By L. Randall Wray, Professor of Economics at the University of Missouri-Kansas City, Research Director with the Center for Full Employment and Price Stability and Senior Research Scholar at The Levy Economics Institute. Originally published at New Economic Perspectives
Now here’s Déjà vu all over again. You might remember the name Rebecca Mairone from a few years ago. She’s back in the news:
Rebecca Mairone, formerly a top official at Countrywide Financial, has been named in an amended complaint filed earlier this month by Preet Bharara, the U.S. Attorney for the Southern District of New York, against Countrywide and its parent Bank of America. The suit alleges that Mairone, as chief operating officer for Countrywide’s Full Spectrum Lending division in 2007, set up a program dubbed the “High Speed Swim Lane,” or “HSSL,” or “Hustle,” to speed up the origination of mortgage loans, including increasingly shady subprime loans. The government claims the alleged Hustle ultimately cost its sponsored entities Fannie Mae and Freddie Mac more than $1 billion in losses.
The government has recently launched a flurry of lawsuits against major banks alleging mortgage fraud ahead of the crisis, none of the recent major suits have named individuals, making this case unique.
Mairone now works for JPMorgan Chase and is in charge of that bank’s efforts to compensate victims of foreclosure fraud, ProPublica recently reported.”
See the HuffPost.
Back in the fall of 2010, Bill Black and I wrote a two part essay for the Huffington Post calling on Washington to go after the Foreclosure Fraudsters. Specifically, we pointed our fingers at the serial fraudsters at Bank of America. See here and here.
We argued it is time to Put Bank of America in Receivership:
First, it is time to stop the foreclosures until the banks and servicers adopt corrective steps, certified as adequate by FDIC, that will prevent all future foreclosure fraud. They must also adopt plans to remedy the injuries their foreclosure frauds have already caused, and assist the FBI, Department of Justice, and legal ethics officials investigations of their officers’ and attorneys’ frauds and ethical violations.
Second, it is time to place the financial institutions that committed widespread fraud in receivership. We should remove the senior leadership of the banks and replace them with experienced bankers with a reputation for integrity and competence, i.e., the honest officers that quit or were fired because they refused to engage in fraud. We should prioritize the receiverships to deal with the worst known “control frauds” among the “systemically dangerous institutions” (SDIs). The SDIs’ frauds and fraudulent leaders endanger the global economy.
We propose Bank of America for the first receivership. In the last few weeks, the SEC has obtained a large (albeit grossly inadequate) settlement of its civil fraud charges against the former senior leaders of Countrywide. (Bank of America acquired Countrywide and is responsible for its frauds.) Fannie and Freddie’s investigations — with their findings reviewed by their regulator, the Federal Housing Finance Agency (FHFA) — have identified many billions of dollars of fraudulent loans originated by Countrywide that were sold fraudulently to Fannie and Freddie through false representations and warranties. The Fed, BlackRock, and Pimco’s investigations have identified many billions of dollars of fraudulent loans provided by Countrywide under false reps and warranties. Ambac’s investigation found that 97% of the Countrywide loans reviewed by Ambac were had false reps and warranties. Countrywide also engaged in widespread foreclosure fraud. This is not surprising, for every aspect of Countrywide’s nonprime mortgage operations that has been examined by a truly independent body has found widespread fraud — in loan origination, loan sales, appraisals, and foreclosures. Fraud begets fraud. Lenders that are control frauds create criminogenic environments that produce “echo” epidemics of control fraud in other professions and industries.
We have been amazed that, as one financially sophisticated entity after another found widespread fraud by Countrywide in the entire gamut of its operations, the administration, the industry, and the financial media act as if this is acceptable. Countrywide made hundreds of thousands of fraudulent loans. It fraudulently sold hundreds of thousands of loans through false reps and warranties. It fraudulently foreclosed on large numbers of loans. It victimized hundreds of thousands of people and hundreds of financial institutions, causing hundreds of billions of dollars of losses. It has defrauded more people, at a greater cost, than any entity in history.
