Thread: Banks Laundering Counterfeit Mortgages, Largest Financial Fr

Banks Laundering Counterfeit Mortgages, The Largest Financial Fraud in World History!

Housing-Market / US Housing Oct 13, 2010 - 11:18 AM

By: Washingtons_Blog

A "false front" building from the Old West. Towns built false fronts to make the town look more substantial and prosperous than it really was.

The tidal wave of evidence showing that the giant banks have engaged in fraudulent foreclosure practices is so large that the attorneys general of up to 40 states are launching investigations. http://www.huffingtonpost.com/2010/10/1 ... 57162.html

People's homes are being taken when they didn't even hold a mortgage, http://www.sun-sentinel.com/business/fl ... 6776.story
and the big banks have been using "robo signers" http://abcnews.go.com/WN/robo-signers-b ... d=11798650
to forge mortgage related documents. Indeed, even president Obama has been hit by robo signers (see this ). http://4closurefraud.org/2010/10/10/4cl ... bo-signer/

Its so blatant that foreclosure mills have published price lists for forging documents, including such gems as: http://www.nakedcapitalism.com/2010/10/ ... sheet.html

"Create Missing Intervening Assignment" $35

"Cure Defective Assignment" $12.95

"Recreate Entire Collateral File" $95

In response, the big banks are saying that these are simply "procedural defects" which don't affect their ability to foreclose. See this. http://www.nakedcapitalism.com/2010/10/ ... risis.html

But let's take a step back. Only with some context will the actions of the banks with regards to these "defects" make any sense.

As I pointed out last year: http://www.washingtonsblog.com/2009/10/ ... lacks.html

Simon Johnson confirmed what William K. Black has said about fraud by the financial sector, booms and busts.

As I previously wrote:

Black explained that fraud by a financial company usually involves the company:

1) Growing like crazy

2) Making loans to people who are uncreditworthy, because they’ll agree to pay you more, and that’s how you grow rapidly. You can grow really fast if you loan to people who can’t you pay you back

and

3) Using extreme leverage.

This combination guarantees stratospheric initial profits during the expansion phase of the bubble.

But it guarantees a catastrophic subsequent failure when the bubble loses steam.

And collectively - if a lot of companies are playing this game - it produces extraordinary losses (more than all other forms of property crime combined), and a crash.

In other words, the companies intentionally make loans to people who will not be able to repay them, because - during an expanding bubble phase - they'll make huge sums of money. The top executives of these companies will make massive salaries and bonuses during the bubble (enough to live like kings even even if the companies go belly up after the bubble phase).

Johnson confirmed that a high housing default rate was part of the banks' models. The financial giants knew they would make huge sums during the boom, and then transfer their losses to the American people during the bust.

As William Black noted last October: http://www.washingtonsblog.com/2009/10/ ... ehind.html

Everyone involved knew that the CDOs which packaged subprime loans were not AAA credit-worthy (which means that they are completely risk-free). He also said that the exotic instruments (CDOs, CDS, etc.) which spun the mortgages into more and more abstract investments were intentionally created to defraud investors

In November 2007, one rating agency - Fitch's - dared to take a look at some loan files. Fitch concluded that there was the appearance of fraud in nearly every file reviewed

As I wrote in April: http://www.washingtonsblog.com/2010/04/ ... mists.html

University of Texas economics professor James K. Galbraith previously said that fraud caused the financial crisis:

You had fraud in the origination of the mortgages, fraud in the underwriting, fraud in the ratings agencies.

Senator Kaufman said last month: http://kaufman.senate.gov/press/floor_s ... 496714ed73

Fraud and potential criminal conduct were at the heart of the financial crisis.

Congresswoman Marcy Kaptur says that there was rampant fraud leading up to the crash (see this and this).

***

According to economist Max Wolff: http://globalresearch.ca/index.php?context=va&aid=15676

The securitization process worked by "packag(ing), sell(ing), repack(aging) and resell(ing) mortages making what was a small housing bubble, a gigantic (one) and making what became an American financial problem very much a global" one by selling mortgage bundles worldwide "without full disclosure of the lack of underlying assets or risks."

Buyers accepted them on good faith, failed in their due diligence, and rating agencies were negligent, even criminal, in overvaluing and endorsing junk assets that they knew were high-risk or toxic. "The whole process was corrupt at its core."

Indeed, Galbraith just gave a must-watch half hour speech where he points out: http://rabble.ca/rabbletv/program-guide ... ntion-2010

"At the root of the crisis we find the largest financial swindle in world history."

The fraud originated in the mortgage market of the United States.

The houses were over-appraised, and the banks only hired appraisers who were willing to do that. Galbraith rhetorically asks: "For what conceivable reason would a lender accept an inflated appraisal for a house against which it was going to make a loan?"

The language used in the mortgage industry is very telling: "liar's loans", "ninja loans" (where the borrowers had no assets and no income), "neutron loans" (where it would destroy the people but leave the buildings), and "toxic waste"

The mortgages in the millions were counterfeits, not mortgages. They were "laundered" ... the dirty paper was converted into clean paper.

Securitization was used to convert the worthless paper from triple D minus junk to triple A. The commercial banks were the "fences", they took the laundered paper and sold it on to the legitimate market. The "marks" were the pension funds, or any investing entity which trusted triple A rating or investment banks.

The police left the beat.

If the counterfeit is big enough, the whole system collapses, because you can't tell what's real from what's counterfeit and so confidence collapses.

The failure to face the problem of fraud constitutes a huge barrier in the path of economic recovery. The banking system can't be restored until it is taken apart, cleaned up and rebuilt in a transparent and honest manner.

