Wall Street Bailout: Latest Updated Report

Eric Zuesse

The latest of the U.S. Government’s updates on the status of the Wall Street bailout is 151 pages long, and highlights from it will be excerpted here below.

Technically known as the quarterly report to Congress from the SIGTARP, or the Special Inspector General for the Troubled Asset Relief Program, the latest such report was dated 27 July 2017; and, since the ‘news’media have thus-far been hiding from the public this report, here is the full (151 pages) document, for anyone who, after seeing these excerpts, will want to see the entire document:

https://www.sigtarp.gov/Quarterly%20Reports/July_27_2017_Report_to_Congress.pdf.

As an introduction to presenting to the public this report from the SIGTARP, I would say that the document is almost monotonous in its finding criminality by the firms that received the bailouts, and yet only lower-level employees and executives of these criminal organizations are reported to have gone to prison. Unspoken in the report is that the top megabank officials, who ‘earned’ hundreds of millions or even billions from organizing and overseeing these scams, simply aren’t being prosecuted, not even, in many instances, a decade after the crimes that the SIGTARP describes.

Furthermore, the SIGTARP repeatedly calls out Congress implicitly, by observing that their office, within the Treasury Department, has so little funds, so that, for example, in the investigations into the various megabanks, “Treasury does not know how many other homeowners did not receive timely notice given Treasury’s small sample size of 25.” And, “Treasury does not know how many homeowners Nationstar has wrongfully terminated out of HAMP given their small sample size.” And, “However, Treasury is not aware of the full extent of the problem, given its small sample size.” And “Goldman [after being forced to hire an independent outside investigator] admits that from its sampling, it knew that significant percentages of the loans reviewed in due diligence did not conform to those investor representations [i.e., were fraudulent].” Consequently, the estimates of the extent of the crimes and of the losses of homes and of the losses to cheated investors, are only rough, though the amounts of losses have been able to be identified in the sampled cases. In other words: the U.S. Government doesn’t take these sorts of crimes seriously enough to investigate the vast majority of them, the ones that aren’t sampled. “Government regulation” is unpopular, but law-enforcement against small crooks is extremely popular; and, so, the SIGTARP, since it is regulation by the Government, is constantly begging Congress for more funds. The U.S. Government doesn’t care about the victims of these crimes — no more than do the ‘news’media. A good 12-minute video has been done that explains the reason for this disinterest in the victims of such crimes, and I have elsewhere also discussed it and linked to the academic study that was done of the subject.

All of the findings in the SIGTARP’s report are based upon the SIGTARP’s investigations into small samples of various huge portfolios of loans. Although the federal and local governments prosecute millions of small crooks who aren’t donating to politicians’ campaigns, almost all big operators are at the tops of large firms, which do make large political contributions via cash and/or lobbyists; and these executives incentivize their employees to turn the screws against borrowers in order to grab whatever they can (often the house, or car, itself), from virtually anyone they can fool into signing a contract (without that person’s reading all of the fine print in it, or understanding what they read, if they read). The harder the financial firm’s employee turns the screws, on the more people, the bigger that employee’s income will be. However, if a particular employee is among the unlucky ones whose cases end up being sampled, then that person could be going to prison. But the top executive, who had designed that incentive-system and hired sub-executives in order to carry it out, has, essentially, nothing to fear. The worst that the top people might face is the embarrassment that the firm they run has settled with the Government to pay a multi-billion-dollar fine, which won’t be large enough even to affect the stock-price significantly. This is why the corporate form was created, so that top executives, and the boards that hire them, who might, by the incentive system they all put in place, steal from, or even kill, thousands of people by their decisions, won’t face the types of penalties that their employees or just regular crooks can face for relatively tiny heists, by means of larceny or perhaps gun-crimes — or even for what might have been actually a victimless crime. The system is set up to protect fraudsters and to go after people who instead do “street crimes.”

The SIGTARP’s report fails, in most instances, to identify when the prosecuted crimes had been committed, or when they had started. However, some of the accounts given in the report do identify this important information; and most of those instances were crimes that were committed while the given bank was already in the TARP program. In those instances, the given bank — or in some instances, bank-employee — committed the crime after the Wall Street bailout program had become instituted. Although the report indicates that only 50 bankers have been sent to prison after the Wall Street bailout, no clear indication is provided in the report as regards the percentage of those 50 who were imprisoned for the crimes that had caused the SIGTARP’s office to be created. Of course, statutes of limitations apply to the prosecutions of financial crooks, so that sometimes a statute of limitations has already expired on a given crime before any prosecution begins, in which cases, there can be no prosecutions for that crime. One might even consider a possibility that statutes of limitations exist largely in order to keep white-collar crooks out of prison — so that our prisons (and the U.S. has the highest percentage of its population of any country on Earth, except for tiny Seychelles, whose entire population is below 100,000, which is one-twentieth the size of the two million Americas who are in prison today) hold mainly the lower economic classes, and the types of people who caused the 2008 crash have usually nothing at all to fear from the Government.