Bank of America chose to purchase Countrywide at a point when it — and its senior leaders — were infamous. Bank of America made some of these Countrywide leaders its senior leaders. Yet, Bank of America is not treated as a criminal entity. President Obama, Attorney General Eric Holder, Donovan, and Barr cannot even bring themselves to use the “f” word — fraud. They substitute euphemisms designed to trivialize elite criminality. The administration officials do not call for Bank of America to be the subject of a criminal investigation. They do not demand that Fannie, Freddie, Ambac, the FHFA, and Pimco file criminal referrals about Countrywide’s frauds. They do not demand that Fannie, Freddie, and the Fed refuse to purchase or take as collateral any mortgage instrument from Bank of America. No one at the Harvard Club in New York moves to kick Bank of America’s officers out of their club! The financial media treats Bank of America as if it were a legitimate bank rather than a “vector” spreading the mortgage fraud epidemic throughout much of the Western world.
Predictably, we got the usual attacks by trolls. Whenever you write a piece that argues that the biggest banks need to be held accountable for their frauds, they roll out the trolls. Usually, the trolls will not sign their defense of fraud with their real names.
However, that time, BofA tasked one Rebecca Mairone, Default Servicing Executive of Bank of America Home Loans, with writing an article to counter our piece. You can read her piece here.
In it she proposed to Set the Record Straight on Bank of America Foreclosures. Instead, she offered nothing but obfuscation:
Foreclosure is a wrenching personal situation for too many people. In their recent post, “Foreclose on the Fraudsters”, William K. Black and L. Randall Wray do nothing to illuminate the challenges they face. When they aren’t being merely misleading, the authors are just flat out wrong in discussing Bank of America’s actions to help keep the economy moving forward, keep people in their homes, or ensure a fair and consistent foreclosure process if it comes to that. Missing from their presentation are some essential facts, including:
•We stepped up to purchase Countrywide at a time when failure of that company would have been devastating to the economy, the markets, and millions of homeowners.
•Our priority remains to keep people in their homes.
•The vast majority of our portfolio — 86% — is current and performing.
•Modification solutions are intensely focused on the 1.3 million customers who are more than 60 days delinquent — 85% of which are Countrywide originated loans.
•Bank of America has completed nearly 700,000 permanent modifications including more than 85,000 under the government’s HAMP program — the most of any servicer.
Sure, BofA feels your pain, poor homeowner, as Mairone continued to oversee theft of homes, throwing the owners out onto the street. Now she’s at JP Morgan, supposedly reducing the pain of those who’ve lost their homes to her thieving banksters.
Our response at that time to her is here.
We pointed out that:
Rebecca Mairone replied on behalf of Bank of America to our two-part post. Step back for a moment and consider the context of Bank of America’s response. We cite evidence that the bank has committed massive fraud, explain that this provides a legal basis for placing it in receivership, and call on the FDIC to do so. Bank of America chooses to respond publicly, but its response never contests its massive fraud or our demonstration that there is a legal basis for placing it in receivership.
Instead, Bank of America complains that we “do nothing to illuminate the challenges [BofA’s home mortgagees] face.” This is not our task; nevertheless, the claim is incorrect. We illuminate the problems posed by the fact that nonprime borrowers were frequently victims of mortgage fraud perpetrated by lenders as well as many other operatives in the unprecedented criminal lending and securities fraud of the past decade. This problem is typically ignored — at least by the financial sector and the mainstream media — so we did “illuminate” the problem and the cause of action borrowers could bring for “fraud in the inducement.”
We showed that the fraudulent senior officers that controlled home mortgage lenders created “liars,” and NINJA loan programs designed to induce millions of Americans to take out loans they could not afford to repay. The endemic underlying fraud in the origination and sale of nonprime loans is critical to understanding why loan defaults are massive, why borrowers were typically the victims of the fraud and lost their meager savings due to the frauds, why loan modifications typically fail, and why foreclosure fraud has been so common. The endemic fraud also hyper-inflated the bubble and helped cause the economic crisis and severe loss of employment. Over a million Bank of America borrowers face these “challenges” that we “illuminated.”
