Some will
rob you with a six-gun,
some with a fountain pen.
Few financial journalists irk me more than Gretchen Morgenson. Nearly every time I read one or her stories, I want to throw something hard against a wall. Not because she misses the target or plays lackey to the inhabitants of the world she covers the way so many other business writers do. Rather because she does such a persistently good job of pointing out the sleaze and shenanigans.
Over the weekend, she wrote another infuriating piece. The crux of it? All the claims we heard not so long ago about how abusive practices in the mortgage industry amounted to mere blips in an otherwise righteous operation were manure. That probably wasn't the word used by Clifford J. White III, who Morgenson interviewed about the situation. But it captures the essence. White is director of the executive office of the United States Trustee, the branch of the Justice Department responsible for keeping an eye on the bankruptcy courts.
Since late last year, White looked at documents from 95 field offices in 88 judicial districts. "The findings," Morgenson wrote, "should dispel any notion that toxic servicing practices were atypical or have done no harm."
And if that didn't dispel the notion for you, there was Shahien Nasiripour's investigative report published Monday noting that federal auditors are accusing Bank of America, JPMorgan Chase, Wells Fargo, Citigroup and Ally Financial of swindling the government, that is defrauding taxpayers, in their foreclosure activities against homes bought with government-backed loans. Those accusations emerged from five separate investigations conducted by the inspector general of Department of Housing and Urban Development.
Could the chickens finally be coming home to roost?
The resulting reports read like veritable indictments of major lenders, the sources said. State officials are now wielding the documents as leverage in their ongoing talks with mortgage companies aimed at forcing the firms to agree to pay fines to resolve allegations of routine violations in their handling of foreclosures. ...
The lenders have offered $5 billion to help home-owners in trouble and settle allegations made by a coalition of 50 state attorneys general and state bank supervisors, the Housing and Urban Development, the Treasury Department, the Justice Department and the Federal Trade Commission. But violation of the Civil War era False Claims Act allows the government to recover three times the amount of damage caused on top of fines.
According to a report obtained in March by Nasipour from the Bureau of Consumer Financial Protection, by taking abusive shortcuts, the five companies under audit have saved themselves more than $20 billion in the past four years. That could mean $60 billion in damages plus fines.
Just what were the lenders doing? Exactly what people have been complaining about for a long time and the companies have been denying just as long.
Morgenson wrote Sunday that banks have started foreclosures against people who were up-to-date in their payments, have claimed borrowers owed tens of thousands more than they did, charged improper default fees—for legal work, property inspections, insurance and appraisals.
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.”
Not merely technical. Before somebody chimes in with something from the passive-aggressive tense reflected in "mistakes were made," let me just say that I find it hard to believe that the institutions engaged in this rip-off, which service two-thirds of mortgage activity in the United States, were making this many errors favorable to themselves. If there were an equal 10 percent of errors favoring borrowers, then I'd buy it, although I certainly would avoid investing any money in such a bank.
The fact is, as Morgenson wrote, these institutions have fought against releasing information, filing lawsuits in which it is claimed, in contradiction to repeated court rulings, that the trustee has no legal standing to look into specific cases. And when information is unwillingly provided to the trustee, it often contains none of the details that would allow an evaluation of what may be happening to generate the errors.
As Morgenson quite rightly asks: "Why are these institutions so afraid of a little sunlight?" There's a good reason close at hand, which the federal auditors seem to have found: The errors are something other than errors.