into big banks. That seriously backfired. HUD Secretary Shaun Donovan put pressure on him as well, and that didn’t go over so well. And after Tom Miller petulantly stopped allowing Schneiderman on his AG conference calls, there was a mini-media storm over the rancid character of the DOJ and bankster-owned Miller. None of the insider signals worked, so now it’s on to stage two of neutralize Schneiderman. It’s time for…. the smear campaign!

Two editorial boards are coming out and using innuendo to paint Schneiderman as a self-promoter looking to make a name for himself by unfairly tarnishing banks. It’s pretty standard – throw up rumors that have a narrative basis in the American psyche, and chip away at public faith. Here’s the Washington Post’s editorial.

The majority of the other attorneys general, led by Tom Miller of Iowa, have kicked Mr. Schneiderman out of the negotiations, accusing him of making excessive demands. Mr. Schneiderman protests that the banks are to blame, for trying to use the robo-signing case to get immunity they could use on the securities front. Mr. Miller and his colleagues respond that they have no intention of letting the banks off that particular hook.

We’re tempted to declare a pox on everyone’s house — or at least say that the banks are getting what they deserve for being sloppy, and that the attorneys general are getting what they deserve for exploiting an overblown scandal to shake down the banks.

After all, the banks will have to come up with that $20 billion somehow — perhaps through reduced lending and higher fees. That wouldn’t be a problem if the money were going to compensate victims. But it won’t, because there don’t seem to be many victims

Notice the lie (repeated below in the other editorial) – that the majority of Attorneys General threw Schneiderman off the 50 state task force. No, it was Tom Miller’s decision, period. Or at least, that’s what some newspaper called The Washington Post reported last week.

So why is the Post lying about this situation? Why the split between the news and editorial? It might have something to do with, well, money! You see, the Washington Post newspaper isn’t profitable, the company makes most of its money from its for-profit educational subsidiaries (hence the nickname “Kaplan Test Prep Daily), including its for-profit university. And guess who is investigating the shady practices of the subprime university educational racket?

Mr. Schneiderman is looking into whether the schools and their recruiters misrepresent their ability to find students jobs, the quality of instruction, the cost of attending, and their programs accreditation, among other things. Such activities could constitute deceptive trade practices or fraud.

Oops. Looks like the Washington Post has a financial interest in kneecapping the New York Attorney General. While Kaplan isn’t being investigated, the entire sector is reliant on government subsidies that are at risk should criminal charges nail a few of the schools.

Next up is the New York Daily News, a paper which has now gone after Schneiderman twice for… being an elected official. The latest hit is that Schneiderman sent out an email to his political list after getting pressure from Tom Miller and the Obama administration. The horror! A politician wants to communicate his side of the story after the President, major money center banks and the New York Fed go after him. How inappropriate! For shame!

It’s not like the regulators, banks, and Tom Miller’s office have been leaking like a sieve and lying to the press for months. Oh wait, they have. And it’s not like Tom Miller took enormous sums of money from out of state banks and then turned around to negotiate a sweetheart deal with those same banks. Oh wait, he did.

Finally, there’s Mort Zuckerman himself, the real estate billionaire who owns the New York Daily News. He wouldn’t have a financial interest in the banks, would he? Well, let’s see. In 2008, he was busted shilling for a bailout of Citigroup, because Citigroup rented more than a million square feet of space from his company. The guy went on TV and passionately advocated public policy positions that would help his bottom line, while owning major media outlets. Fascinating.

Schneiderman’s gotten on the wrong side of some very aggressive and very powerful people. It’s enjoyable to watch them flail around, at least for a little while.. They have given him hints, they have told him publicly and privately to back down, and you can hear the increasing frustration at New York cocktail parties. He should just know better, right? For now, it’s fruitless – they can’t sway him, and they can’t destroy him, and everything they try backfires. It’s not only hilarious, it’s also a window into just how these people exercise power.

http://www.nakedcapitalism.com/2011/09/matt-stoller-the-corrupt-establishment-begins-smearing-eric-schneiderman.html