Here, then, are highlights from the report (with my boldfaces, for ease of skimming), [and with my added comments placed between brackets] about the ongoing bailout of financial firms:

——

Opening:

LETTER FROM THE SPECIAL INSPECTOR GENERAL

This quarter, I am pleased to report that SIGTARP’s criminal investigations have resulted in 50 bankers sentenced to prison. With dozens of additional bankers charged and investigations continuing, more bankers are likely to be sentenced to prison in the future. 50 bankers have been sentenced to prison because of SIGTARP. [Consequently, all of the prosecutions were due to the SIGTARP’s office; the present report is therefore a comprehensive account of the success to-date in prosecuting the crimes that had produced the 2008 economic crash.]

SIGTARP’s criminal investigations have resulted in the Justice Department and one state attorney general bringing criminal charges against 97 bankers, about half of which were in last three years. Prosecutions of bankers investigated by SIGTARP bring justice, provide general deterrence, and allow taxpayers to recover losses in TARP. By removing bad actors who committed crimes in banks, these prosecutions make the banking system stronger.

Strengthening Banks through Law Enforcement

The impact of law enforcement investigations of bank fraud and other unlawful conduct at banks is often out of the limelight, but is critical. At small and midsized banks, SIGTARP has learned how bankers hide fraud in cooked books, and the red flags that point to such crime. This expertise helps us find and investigate hidden crime quicker, as evidenced by the uptick in charged bankers in recent years.

Bank examiners did not detect the crimes SIGTARP found [crimes such as this “mistaken foreclosure,” which resulted in a fine, with the “fine money, earmarked mostly for law schools and consumer advocacy organizations,” not for the deceived and dispossessed home-buyers, and no individual was criminally charged nor paid any fine, though the judge called the bank “heartless,” and this SIGTARP letter doesn’t touch upon any such details, but is only about numbers], but in some cases they should have, given existing red flags. Forty of the 50 bankers sentenced to prison were at failed or acquired banks, evidencing that fraud harms the safety and soundness of banks. Many of these prosecutions involved crime unrelated to the financial crisis. Given that similar crimes can occur in times of economic recovery, it is important that examiners are armed with knowledge about when to refer to law enforcement. SIGTARP is ready and willing to provide information sessions to help bank examiners identify red flags and know when to bring in law enforcement.

With the largest banks, our investigations and resulting Justice Department enforcement actions have had a deterrent impact and led to important industry changes to unlawful practices.

These changes strengthen banks. SIGTARP’s investigations and resulting Justice Department enforcement actions in Fiscal 2016 and 2017 against Goldman Sachs, Morgan Stanley, and Ally Financial [the renamed GMAC] for misrepresentations in residential mortgage backed securities have led to increased due diligence of mortgage backed securities. Also as part of a Justice Department action, in 2017, Ally Financial closed down the part of its business involved in unlawful conduct. SIGTARP’s investigation resulting in the Justice Department 2015 action against Fifth Third Bank for selling defective mortgages with false representations to the Department of Housing and Urban Development led to changes in its quality control program, and the termination of quality control management employees. At SunTrust Bank, unopened Home Affordable Modification Program (HAMP) application packages [for federal assistance to help deceived home-buyers not be foreclosed upon] were piled so high in a room that the floor buckled. SIGTARP’s investigation resulting in the Justice Department[’s] 2014 action against SunTrust led to changes to prevent unlawful practices and removed a number of management employees. Each of these changes made banks and the banking system stronger by reducing risk in problem areas that contributed to the crisis and the resulting TARP bailout. These changes reduce the likelihood that future taxpayer bailouts are needed.

SIGTARP’s Current Investigative Priorities

We remain focused on our mission to investigate bankers who commit crimes at TARP banks, particularly where taxpayers lost TARP dollars or where the crime is egregious (such as alleged money laundering for international narcotics trafficking charged in one TARP bank). When SIGTARP finds crime where taxpayers or TARP programs are victims, we do not close the investigation just because the bank fails, is acquired, or Treasury sells its TARP stock.

We are also investigating corruption, bid rigging, and fraud in current demolition contracts in the Hardest Hit Fund, and investigating mortgage servicers in HAMP [the people who actually do the foreclosures etc.]. And with the expiration of the homeowner HAMP application period, we are completing our investigations of scammers who stole homeowner dollars with promises of admission into HAMP. Just last week, three of these defendants who stole $11 million from 3,000 homeowners were sentenced to 20 years in prison, 12 years in prison, and 7 years in prison. They are three of the 110 con artists in these schemes who were convicted as a result of SIGTARP’s investigations.

Two recent cases illustrate SIGTARP’s current efforts to bring justice and recover lost TARP dollars.