Bank of America’s response is guilty of what it criticizes; it ignores the fraud by nonprime lenders and sellers, particularly Bank of America’s frauds in both capacities. It does not seek to “illuminate” the frauds or the problems that arise from endemic mortgage fraud. We did not invent the “epidemic” of mortgage fraud. The FBI began testifying about that in 2004. The FBI predicted that it would cause a “crisis” if it were not stopped — and no one claims it was stopped. The mortgage industry’s own fraud experts opined publicly in 2006 that the type of loans that Countrywide decided to elevate to its favored product was an “open invitation to fraudsters” and fully deserved the phrase that the lenders used to describe the product: “liars’ loans”. (Bank of America chose to purchase Countrywide at a time when it was notorious for the awful quality of its mortgage loans.) It is the lenders and their agents, the loan brokers, that directed the lies in these liar’s loans and appraisals and it was the lenders that made fraudulent “reps and warranties” in order to sell the fraudulent loans on to others in the form of securities. Economists and white-collar criminologists share a belief in “revealed preferences.” The senior officers that control lenders provide an “open invitation to fraudsters” in the midst of an “epidemic” of fraud because they intend to profit from those frauds.
Instead of contesting its issuance and sale of massive numbers of fraudulent loans, Bank of America writes to provide data on delinquencies and foreclosures in support of its claim that it is the victim of Countrywide’s deadbeat borrowers who it tries in vain to help. Bank of America’s data, however, add support for the evidence of widespread mortgage fraud, particularly by Countrywide. Accounting control frauds maximize their (fictional) reported income by lending routinely to those who cannot afford to repay their loans. It is this aspect of the fraud scheme that is most counter-intuitive to those that do not study fraud, but to criminologists it provides the most distinctive markers of fraud. The senior officers that control fraudulent lenders maximize the bank’s reported short-term income, in order to maximize their compensation, by growing extremely rapidly through making loans at a premium yield. This strategy creates a “sure thing” (Akerlof & Romer 1993). The lender is sure to report record (fictional) profits in the short term and suffer enormous (real) losses in the longer term.
Irony of Irony. Guess what, folks. Mairone was outed as a fraudster a year ago. Read here.
She and her bank have been found liable for fraud in the types of activities that we had outlined.
A federal jury in Manhattan on Wednesday found Bank of America liable for fraud because of thousands of defective mortgages sold by its Countrywide Financial unit, handing the government a victory in one of the few major trials rooted in the financial crisis. Government efforts to hold Wall Street accountable for crisis-era sins have primarily been resolved through settlements, leading to criticism that financial firms were given an easy way out, albeit an expensive one. Taking the Bank of America case to trial and winning the judgment could start to change that perception.
On Wednesday, after a four-week trial, a jury of four men and six women said Bank of America and former Countrywide executive Rebecca Mairone were liable for one count of civil fraud. Prosecutors accused the bank and Countrywide of stripping safeguards designed to catch mortgage fraud and then peddling the loans to government-backed Fannie Mae and Freddie Mac. The mortgage finance twins were on the hook for more than $1 billion in losses once the housing market crashed, according to the complaint. The Justice Department wants Bank of America to pay up to $848.2 million, the gross loss that it claims Fannie Mae and Freddie Mac suffered on the loans. U.S. District Judge Jed Rakoff must decide on the penalty.
Now she, personally, has to cough up a cool million bucks. That’s nice. It should be a lot more. And she should be doing prison time.
It is not a surprise to us that the fraud was found. Fraud is everywhere at the biggest banks. Their business model was, and remains, fraud. Fraud can be found everywhere you look. All you have to do is look. Up to now, Washington has turned a blind eye to fraud at the nation’s biggest fraudsters. While it is nice that they are finally going after some of the small fry fraudsters, like Mairone, it is time to go after the top fraudsters—those who oversaw and rewarded (and were rewarded for) fraud.
The illegal foreclosures continue. Every day people are still losing their homes. Lives and entire communities are being destroyed. People are literally dying because their homes are being stolen from them. Mairone was an executive at Countrywide before she went to BofA. She knew the fraudster’s mode of operation very well—Countrywide was the most notorious originator of fraudulent mortgages in the country. Countrywide has directly caused countless deaths across the country.
Mairone’s bank specialized in making mortgages with terms that the loan officers and executives like Mairone knew the borrowers could not possibly service. Fraud was the business model. Foreclosure was the expected result.