We should make the Department of Justice uncomfortable to ignore these frauds. Because if we don't have fair and honest and functioning financial system, we won't get out of this crisis.

Indeed, there was fraud at every step of the mortgage process. The big banks intentionally signed up borrowers with insufficient income and assets, threw out the documentation because it would prove fraud, racked up loan fees and received short-term payments before all of the new borrowers ran out of money, and then laundered the bad loans into securitized instruments to sell to the suckers.

The banks created an intermediary called "MERS" to hold all of the documentation, in at attempt to shield the banks legally. But courts have held that this scheme doesn't fly, and that MERS doesn't have title to foreclose on houses. See this http://www.huffingtonpost.com/ellen-bro ... 86921.html
and this http://www.creditwritedowns.com/2010/10 ... gners.html
(and as Tyler Durden points out, MERS might have infected the commercial real estate market as well.) http://www.zerohedge.com/article/mers-c ... mbs-market

Then there's the whole foreclosure scandal, where banks have forged and backdated documentation to try to prove they are entitled to foreclose. This is the part that is in the news right now. But because fraud was committed every step of the way - from mortgage origination and loan applications, to securitiztation, to MERS to foreclosures - it shows a fraudulent scheme, and not just sloppy paperwork.

As Yves Smith writes: http://www.nakedcapitalism.com/2010/10/ ... front.html

[The banks' statement that is a minor paperwork problem] is an effort to divert attention from the real issue, the mess the securitization industry has made of the housing market at pretty much every step of the process, from ginning up bad “spreadyâ€

Wednesday, October 13, 2010

All 50 States Probe Foreclosure Fraud; Florida's 30 Second "Rocket Docket" Hits Brick Wall of Suspensions; Emotions Run High

In the wake of massive foreclosure fraud, attorneys general in all 50 states have launched a probe into problems with documents used in foreclosures. In response, Yahoo Finance! reports States' Probe of Foreclosures Could Force Reforms http://finance.yahoo.com/news/States-pr ... 9.html?x=0

A joint investigation by every state and the District of Columbia could force mortgage companies to settle allegations that they used flawed documents to foreclose on hundreds of thousands of homeowners.

It could take months, at least, for any settlement to be reached. But legal experts say lenders could be forced to accept an independent monitor to ensure they follow state foreclosure laws. The banks could also be subject to financial penalties and be forced to pay some people whose foreclosures were improperly handled.

For banks, "the most efficient way for them to get out from under this to settle across the board," said Kathleen Engel, a law professor at Suffolk University in Boston.

A key question is whether state investigators can persuade bank employees to divulge some of the industry's secrets, said Ray Brescia, an Albany Law School professor who has tracked the mortgage crisis. Some mortgage company workers could have a powerful incentive to do so rather than face criminal charges, he noted.

"It's quite possible that there will be insiders who come forward to reveal the inner workings of these "boiler room" foreclosure mills, which likely won't be good for the banks," Brescia said.

A lawsuit that Ohio Attorney General Richard Cordray filed this month against GMAC Mortgage and Ally Financial could preview things to come around the country.

Cordray's lawsuit seeks to halt potentially illegal foreclosure practices. It also asks that a judge stop sales of any foreclosed homes involving paperwork filed by a GMAC employee who signed hundreds of faulty documents. And it aims to toss out foreclosure judgments on homes that haven't yet sold.

The Ohio lawsuit also seeks damages for consumers and civil penalties of $25,000 for each separate violation. If similar cases were brought in all 50 states, it could total billions of dollars in damages and fines for lenders and others involved in foreclosures.

The allegations raise the possibility that foreclosure proceedings nationwide could be subject to legal challenge. More than 2.5 million homes have been lost to foreclosure since the recession started in December 2007, according to RealtyTrac Inc.

Florida's Rocket Docket Grinds to a Halt

Please consider Florida’s 30-Second Foreclosure Dash Hits Fraud Wall http://noir.bloomberg.com/apps/news?pid ... 3c6dLuEGb0

Home to more foreclosures than 47 U.S. states, Florida sought to clear out its backlog with a system of special court hearings that dispensed with cases quickly, sometimes in less than a minute.

Homeowners like Nicole West now threaten to slow that system, Florida’s so-called rocket docket, to a crawl. West, who has been fighting to save her Jensen Beach house from foreclosure, has leveled a new allegation in her three-year battle: the entire process is based on fraud.

West said her case is rife with the kind of flawed mortgage documents that have caused lenders including Bank of America Corp. and JPMorgan Chase & Co. to stop the process of foreclosures and evictions across the country. The banks said they are investigating homeowner charges like West’s that signatures were forged and documents were backdated.

Florida has the third-highest foreclosure rate in the U.S. behind Nevada and Arizona. One in every 34 housing units -- double the U.S. average -- was in the foreclosure process or bank-owned as of Sept. 1, data vendor RealtyTrac Inc. said.

Florida’s legislature appropriated $9.6 million this year to pay semi-retired judges and case managers to clear the backlog of foreclosures. Some judges have been churning through cases at a rapid clip, such as those last week in Tampa who considered dozens of foreclosures per day, sometimes in as little as 30 seconds.

The goal is to clear 62 percent of the backlog by next July, according to Craig Waters, a spokesman for the Florida Supreme Court. J. Thomas McGrady, chief judge of Florida’s Sixth Judicial Circuit, said he once thought that was achievable. Now that Charlotte, North Carolina-based Bank of America, New York- based JPMorgan and Detroit-based Ally Financial Inc. have put the brakes on foreclosures or evictions to look for irregularities, he said he’s “very doubtfulâ€