President and Vice President of GulfSouth Bank sentenced to prison: On June 28, 2017, the President of GulfSouth Private Bank Anthony Atkins was sentenced to more than five years in prison and ordered to pay $2.4 million. Bank Vice President Sam Cobb was also sentenced to prison. When the bank failed, taxpayers lost $7.5 million in TARP. SIGTARP agents flipped Atkins’ co-conspirators who were bank customers; each pled guilty in 2013 and provided information to SIGTARP. SIGTARP agents arrested bankers Atkins and Cobb in December 2016.

We are identifying Atkins’ assets to pay the $2.4 million to recoup some taxpayer losses. Recovery of luxury cars, cash in bank accounts, and stock proceeds from the estate of the CEO of One Bank: SIGTARP was investigating Layton Stuart, the CEO and Chairman of One Financial and its subsidiary One Bank, when he died. In October 2015, the Justice Department filed a false claims act complaint and forfeiture action. The bank remains in TARP today. The investigation uncovered that within two weeks of receiving TARP, CEO Stuart took $2.1 million from the bank and bought a Range Rover and a Cadillac performance sport utility vehicle for his wife and children, and a house for his daughter. He diverted tens of millions of dollars from the bank for his personal use, including using bank dollars to buy a life insurance policy. As a result of the investigation, Treasury received $4 million of the proceeds of Stuart’s life insurance policy. The cars were seized and sold for $115,474, and $133,065 in bank accounts was seized. As Stuart owned 99.4% of the stock in the bank, his bank stock was seized, and Treasury now holds 99% of stock in the bank.

It is SIGTARP’s duty to protect taxpayers against crimes that undermine a core rational[e] for TARP investments in banks: lending to Americans. Layton Stuart’s family cannot keep a Range Rover and Cadillac after he stole TARP dollars. Anthony Atkins cannot go free when he intentionally used cooked books to apply for TARP dollars, and continued the scheme in TARP, with taxpayers losing millions. Without SIGTARP’s focus, expertise, and dedicated resources, many of these bankers who committed crimes in TARP banks might not be caught or prosecuted.

We anticipate more arrests and more recoveries in our ongoing investigations.

We appreciate the strong support we have received. I would welcome a chance to meet with you to discuss SIGTARP’s work.

Respectfully,

CHRISTY GOLDSMITH ROMERO

Special Inspector General

——

p. 59:

SIGTARP’S OVERSIGHT OVER TRADING IN MORTGAGE-BACKED SECURITIES

Treasury’s original TARP proposal presented to Congress was that the Government purchase toxic assets (mortgage backed securities) held by banks. SIGTARP conducts oversight over mortgage backed securities related to TARP in two ways: (1) SIGTARP investigations over the Public Private Investment Program, a TARP program known as “PPIP”, that purchased and sold mortgage backed securities using TARP funds through nine investment  rms to unlock frozen credit markets; and (2) SIGTARP investigations of the largest TARP institutions in the business of packaging and selling residential mortgage backed securities (RMBS) where taxpayers suffered losses when those securities traded through PPIP.

SIGTARP Investigations into TARP Institutions for Misrepresentations to RMBS Investors

SIGTARP investigated the largest TARP-recipient institutions for misrepresentations in the packaging, securitization, marketing, sale, and issuance of RMBS. The RMBS at issue also traded through the PPIP program. As a result of these investigations, DOJ brought actions under the Financial Institutions Reform, Recovery and Enforcement Act (“FIRREA”), which authorizes the Federal government to impose civil remedies against financial institutions that commit mail and wire fraud. Taxpayers suffered losses when the securities traded through PPIP.33 Most recent cases include:

Goldman Sachs

In April 2016, DOJ brought an enforcement action against Goldman Sachs (“Goldman”) for fraudulent representations to investors that mortgage loans that went into RMBS met the loan originator’s underwriting guidelines. However, Goldman admits that from its sampling, it knew that significant percentages of the loans reviewed in due diligence did not conform to those investor representations. Some of the securities traded at a loss through TARP’s PPIP.

Goldman admitted to the misconduct, paid a $2.385 billion civil penalty, $1.8 billion relief in homeowner relief, and $1.75 billion to National Credit Union Administration, various states and Federal Home Loan Banks.32

Morgan Stanley

In February 2016, DOJ brought an enforcement action against Morgan Stanley for misleading investors about the subprime mortgage loans underlying the RMBS it sold. Some of the securities traded at a loss through TARP’s PPIP.

Morgan Stanley admitted to the misconduct, paid $2.6 billion penalty, $225 million for credit union purchasers of RMBS, $1.25 billion for RMBS purchases by Fannie Mae and Freddie Mac, and $86.95 million to the FDIC for purchases of RMBS by failed banks.34

Ally Financial (formerly GMAC)

In November 2016, DOJ brought an enforcement action against Ally resulting from SIGTARP’s investigation into Ally’s packaging, securitizing, marketing, selling, and issuing subprime RMBS. Ally paid $52 million and discontinued operations of its broker-dealer Ally Securities, LLC, which was the lead underwriter on the subprime RMBS that we investigated. Ally received $17.2 billion in TARP funds. Treasury wrote-off a $2.47 billion loss on the principal TARP investment. These investors included taxpayers when some of the securities traded at a loss through TARP’s PPIP.