Banks Took $6B in Reinsurance Kickbacks, Investigators Say

Banks Took $6B in Reinsurance Kickbacks, Investigators Say

Many of the country's largest banks received $6 billion in kickbacks from mortgage insurers over the course of a decade, according to a previously undisclosed investigation by the Inspector General of the Department of Housing and Urban Development.
The allegations, since referred to the Department of Justice, stem from lenders' demand that insurers cut them in on the lucrative business of insuring the mortgages they produced during the housing boom.
In exchange for the their business, companies such as Citigroup Inc, Wells Fargo & Co, SunTrust Banks Inc. and Countrywide allegedly required reinsurance partnerships on generous terms that violated the Real Estate Settlement Procedures Act, a 1974 law prohibiting abusive home sales practices.
During a two-day presentation in the summer of 2009, HUD's team presented DOJ attorneys with a thick binder of evidence that major banks had engineered a decade-long kickback scheme, people familiar with the investigation say.
Documents from the investigation show that the inspector general's staff concluded that banks and insurance companies had created elaborate financial structures that had the appearance of reinsurance but failed to transfer significant amounts of risk to their bank underwriters.
Some of the deals were designed to return a 400% profit on a bank's investment during good years and remain profitable even in the event of a real estate collapse.
Making matters worse, banks allegedly forced unknowing consumers to buy more insurance than they needed and failed to properly disclose the reinsurance agreements, another RESPA violation.
HUD's acting inspector general, Michael Stephens, worked on the case before being appointed to head the inspector general's office last year. He acknowledged the investigation's existence and expressed frustration that the case had not yet produced a settlement or prosecution.
While Stephens said he was still "hopeful" that prosecutors would bring a case, "this thing has been going on for too damn long."

