Foreclosure-gate is getting uglier by the day (Carlos Barria/REUTERS)
More and more, Foreclosure-gate is looking like the housing bust’s Enron.
One of the amazing developments of the unraveling of the financial crisis has been the fact that there have been so few people we can actually point to and say without a doubt that guy or gal is a crook. Yes, Bernie Madoff and his fellow ponziers, but they were only flushed out by the financial crisis. They didn’t really cause it. The Bear Stearns hedgies beat their case. The mastermind of AIG’s demise Joe Cassano looks to have made a clean getaway. Lehman’s Dick Fuld is still in the clear. Goldman and just last week Countrywide’s executives had to pay out large fines. But none of them are headed to jail. John Paulson and other hedge funds that help construct CDO debt bombs and bet against them, haven’t even been forced to give some of their winnings back. I can’t think of anyone of any real consequence who is facing hard time.
Thanks to foreclosure-gate that may soon change.
CNN is reporting that law enforcement officials are investigating whether banks and their employees broke federal law in the handling of foreclosures:
Two sources familiar with the Financial Fraud Enforcement Task Force indicated the multi-agency effort by investigators in the Justice, Treasury and Housing Departments would determine whether prosecutors would ultimately pursue criminal or civil penalties – or both.
The Task Force has scheduled a meeting for Wednesday morning at the Department of Housing and Urban Development. Upon conclusion a briefing is likely at the White House, officials said.
“The administration’s Federal Housing Administration and Financial Fraud Enforcement Task Force have undertaken their own regulatory and enforcement investigation into the foreclosure process,” White House Press Secretary Robert Gibbs confirmed Tuesday. “We remain committed to holding accountable any bank that has violated the law,” he said.
So who is likely to go to jail? Obviously the first candidates are the robo-signers who were putting their names to documents that attested they had reviewed the loans documents when they hadn’t. But here’s the problem with just putting those people in jail. A number of the robo-signers have already admitted that they didn’t know what they were signing. Jeffrey Stephan, the robo-signer at GMAC who got the current crisis started, has said that it wasn’t actually his job to review the loans, just sign the paperwork. So clearly someone must have told him that was his job. Federal prosecutors are trained to use the small fish to catch the big ones.
The question when it comes to the paperwork is just how high up the chain of command the order to sign without reviewing goes. Bank of America CEO Brian Moynihan was B of A’s chief legal officer for a brief time. Did he know that the bank was filing potentially fraudulent documents with courts around the country? Did he look to make sure the bank’s foreclosure processes were sound? I mean at the end of 2008, when Moynihan was the head of B of A’s law department, foreclosures were becoming a very big part of the bank’s daily life. So I would think that a chief legal officer would look into that. FULL DISCLOSURE, I have no knowledge about Moynihan’s situation, and have not asked B of A for a comment. He was only in the job for a little while, so it is entirely possible this is an area he skipped over. I’m just saying it could get messy for some bank higher-ups.
But the real blood on the Street would be if the Feds are looking into the some of the more salacious charges that are coming out about the securitization of mortgage bonds. One being that the bankers knew many of the loans they sold to investors were deficient, and got a discount when they bought them, but then passed those loans along to investors at full face value anyway. Or, two, a charge that surfaced again today, that bankers sold the same mortgage to numerous bond pools ensuring that investors would lose money.
Barry Ritholtz’s The Big Picture has a very good round-up of most recent developments in the continuing to unfold foreclosure-gate scandal. And there are a lot of them. Enjoy, unless you are a banker or someone facing foreclosure or really anyone who used to think our financial system was, well, functional, then cry.