SIGTARP Investigation of Wall Street Traders Buying and Selling to PPIP Managers

SIGTARP investigates Wall Street traders that traded through PPIP or were TARP recipients. SIGTARP was the first to bring these type of securities cases.

Recent cases include:

Jefferies trader Jesse Litvak: Following a SIGTARP investigation after a three week trial in 2014, Jefferies trader Jesse Litvak was convicted of securities fraud, TARP fraud and making false statements to the Federal government, for defrauding customers trading in RMBS, including through the PPIP program. The court sentenced him to two years in prison.35 On appeal, the Second Circuit upheld the securities fraud conviction, reversed on the TARP fraud conviction, and remanded to the lower court to hold a new trial. After a second trial in January 2017, the jury convicted Litvak of securities fraud.

RBS Securities trader Matthew Katke: Following a SIGTARP investigation, in March 2015, Matthew Katke, managing director at RBS Securities, Inc. (“RBS”) pled guilty to a multimillion dollar securities fraud scheme. Between 2008 and 2013, Katke admitted that he and others conspiring to increase RBS’s profits on collateral loan obligations bond trades at the expense of customers. In certain transactions, Katke misrepresented the seller’s asking price to the buyer (or vice versa), keeping the difference. In other transactions, Katke misrepresented to the buyer that bonds held in RBS’s inventory were being sold by a fictitious third-party, which allowed Katke to charge an extra commission. The multi-million dollar securities fraud had at least 20 customers who were victims—including TARP recipients.36

RBS Securities supervisor Adam Siegel: Following a SIGTARP investigation, in December 2015, Adam Siegel, Matthew Katke’s boss and head mortgage backed securities trader, pled guilty to a multimillion dollar securities fraud scheme. Between 2008 and 2014, Siegel admitted that he and others conspired to increase RBS’s profits on trades at the expense of customers. In certain transactions, Sigel misrepresent the seller’s asking price to the buyer (or vice versa), keeping the difference. In other transactions, Siegel misrepresented to the buyer that bonds held in RBS’s inventory were being offered for sale by a fictitious third-party seller, which allowed RBS to charge the buyer an extra, unearned commission. The multi-million dollar securities fraud had at least 35 customers who were victims, including TARP recipients.37

Nomura Securities traders Ross Shapiro, Michael Gramins, and Tyler Peters:

Following a SIGTARP investigation, in September 2015, three Nomura Securities International (“Nomura”) RMBS traders, Ross Shapiro, Michael Gramins, and Tyler Peters, who formerly worked at Lehman Brothers, were indicted for fraud. The traders allegedly conspired to overcharge their customers, which included an investment firm that was managing a PPIP fund. As alleged in the indictment, Shapiro, Gramins, and Peters fraudulently inflated the purchase price at which Nomura could buy a RMBS bond to induce their victim-customers to pay a higher price for the bond, and fraudulently deflated the price at which Nomura could sell a RMBS bond to induce their victim-customers to sell bonds at cheaper prices, each causing Nomura and the three defendants to profit illegally. The defendants are also alleged to have created  fictitious third parties in an effort to increase their profits.38 In May, 2017, a federal jury found Michael Gramins guilty of one count of conspiracy to commit security and wire fraud.

Cantor Fitzgerald Trader David Demos: Following a SIGTARP investigation, on December 7, 2016, Cantor Fitzgerald Managing Director David Demos was charged in an alleged scheme to overcharge customers trading in RMBS, including through the PPIP program. Demos allegedly fraudulently inflated the purchase price at which Cantor Fitzgerald could buy a RMBS bond to induce their victim-customers to pay a higher price for the bond, and fraudulently deflated the price at which Cantor Fitzgerald could sell a RMBS bond to induce their victim-customers to sell bonds at cheaper prices, causing losses to victims. …

Significant oversight is required because of the risk of waste, fraud, and abuse due to the poor track record of these large banks and non-bank servicers. Some servicers have been the subject of law enforcement action, including investigations by SIGTARP. SIGTARP has also reported that some servcers have repeatedly broken Treasury’s rules in HAMP.