PUNISHING INSURERS
Market observers, analysts and ratings agencies long questioned the reinsurance deals, but banks and insurers publicly maintained they met the standard for arms-length transactions set out in a 1997 policy letter circulated by HUD. The deals, they said, were not the result of coercion.
What those companies may have believed in private is another matter.
Wells Fargo and Bank of America Corp. have settled class action cases alleging the same sort of misconduct flagged by HUD, and internal documents show that banks and insurers viewed the arrangements as a thinly veiled pay-to-play scheme. Even as insurers complained they couldn't afford the escalating cost of the reinsurance payments, banks threatened or punished companies that balked at providing them, documents obtained by American Banker show.
Wells Fargo & Co told one insurer that it should consider giving Wells such deals if it wanted business referrals. After insurer MGIC Investment Corp. announced plans to cut back on banks' share of premiums in 2003, Countrywide executives complained to an MGIC executive and told him that they were shifting Countrywide's business to MGIC's competitors.
"I think we should continue to decrease there [sic] share again," former Countrywide business operations executive Mitch Turley wrote in an email to colleagues that was later obtained by investigators and reviewed by American Banker. (B of A bought Countrywide in 2008, after the alleged wrongdoing occurred; Turley no longer works for B of A and did not respond to an interview request from American Banker.)
Noting that the mortgage industry was in dire shape when investigators handed their case to prosecutors, the inspector general's office proposed that much of the penalty should be stayed. Even still, the proposed settlement would be the most aggressive action ever pursued under RESPA, requiring banks to pay hundreds of millions of dollars in fines and restitution.
Although HUD's investigation was referred to the Justice Department last year, people familiar with the case say that prosecutors have done little to advance it. Contacted by American Banker, a spokeswoman declined to discuss the case.
Prosecutors had agreed the case was well worth taking when it was first referred to them, said former HUD Inspector General Ken Donohue and others.
"I'm bewildered by why this wasn't pursued on an aggressive basis," Donohue said.
"NO BONA FIDE PURPOSE"
HUD's case began far from its Washington headquarters. Around 2007, Special Agent Julien Kubesh of the inspector general's Minneapolis field office teamed up with the Minnesota Department of Commerce in a review of the insurance on home loans, people familiar with the investigation say.
Mortgage insurance, often required for borrowers without sizable down payments, is a substitute for equity that serves to protect a loan's owner in the event of a borrower default. Banks typically choose the insurance carrier, but borrowers pay for the coverage in the form of higher net mortgage payments. In the industry's early years, there were no financial ties between banks and the insurers.
But Kubesh, a former IRS agent, found that the insurers had taken out reinsurance from subsidiaries of the banks that had produced the loans. Virtually all major lenders had established such ventures, which supposedly shared insurers' risk in exchange for a portion of the insurance premiums.
Kubesh was skeptical of the captive reinsurance agreements, which were entrenched in the mortgage insurance market but at best grudgingly tolerated by HUD in other areas. In a May 2007 settlement, for example, HUD slapped Beazer Homes for using a captive subsidiary to share in the proceeds of title insurance. "There is almost never any bona fide need or business purpose" for captive title reinsurance, HUD noted at the time, adding that the deals' outsized profitability was "strong evidence there is a sham arrangement" to circumvent RESPA.
Banks' captive mortgage reinsurance ventures were little different, Kubesh and his colleagues came to believe.
While designed to look like reinsurance, the deals weren't built to perform like it. The problem was how they split up the risks and rewards of insuring homeowners' mortgages.
When it comes to insurance, "if I get 50% of the profits, I have to take 50% of the risks," said Herman Thordsen, a California attorney who defends companies accused of RESPA violations. "If they're not doing that, then there's likely a violation. And disclosure has to be there, absolutely."
Banks fell far short of both those standards with their captive reinsurance schemes, investigators and the companies' own records suggest. Over the course of two years, Kubesh and other investigators concluded that captive mortgage reinsurance had devolved into a way to hide illegal business referral fees.
THE $0 RESERVE
For a reinsurance agreement to be legitimate, it has to transfer risk from an insurer to a reinsurer. One simple way to do that would be for the insurer and the reinsurer to each collect a portion of the insurance premiums and each pay a similar portion of the insurance claims. In reinsurance, this is called a "quota share" structure.
A different way to split the risk is what's called an "excess of loss" arrangement, in which the insurer has to pay all claims up to a certain point, when the reinsurer steps in. Figuring out how to divide the premiums is now harder, because in the event of a loss the insurer and the reinsurer will no longer bear the load evenly — if the losses are modest, the reinsurer might not have to pay anything at all.
Still, so long as both the insurer and reinsurer hire actuaries and bargain for their own interests, the resulting agreement should make the reinsurer's reward proportionate to its risk.
Banks started demanding the excess-of-loss reinsurance deals in the mid-1990s. Unlike in the example above, however, the two parties didn't have equal leverage.