It doesn’t have to be this way. Stop the fraudsters. Stop the foreclosures. There should be an immediate 5 year Country-Wide moratorium on foreclosures. Investigate the fraud. Jail the fraudsters. Put the biggest banks into receivership. Begin to clean-up the document mess created by the banks and MERS (the banks lost or destroyed all the records of property ownership). Our economy will not recover until this is done.
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•We stepped up to purchase Countrywide at a time when failure of that company would have been devastating to the economy, the markets, and millions of homeowners.
This is true as the US govt did pressure BofA to takeover Countrywide and is why BofA is not being prosecuted for the crimes of Countrywide and Mr. Mozila.
The statement BofA stepped up to purchase Countrywide due to US Govt pressure in simply not true. BofA purchased Countrywide in January, 2008-well ahead of the calamity of September, 2008 after Lehman Brothers filed bankruptcy-more on that below. At the time Ken Lewis, Bofa CEO, was dancing a North Carolina hillbilly jig over the purchase of Countrywide. Lewis completed his plan to run with the big New York firms with the Merrill acquisition- which sent Lehman into bankruptcy (with Govt “pressure”. By many accounts BofA overpaid for Merrill. If I recall, Merrill was $10b and John Thain was the remaining $40b-err). Arguably, the crash of Lehman could be placed on BofA’s conscience. Restated, if BofA was bent on doing God’s work, as per their claim, they would have purchased Lehman for the good of mankind.
Mr. Mozilo was prosecuted and the government failed to make their case. Although Mozilo did cough up around $70m as a SEC penalty and in doing so, was able to avoid the civil trial. Of Mozilo’s $70m penalty Countywide picked up part of the tab.
To amplify, BofA was eager to buy Countrywide. It did a two-step deal, buying a stake first. The deal was not consummated in January 2008, though. It closed later in the year.
From a May 2008 post:
And BofA serviced the loans in its own name after the acquisition.
BofA was also very sloppy in how it handled the acquisition, in that it stripped so many assets out that it basically pierced the corporate veil. AIG made a very strong argument to that effect in its filing opposing the $8.5 billion BofA settlement.
It definitely is deja vu all over again. The bank bailouts have gone on so long now that it is unclear even what could realistically be done.
I’d say the fundamental problem is this: “…the gross loss that it claims Fannie Mae and Freddie Mac suffered on the loans”. Why is the government in the business of supporting private property? That netherworld of private profits and public losses is precisely where the looting occurs. Countrywide would have gone bankrupt long before it became part of BoA without GSE support. And the GSE losses should have been born by their own shareholders and creditors, not the general public. That bailout, too, (shifting GSE debt to the USFG) often conveniently gets forgotten.
I see no way that receiverships and prosecutions can happen as long as the government is neck-deep in backing the very institutions that are the problem.
this is the biggest and most glaring example of inequality that ever was…
Meanwhile in the foreclosure trenches, the banks continue to do as they please, and the courts refuse to listen to anything from borrowers. I have hearings pending on my objections to relief from stay in two bankruptcy cases. In both BONY Mellon is trustee of the mortgage pool. My argument is simple: BONY has no standing. Both trusts are creatures of New York law, which has a strict kill-switch section for ultra vires acts by trustees: All such acts are void; not voidable, void. The Pooling and Servicing Agreements (PSAs) creating the trusts both have strict deadlines for the trustee to accept mortgages into the pools. This was not done by accident. Both trusts (and in fact all these mortgage trusts) are REMICs, and the tax code requires these pools to close within certain timeframes or lose their tax-favored status. The plan was that, if the IRS tried to impose tax liabilities for late entries, the trusts could argue the trustee had acted beyond its authority, the late transfers were therefore void, and there was no tax liability.
Neither of these mortgages entered its pool by the deadline (I have yet to see a mortgage that did.). That should mean the transfer is void, the trust does not hold the mortgage, and the trustee has nothing to enforce. Will the court rule? I’m not hopeful, and not because of the strength of BONY’s position. It has a two-pronged attack: 1) my clients lack standing to attack the terms of the trusts (thereby confusing the power to bring an affirmative claim with the power to raise a defense), and 2) since my clients acknowledge the debts and deeds of trust, BONY should be allowed to foreclose because someone has to be able to, and my clients aren’t showing who actually does hold the right to foreclose (Also known as the “We Don’t Need No Stinkin’ Standing” argument. There is also the minor detail that the paper trail is such a mess there is no way my clients can straighten it out, and there is nothing in the bankruptcy code that says they have to.)