SIGTARP Audit Oversight Over HAMP

SIGTARP’s audit priorities in HAMP are to:

• Identify vulnerabilities to fraud by servicers

• Identify waste and abuse by servicers

• Identify inefficiencies and mismanagement that could lead to cost savings

In addition to identifying servicer mismanagement and abuse to homeowners applying to HAMP, SIGTARP has identified the following servicer mismanagement and abuse by servicers of homeowners already in HAMP:

• Wrongfully terminating people out of HAMP

• Lost paperwork

• Misapplying mortgage payments made in HAMP which causes delinquency that incur late fees

• Transferring the mortgage without transferring the HAMP paperwork. The new servicer does not know the person is in HAMP so only sees underpayment, or fails to honor the HAMP lowered interest rate

• Failing to notify homeowners, as Treasury requires, when their interest rate and monthly payment is going to rise after 5 years

• Failing to notify homeowners, as Treasury requires, that after 6 years in HAMP they can lower their mortgage payment by re-amortizing the mortgage

• Overcharging Treasury for extinguishing second liens when those liens were not extinguished

• Failing to reduce principal on mortgages despite being paid by Treasury to do so

• Charging Treasury for mortgages that are not eligible for HAMP

SIGTARP has made cost saving recommendations related to MHA.

SIGTARP recommended that Treasury hold servicers in HAMP accountable by developing performance metrics and publicly reporting against them, which Treasury implemented in 2011. SIGTARP made a recommendation that Treasury permanently withhold TARP dollars related to the time period that servicers failed to perform at an acceptable level, which Treasury did not implement.

SIGTARP has made several recommendations to assess and stop servicer mismanagement and abuse that leads to wrongfully canceling people out of HAMP. Taxpayers paid $2.7 billion mostly to servicers and investors for 604,193 homeowners cancelled out of HAMP.43 At least 159,113 of these homeowners were foreclosed or otherwise lost their home.44 Others were put into less advantageous private mortgage modifications. Treasury has partially implemented SIGTARP’s recommendation to determine how servicer mismanagement leads to canceling people out of the program by finding that 6 of the largest 7 servicers in HAMP have wrongfully cancelled homeowners out of the program. However, Treasury’s compliance group only looks on a small sample basis of 150 homeowner files per quarter, and does not know the full extent of the problem. Treasury requires the servicer to put any wronged-homeowner found in Treasury’s sample back into HAMP. This mismanagement and abuse leads to inefficiency in government payments. In order to determine the full scope of mismanagement, Treasury could start with requiring servicers found in violation to conduct an independent review and self-report to Treasury on other homeowners wrongfully cancelled out of the program.

Ocwen is the largest recipient of federal TARP dollars, but also has one of the worst track records in foreclosure mitigation, including HAMP. Ocwen had an enforcement action in December 2013 for significant and systemic “deception and shortcuts in mortgage servicing”, which included improperly denying homeowner’s a mortgage modification and failing to properly apply a homeowner’s payment, both of which are extremely relevant to conducting oversight over Ocwen in HAMP.45 Ocwen had another major enforcement action in April of 2017 for “Failing Borrowers Throughout the Mortgage Servicing Process” which included (among other issues): servicing loans using error-riddled information; illegally foreclosing on homeowners; failing to credit borrower payments; mishandling escrow information and payments; and mishandling servicing transfers – all of which can have dire implications for homeowners in HAMP whose modifications are handled by Ocwen.46 During the last two years, Treasury has found that Ocwen wrongfully denied homeowners help from HAMP and wrongfully cancelled homeowners out of HAMP.47

• Wrongfully canceling homeowners out of HAMP: Treasury continued to find in recent years that Ocwen has wrongfully cancelled homeowners out of HAMP. More than 134,569 homeowners who were in HAMP with Ocwen have fallen out of the program. Treasury paid Ocwen in excess of $907 million in TARP dollars for these cancelled homeowners. More than 31,700 of these homeowners went into foreclosure or otherwise lost their home.48

Ocwen’s wrongful cancelation of people out of HAMP is similar to the conduct in Ocwen’s enforcement action. Ocwen cancelled homeowners out of HAMP on the basis that they had missed three payments, when in reality homeowners made the payments. Ocwen held mortgage payments in suspense, improperly reversed and later reapplied mortgage payments, and did not timely post payments made to an Ocwen lockbox.

Treasury does not know how many homeowners Ocwen has wrongfully cancelled out of HAMP. Treasury’s findings on a sample basis should be viewed in light of the December 2013 enforcement action that found, in part that Ocwen failed “to timely and accurately apply payments made by borrowers and failing to maintain accurate account statements.”49 In order to determine the full extent of mismanagement, Treasury could require Ocwen to conduct an independent review (paid for by Ocwen) and report on all people wrongfully cancelled out of HAMP, while also requiring additional controls to ensure that Ocwen timely and accurately posts homeowner payments.

• Wrongfully denying homeowners admission in HAMP: Ocwen has until September 2017 to determine which homeowners who applied by December 30, 2016 are admitted into HAMP. Ocwen’s denied of 68% of homeowners who applied for HAMP. The enforcement action found that Ocwen “improperly denied mortgage modifications.”50 This included: Failing to provide accurate information about mortgage modi cations and other loss mitigation services; Failing to properly process borrowers’ applications and calculate their eligibility for mortgage modifications; Providing false or misleading reasons for denying mortgage modifications; Failing to honor previously agreed upon trial modifications with prior servicers; and Deceptively seeking to collect payments under the mortgage’s original unmodified terms after the consumer had already begun a mortgage modification with the prior servicer. In recent years, Treasury found that Ocwen denied homeowners for HAMP that should have been admitted and/or failed to offer homeowners a HAMP modification.51

• Risk of Waste — Overcharging Treasury: Recently, Treasury found Ocwen misrepresentations to and overcharging of Treasury for payments to investors.