The mortgage insurers' entire business depended on keeping the banks happy, and HUD investigators concluded that they gave banks reinsurance deals that would be profitable in virtually every circumstance.
This was partly because the initial terms of the deals were generous — the reinsurance vehicles collected 40% of the premiums, but were responsible for a maximum of 10% of the losses — but also partly because insurers let banks tweak the terms of deals in their favor.
According to investigators, the contracts gave banks a large cushion before they would have to start paying claims. The partnerships excluded high-risk loans from the reinsurance coverage. And the deals were "self-capitalizing," meaning that a bank could fund its stake with incoming premiums. If the deal went bad, the bank could walk away and leave the insurer to cover its losses.
Conceptually, such arrangements are analogous to letting a gambler with $10 in casino chips place a $100 bet at a blackjack table on the assumption that he'll win. A 2003 Standard & Poor's analysis modeled the most popular type of deal and found that in the event of high claims, the reinsurance vehicle's funds wouldn't be enough to cover the losses it was supposed to take on.
"The captive is unable to pay its full contractual exposure," S&P wrote.
The deals had yet another unusual sweetener, investigators alleged.
Each of a bank's reinsurance vehicles was legally separate not only from the bank's main reinsurance subsidiary but also from all the other funds. If a reinsurance deal didn't have enough money to pay its obligations, the bank could abandon it and leave the mortgage insurer with the unpaid bill.
To carry on the casino analogy above, it would be as if the gambler with $10 in chips were allowed to make that same $100 bet at ten different blackjack tables, collecting on the winning bets and renouncing the losers.
Documents reviewed by American Banker suggest banks may have agreed they were not taking on significant risk.
At one point, Countrywide's Balboa Insurance division crunched the numbers to determine how much it should reserve for potential losses from the deal. The answer, the actuaries concluded, was "$0," according to a reserve analysis obtained by investigators and cited in a report to the Department of Justice.
All the same, banks persuaded state insurance regulators to sign off on the structures. To judge whether the reinsurance agreements were fair, state officials relied in part on actuarial analyses submitted by the banks and insurers.
"Review of these opinions has found them to frequently contain significant defects and omissions which render them inapplicable to the actual reinsurance agreements executed," HUD investigators later concluded.
"DEEP CEDE"
With state regulators blessing the deals, the captive mortgage reinsurance business was off to the races. Not everyone involved was thrilled about it.
Mortgage insurers, which had initially used reinsurance deals as a marketing tool, were unpleasantly surprised to find that banks demanded an ever-increasing share of the premiums.
Banks considered the insurers to be interchangeable, and companies like Wells Fargo made it clear as early as 2000 that they wanted "deep cede" deals in which their captives would receive as much as 40% of the insurance premiums in return for providing reinsurance.
In letters to insurer Triad Guaranty from the beginning of the last decade, Wells demanded that Triad "demonstrate a willingness to discuss a captive reinsurance structure with a 40% net ceded premium" in order to receive Wells' future business, according to a HUD investigators' report submitted to the Department of Justice. Further clarifying its demands, the company wrote that "consideration will be given to enhancement of our returns."
Triad is now in liquidation.
Wells Fargo said in a written statement to American Banker that risk was split equitably under its contracts with mortgage insurers. It further denied that its captive mortgage reinsurance arrangements had ever been under HUD investigation.
"It is simply not true that Wells Fargo has ever been the subject of a HUD investigation involving either our captive reinsurance programs or our relationships with any private mortgage insurance company," the statement says.
"FEEDING THE BEAST"
Over time, the insurers came to realize that offering banks a taste of their profits only increased their demands for further financial concessions.
The aggressive revenue sharing was ruining insurers' profitability and emboldening lenders to demand even more outlandish deals in a cycle GE Capital Mortgage Insurance called "feeding the beast," a dour 1999 presentation to CitiMortgage noted.
The insurer — which eventually split from General Electric to become Genworth — was pressing Citi to restrain its demands. Ratings agencies and analysts were already flagging reinsurance deals as legally dubious, the insurer warned in a PowerPoint presentation obtained by HUD investigators, and "the MI industry and lenders won't be able to defend/sustain these structures."
Genworth declined to discuss the presentation.
"Captive reinsurance and excess of loss reinsurance structures have been a feature of the insurance industry for decades," a Genworth spokesman said in a written statement. "Genworth's arrangements with lender-affiliated reinsurers were structured in compliance with guidance from HUD."
Genworth further argued to American Banker that claims paid by the captive reinsurers in the wake of the mortgage industry's collapse proved the legitimacy of the financial structures. The captive reinsurers to which Genworth ceded premiums have covered a total of $850 million in claims, the company said.
But, as HUD's inspector general reported to the DOJ in 2009 — and as one investigator confirmed to American Banker recently — the fact that captive reinsurers paid claims does not mean the structures were unprofitable for the banks.