• Failure to notify homeowners in their 6th year of HAMP that they can lower their monthly payment: Ocwen recently failed to provide timely and accurate notices to homeowners who had successfully made their mortgage payments in HAMP for six years that the homeowners could lower their mortgage payment by re-amortizing (recasting) their unpaid principal balance. As a result, homeowners who has successfully performed their obligation in HAMP paid a higher payment than was necessary. In the most recent quarter, 80% of the loans reviewed by Treasury at Ocwen had erroneous information that could affect the homeowner’s decision to recast their loan.

With Treasury obligated to pay $1.7 billion and committed to pay up to an additional $924 million to Ocwen, continued oversight remains critical.52

Wells Fargo is the second largest receiver of TARP funds. Wells Fargo has broken HAMP’s rules by canceling people out of HAMP who made their payments on time, and by failing to notify homeowners in HAMP, as Treasury requires, on a timely basis that their mortgage payment was going to increase.53

• Wrongfully canceling homeowners out of HAMP: Recently, Treasury found that Wells Fargo wrongfully canceled people out of HAMP by not timely and accurately applying homeowner’s payments. More than 66,649 homeowners in HAMP with Wells Fargo have canceled out of HAMP costing taxpayers $318 million. Almost 22,407 homeowners went into foreclosure or otherwise lost their home. Treasury does not know how many total homeowners Wells Fargo wrongfully canceled out of the program. In order to determine the full extent of mismanagement, Treasury could start with requiring Wells Fargo to conduct an independent review (paid for by Wells Fargo) and report on other people wrongfully canceled out of HAMP, to ensure that Wells Fargo timely and accurately posts homeowner payments.54

• Failure to consider homeowners for other programs: Treasury found that Wells Fargo failed to follow HAMP rules to help homeowners falling out of HAMP avoid foreclosure by considering them for other MHA programs.

• Failing to notify homeowners timely that their mortgage was increasing: Wells Fargo failed to notify homeowners of upcoming increases to their mortgage payments in accordance with HAMP rules. Treasury requires that the servicer give a 120 day notice and a 60 day notice before the payment increase giving homeowners an opportunity to find means to pay their mortgage.

• Failure to notify homeowners in their sixth year of HAMP that they can lower their mortgage payment: Wells Fargo failed to notify on a timely basis homeowners that had successfully made their HAMP mortgage payment for six years that the homeowner could lower their mortgage payment by re-amortizing (recasting) their unpaid principal balance. As a result, homeowner’s who had successfully performed their obligations in HAMP may have paid a higher payment than was necessary. Given that Treasury does not know how many other homeowners did not receive timely notice given Treasury’s small sample size of 25, Treasury could start with requiring Wells Fargo to self-report these violations.

With Treasury obligated to pay $903 million and committed to pay up to an additional $682 million to Wells Fargo, continued oversight remains critical.55

JPMorgan denied nearly 1 million people for HAMP—84% of all who applied.56 According to Treasury, JPMorgan went from a history of one of the worst offenders of breaking Federal rules governing HAMP, to recently improving. If this is the case, it shows that it is possible for a large bank or non-bank servicer to follow Federal rules governing HAMP. For example, Treasury did not find that JPMorgan miscalculated homeowner income over the past year, showing that it is possible for a large bank to put controls in place to calculate income correctly.57 However, JPMorgan’s extremely high rate of denying people for HAMP will require oversight while it continues to assess homeowner applications.58

Treasury has recently found on several occasions that JPMorgan failed to notify homeowners that successfully made their mortgage payments in HAMP for six years that they were eligible to re-amortize their mortgage and lower their payment, or made errors in notices sent. As a result, homeowners who successfully performed obligations in HAMP may have paid a higher payment than was necessary.

Bank of America has one of the worst track records in HAMP. SIGTARP’s investigation of Bank of America defrauding HAMP led to a 2012 Department of Justice enforcement action against Bank of America.59 Treasury found that Bank of America needed substantial improvement in complying with HAMP’s rules, repeatedly, even in recent years.60

• Risk of Waste — Overcharging Treasury: In 2016, Treasury found that Bank of America overcharged Treasury by hundreds of thousands of dollars found in Treasury’s sample. Bank of America reported incorrect information about the delinquency status of several second liens that were extinguished, resulting in more than $400,000 in wasted tax dollars, including almost $150,000 on a single loan. Treasury requested that Bank of America perform a lookback analysis to determine whether there were other instances of misreporting.

• Wrongfully denying homeowners admission into HAMP: Bank of America denied 79% of all who applied for HAMP. Bank of America has repeatedly wrongfully denied homeowners for HAMP. Bank of America’s extremely high rate of denying people for HAMP requires oversight while it continues to assess homeowners applications.

• Miscalculation of income: Bank of America repeatedly miscalcualted homeowner income. Miscalculation can lead to Bank of America denying a qualified homeowner for HAMP or setting a higher mortgage payment for people than is sustainable.

• Risk of waste—Failing to reduce principal despite being paid by Treasury to do so: In the HAMP principal reduction program, Treasury pays servicers typically several thousand tax dollars per mortgage to reduce the outstanding balance of underwater mortgages. Bank of America failed to reduce the principal despite being paid by Treasury about $4,500 on average to do so. Bank of America did not reduce these homeowners’ underwater balances until Treasury later inquired about the status of these homeowners.

Nationstar has one of the worst track record[s] in HAMP. Nationstar’s violations of Treasury rules have been widespread spanning multiple quarters. Nationstar has shown little improvement and, even appears to be getting worse. Treasury recently found that Nationstar needed substantial improvement in complying with HAMP’s rules.

• Wrongful denying or failing to offer homeowners HAMP admission:

Nationstar has repeatedly wrongfully denied or failed to offer homeowners admission into HAMP.

• Wrongful cancellation of homeowners out of HAMP: Nationstar has wrongfully canceled homeowners out of HAMP. More than 62,032 homeowners who were in HAMP with Nationstar have fallen out of HAMP. Nationstar was paid $200 million in TARP dollars for these canceled homeowners. More than 25,674 of these homeowners went into foreclosure or otherwise lost their home. Treasury does not know how many homeowners Nationstar has wrongfully terminated out of HAMP given their small sample size. In order to determine the full extent of mismanagement, Treasury could require Nationstar to conduct an independent review (paid for by Nationstar) and report on all people wrongfully canceled out of HAMP, while also requiring additional controls to ensure that Nationstar timely and accurately posts homeowner payments.

• Misreporting of homeowner payments: Nationstar has repeatedly misreported homeowner payment information to Treasury that resulted in homeowner harm of lost TARP payments or wasted tax dollars. In some cases, Nationstar reported homeowners as delinquent when they had not missed payments. In the most recent quarter Nationstar misreported information about borrower payments, resulting in homeowners being shortchanged or Treasury being overcharged.

• Risk of Waste — Overcharging Treasury: Treasury found, even recently, that it overpaid Nationstar due to Nationstar’s faulty reporting. Nationstar modified ineligible mortgages, overcharging Treasury. Nationstar also misreported to Tresaury leading to the overpayment of homeowner relocation incentives to homeowners who did not even not live in the properties.

In the most recent quarter, Treasury found that in almost one-fifth of the transactions it reviewed at Nationstar, Nationstar failed to verify that the homeowners were not convicted of disqualifying felonies (such as mortgage fraud), which would have disqualified them. Treasury also recently found reporting errors on almost half of the Nationstar HAMP modifications it reviewed, resulting in overcharging to Treasury.

• Failure to notify homeowners on timely basis about increase in mortgage payment: Nationstar has repeatedly failed to timely notify homeowners in HAMP, as Treasury requires, that their interest rate was rising and therefore their mortgage payment was also rising. Last quarter 20% of Nationstar’s notices that Treasury reviewed were either not sent timely or had erroneous information.

• Failure to notify homeowners in their 6th year of HAMP that they can lower their monthly payment: Nationstar has not followed Treasury rules to provide timely noti cation to homeowners of their ability to re-amortize their mortgage, and lower their payment.

• Miscalculation of income: Nationstar has repeatedly miscalculated homeowner income. Miscalculation can lead to Nationstar denying a qualifed homeowner for HAMP or setting a higher mortgage payment than is sustainable.

CitiMortgage [part of Citibank, Citigroup] has had a track record of not following the Federal rules governing HAMP.

• Risk of Waste — Late reporting homeowners who fell out of HAMP/ overcharging TARP: CitiMortgage has wrongfully terminated homeowners out of HAMP. However, Treasury is not aware of the full extent of the problem, given its small sample size. Treasury found that in some instances CitiMortgage delayed reporting the termination to Treasury, delaying sometimes more than 100 days, in one case delaying reporting to Treasury for more than 2 years and in another case more than 5 years. During this time, CitiMortgage would have received “pay for success” TARP payments, including $1,000 each year to put towards principal, servicer payments (if the HAMP modification was in its first three years), and investor payments. These payments represent waste. Treasury also found other instances where CitiMortgage received TARP funds based on inaccurate reporting. Treasury is requiring CitiMortgage to identify the total population of mortgages that were part of misreporting related to termination of HAMP modifications.

• Misapplication of investor payments: CitiMortgage repeatedly misapplied payments causing homeowners to be reported as delinquent when they were not.

• Denied 89% of homeowners seeking help in HAMP: CitiMortgage has the highest rate of denying homeowners for admission to HAMP – 89%, which are 341,628 homeowners, of which 21,186 lost their home to foreclosure or distressed sale.