At least some of the deals were so generous that banks would still turn a profit even in the event of catastrophic claims, a Moody's Investors Service analysis cited by investigators found.
Because banks profited from selling their borrowers insurance, they sold it aggressively. In a presentation to the Department of Justice, the inspector general's investigators claimed that banks forced borrowers to buy more expensive policies than they needed.
"Nearly all loan files reviewed show borrowers with excessive coverage placed on their loan," the presentation concluded.
Most of the time, lenders did not tell borrowers in advance that their captives were reinsuring the deals, HUD investigators reported to the DOJ. In some cases, banks allegedly told customers that the charge for the reinsurance was "none."
Banks and insurers that spoke to American Banker denied that they had sold unnecessary or improperly disclosed insurance.
"Wells Fargo provided disclosures to consumers regarding its captive reinsurance programs along with the ability to opt out of reinsurance arrangements," a Wells spokeswoman told American Banker.
"CitiMortgage provided disclosures to borrowers and they were offered the choice to opt-out, which many did," a spokesman for Citigroup wrote. "This choice has no impact on the premiums charged to the borrower."
SunTrust declined to comment.
PASSING THE BATON
HUD Inspector General Ken Donohue — and his deputy, Mike Stephens, who succeeded him last year — were confident that they had a case. Initially the project of one regional investigator, the captive mortgage reinsurance probe drew the attention of senior officials in the inspector general's office as well as the RESPA enforcement staff elsewhere in HUD.
In the summer of 2009, Kubesh and Minnesota Department of Commerce staff came to Washington to present their findings to the Department of Justice.
The DOJ said it wanted take the matter on, according to Inspector General Stephens and others. Six months later, HUD's attorneys formally referred its case to prosecutors, effectively ending the housing agency's involvement. Investigators believed a speedy settlement in the hundreds of millions of dollars was likely, and HUD's investigators even suggested that the proceeds should be used to pay for mortgage counseling for borrowers who were allegedly victims of kickback schemes.
Major banks deny that their reinsurance agreements were illegal, but they have not been eager to defend them in court. In July, Bank of America spent $34 million to settle a RESPA class action suit accusing Countrywide of taking the same mortgage insurance kickbacks alleged by HUD investigators.
In court filings prior to that settlement, Countrywide's attorneys argued that eventual payouts made by the company's captive reinsurance vehicles demonstrated that they had taken on real risk.
A Bank of America spokesman made the same argument to American Banker.
"[W]hen loan default rates are low — there would be limited or no reinsured losses; and in other years — when loan default rates are high — there would be significant reinsured losses and, correspondingly, significant reserves," he wrote.
Court filings show that Countrywide paid zero reinsurance claims between 2000 and 2006. What losses Countrywide might have later sustained from the deals, however, is not in the public record.
Under an agreement between Countrywide and the plaintiffs' attorneys, case files documenting the company's alleged behavior — as well as how much it earned from reinsurance deals — were sealed by Judge Paul Diamond of the Eastern District of Pennsylvania.
Wells Fargo has also reached a preliminary settlement with the same law firm, Kessler Topaz Meltzer & Check LLP, in a case alleging "a secretive conspiracy to circumvent RESPA's prohibition on kickbacks and unearned fees." A Wells spokeswoman said the company's decision to settle the case does not mean that the allegations had any merit.
"GETTING KICKED AROUND"
More than a year and a half after the Department of Justice took over the case, no settlement has been reached and there is serious doubt as to whether the case even remains active.
Bank of America has not received any HUD inquiries on the subject of Countrywide's captive mortgage reinsurance since 2008, according to a company spokesman, and is unaware of any current review of its deals.
People familiar with the case believe it may have stagnated because demonstrating that the captive reinsurance amounted to kickbacks would require accounting expertise that the Department does not possess.
HUD staffers who initially put the case together have moved on to new jobs. Just last month, HUD's authority to enforce RESPA expired, and its responsibilities were transferred to the new Consumer Financial Protection Bureau.
The bureau declined to address questions from American Banker about whether it intends to pursue the matter.
The agency has hired at least two former enforcement officials from HUD who are familiar with the case, however. Both referred questions to the CFPB's press office.
"While we continue to build and staff our enforcement program, the CFPB is capable of exercising its RESPA enforcement authority now," says a CFPB official.
If the Bureau doesn't take the case, there is also the possibility that Minnesota officials or another state would readopt it, Acting Inspector General Stephens and other people familiar with the case said.
"This thing is getting kicked around," Stephens said, arguing that a lack of enforcement on such matters has eroded consumers' faith in the process of buying a home.
"The mortgage companies … are responsible for those people feeling that way," he said.
Editor's note: This is the first of a two-part series. Next up: How regulators, the government-sponsored enterprises, mortgage insurers, and trial attorneys allowed banks to collect a decade of alleged kickbacks, and the deals' effect on lending standards.