• Failure to notify homeowners in their 6th year of HAMP that they can lower their monthly payment: CitiMortgage has repeatedly failed to provide homeowners who had successfully made their mortgage payments in HAMP for six years that they could re-amortize and reduce their mortgage payment. …

After SIGTARP’s Report: Treasury has Only Sought Repayment of 1% of Waste and NAHAC Continues to Administer HHF

After the report, Senator Chuck Grassley sent a letter to Treasury expressing concerns about Treasury’s oversight to prevent waste.68 After receiving Treasury’s response, Senator Grassley issued the following comment on Treasury’s response:

“The Treasury Department tiptoes around its responsibility to ensure that $9.6 billion in taxpayer funding is used effectively to help vulnerable homeowners stay in their homes. Treasury writes the checks and relies on states to spend the money. If states don’t pay attention to whether the money is spent properly, abuse can and does occur, as we saw in Nevada. This is unacceptable for both homeowners who were supposed to be helped by this program and the taxpayers. SIGTARP and the Government Accountability Office are right to conduct oversight and fill the void left by the Treasury Department.”69

Senator Chuck Grassley

[An Example: Nevada]

The Nevada Housing Division released to the press an October 2015 letter sent to Treasury one year before SIGTARP’s report where it suggested removing NAHAC from HHF based on a “List of State of Nevada Concerns” about NAHAC including:

• Lack of transparency, including private board decisions that led to the contraction of the program and the inability to disburse Treasury funding

• Poor customer service, including that NAHAC had an unpublished phone number, does not publish their office location, and does not encourage face-to-face communication with borrowers

• Complicated intake process compared to other states in HHF

• NAHAC has alienated prior working relationships with counseling agencies

• NAHAC’s leadership is more concerned with funding than its customers and

programs

• Key staff turnover

• The Nevada Housing Division is frustrated with the lack of communication with NAHAC

• NAHAC has not demonstrated it can meet its mission, goals, and timelines67

The Nevada Housing Division’s representative told the press after SIGTARP’s audit that he warned Treasury about NAHAC and “from that point forward [two years ago] the money stopped flowing and the housing division’s attempts to try to intervene were blocked. We’ve been working with Treasury for two years to get NAHAC to change its ways.” The Nevada Housing Division admits that NAHAC stopped flowing the TARP money out to homeowners, but still claims that NAHAC should be entitled to expenses, despite the fact that Treasury’s contract only allows those expenses that are necessary for the purpose of the program.70

If Treasury had taken action to remove NAHAC after being warned by the state agency in October 2015, taxpayers could have saved one year of abused and wasted TARP dollars. In that year, Treasury paid NAHAC $1.66 million while NAHAC only admitted a very small number of homeowners.71

NAHAC issued a statement to the press saying, “[T]he new leadership team have been shifting the organization’s culture into one of accountability and transparency like never before to prevent such abuse and bad judgment from ever occurring again.”72 NAHAC admits abuse (abuse that happened over a large timeframe with multiple CEOs), but refuses to pay back the money. And even with NAHAC’s admitted abuse, it continues administering HHF in Nevada, putting this program and these dollars at significant risk of waste and abuse. Any entity that has shown itself willing to waste Federal dollars should be removed from receiving more Federal dollars.

In April 2017, Treasury requested that NAHAC repay $82,000, [which was] only 1% of $8.2 million in [the] TARP funds for expenses [which had been] identified in SIGTARP’s audit. …

—————

Investigative historian Eric Zuesse is the author, most recently, of  They’re Not Even Close: The Democratic vs. Republican Economic Records, 1910-2010, and of  CHRIST’S VENTRILOQUISTS: The Event that Created Christianity.

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  • Summary: years later, story has faded from the headlines, US govt. made noises while doing shoddy job of very little, changing nothing important, with de facto actions that back/bailout/bankroll the rich corporations that fund political campaigns.

  • Shiggity

    Stock market was saved, rest of America tanked.

    Not part of the stock market? You’re disposable / go die in a corner somewhere and keep your mouth shut.

  • “The Chickenshit Club” by Pulitzer Prize–winning journalist Jesse Eisinge, sums up the lack of prosecution.

  • ICFubar

    John Titus, an electrical engineer and lawyer in combination, did a excellent documentary exposing how the banking cartel, which controls Treasury and has Extreme influence throughout government avoids prosecution under blanket immunity and only pays self imposed fines when breaching so called international financial standards. This blanket immunity is by decree of the Bank of International Settlements and extends to all systemically important banks [the cartel], all documents and even the spoken words of bank employees being inviolable in all places at all times, all employees currently employed or not and immunity from all national law when carrying out banking business, of a criminal nature or not except for these international financial standards. As Blackstone mentioned in his commentaries “The King can do no wrong.”
    https://www.youtube.com/watch?v=2gK3s5j7PgA