http://www.americanbanker.com/issues/176_173/mortgage-reinsurance-respa-kickbacks-hud-investigation-doj-1041928-1.html?zkPrintable=1&nopagination=1

More Proof of DoJ Lack of Interest in Enforcing the Law: The Case of the Kickback-Demanding Banks

Yves over at Naked Capitalism had this on her front page today:

More Proof of DoJ Lack of Interest in Enforcing the Law: The Case of the Kickback-Demanding Banks

In this world of rampant banking miscreance, it may seem hard to get worked up about $6 billion in impermissible kickbacks. But this is a case of a clear-cut legal violation, with the particulars sent to the Department of Justice by the HUD Inspector General’s office on a silver platter. And one of the alleged big bad actors was the ever-sanctimonious Wells Fargo.
American Banker has a detailed write-up of a kickback scheme between major banks who were mortgage originators, in particular Wells, Citigroup, Countrywide, and SunTrust and mortgage insurers. The mortgage insurance was to insure the riskier portion of a highly geared mortgage. The borrower would pay a higher rate to compensate for the lack of a large (or much of any) down payment. The kickback was dressed up as reinsurance, meaning the mortgage insurer was laying off some of the risk to the originator and paying a fee to do so. But what instead happened was that fees were paid but the deals were structured so that no risk was shifted over to the banks.
The violations were uncovered by HUD’s Inspector General office. IGs are tasked to prevent and uncover fraud, waste, and abuse. Its budget is separate from the rest of HUD. It has substantial law enforcement powers and can subpoena documents but not witnesses. Not surprisingly, this isn’t the first time that significant HUD IG finding has been ignored. The IG’s office found substantial evidence that the biggest servicers had defrauded taxpayers (with Wells again a particularly bad actor) But since that report contradicted the “see no evil” Foreclosure Task Force findings, nothing has been done.
The overview from the American Banker story:
In exchange for the their business, companies such as Citigroup Inc, Wells Fargo & Co, SunTrust Banks Inc. and Countrywide allegedly required reinsurance partnerships on generous terms that violated the Real Estate Settlement Procedures Act, a 1974 law prohibiting abusive home sales practices.
During a two-day presentation in the summer of 2009, HUD’s team presented DOJ attorneys with a thick binder of evidence that major banks had engineered a decade-long kickback scheme, people familiar with the investigation say.
Documents from the investigation show that the inspector general’s staff concluded that banks and insurance companies had created elaborate financial structures that had the appearance of reinsurance but failed to transfer significant amounts of risk to their bank underwriters.
Some of the deals were designed to return a 400% profit on a bank’s investment during good years and remain profitable even in the event of a real estate collapse.
Making matters worse, banks allegedly forced unknowing consumers to buy more insurance than they needed and failed to properly disclose the reinsurance agreements, another RESPA violation…
Wells Fargo and Bank of America Corp. have settled class action cases alleging the same sort of misconduct flagged by HUD, and internal documents show that banks and insurers viewed the arrangements as a thinly veiled pay-to-play scheme. Even as insurers complained they couldn’t afford the escalating cost of the reinsurance payments, banks threatened or punished companies that balked at providing them, documents obtained by American Banker show.
Wells Fargo & Co told one insurer that it should consider giving Wells such deals if it wanted business referrals. After insurer MGIC Investment Corp. announced plans to cut back on banks’ share of premiums in 2003, Countrywide executives complained to an MGIC executive and told him that they were shifting Countrywide’s business to MGIC’s competitors.
The article provides far more in the way of supporting detail Former members of the mortgage industry have also confirmed that the banks were aggressively demanding kickbacks. Yet look what then transpired:
HUD Inspector General Ken Donohue — and his deputy, Mike Stephens, who succeeded him last year — were confident that they had a case…
The DOJ said it wanted take the matter on, according to Inspector General Stephens and others. Six months later, HUD’s attorneys formally referred its case to prosecutors, effectively ending the housing agency’s involvement. Investigators believed a speedy settlement in the hundreds of millions of dollars was likely, and HUD’s investigators even suggested that the proceeds should be used to pay for mortgage counseling for borrowers who were allegedly victims of kickback schemes.
Major banks deny that their reinsurance agreements were illegal, but they have not been eager to defend them in court….
More than a year and a half after the Department of Justice took over the case, no settlement has been reached and there is serious doubt as to whether the case even remains active.
So why is the Department of Justice’s excuse for sitting on its hands? The excuse made is that it lacks the needed accounting skills. If you believe that, I have a bridge I’d like to sell you. Actions speak louder than words, and the evidence is overwhelming that the DoJ has no interest in inconveniencing anyone influential, particularly banks.

http://www.nakedcapitalism.com/2011/09/more-proof-of-doj-lack-of-interest-in-enforcing-the-law-the-case-of-the-kickback-demanding-banks.html