Nevertheless I’m expecting the court to rule against me, and the order is effectively going to read, “The Court rules for BONY because reasons.”
Keep in touch. You are fighting the good fight.
Update: Today was the hearing in the first case. As predicted, the court ruled for BONY. The reasoning was, “1) BONY physically has the note. 2) The security interest follows the note. 3) BONY therefore has the mortgage regardless of the terms of the PSA. 4) Go fight this out in regular court even though prior, knee-jerk rulings preclude debtors from raising PSA issues there because they lack standing.” In other words, free standing for the banks and so automatic enforcement.
My personal experience with countrywide was during the second month of their so called default processing September 2005. In Los Angeles County they defaulted 10,000 homes in aug and sept and oct. That was the start of it all. My home went into default after 31 days claiming I had not paid my mortgage and I had cancelled checks to prove it. Even though the loan contract stated min of 60 days delinquent, my mortgage was never delinquent. The payment in question was placed into some kind of limbo and never applied to my mortgage, Countrywide would not rescind the default. I had the county recorder himself telling me “they were not allowed to do that” to which I responded by saying Well YOU LET THEM DO IT. Because of that I was forced to try to refi, in which I was the victim of the full on document altering faked notary and the numbers changed to reflect an impossible amount per month. This was in 2005-2006 no one had caught on yet to the fraud. So for people like me, we just lost our equity our homes and our credit. Now we cannot buy anything, and rents are triple the amount of a mortgage. The thing that still gets me, is that a home loan is a secured loan, why on earth did the county recorders and trustees allow the foreclosures, when the numbers started coming in the tens of thousands per month, that alone was a HUGE FLAG when the norm was 20-30 a month usually. All anyone has to do is read a SEC Loan pool doc in particular ” Non-Affiliate Sub Prime Lender Fraud” section I read the CSMC 2006-4 and what I read was staggering. The Loan pool rules literally stated to sell the properties at a trustee’s auction, however DO NOT TAKE OWNERSHIP, rather they were to act “as-if” they were being lawful. The words”as-if ” being quotation marked and with the hyphen which was what caught my eye, So unless a trustee sale results in the lender taking ownership via a Trustee’s deed, then the trustee sale is not legal. it just so happened the landord who allowed his house to foreclose was sold by a loan seller whom was literally kicked out of the loan pool for not posting a surety bond on the monies lended by him, which fell into a rare but interesting group of foreclosures, these were such a high risk that in the event of a fraud loan origination, the loan pool actually paid off the bad loan, unbeknownst to the borrowers. SO when the crappy landlord lost his home, I had the info that could have not only saved his home but would have made a lawsuit that would have every payment the man made refunded, however, since he took my rent and lied about the default he never learned his house loan was so fraud ridden the loan pool could not ever back a loan for this property ever, in case of litigation and liability. This is the type of fraud that the banks are getting nailed with billions in fines for. As far as the more typical situation, keep in mind the banks on wall street did not write the crappy terms that were designed to fail, the loan seller did it. The Banks kept quiet, but the guys who wrote loans claiming peoples credit score dictated the terms are the ones that should be thrown in jail. My docs were forged, altered and filed without signatures, and my house was still taken away. However, I have reported the names of those who did me the harm. I also learned a tough lesson while fighting the terms before the eventual sale of my house, at the time since I didn’t pay off the bad loan, I suffered no losses , legally I was told, so regardless of the paper being fraud laden, I was not a victim at the time I fought the altered doc loan fraudsters. Not to mention there are UCC laws in specific that relate to house foreclosure in the US no one seems to have looked there for some kind of legal protection. So the one common denominator we , the subprime victims had in common, we were all told the better terms did not apply to us, we were all bad credit risks, and that single distinction allowed us to be funneled into impossible loans. Very few people were able to borrow more than they could afford, it did not happen that way, we were told we would need to refi in 2 years to beat the ridiculous adjustable rates we got stuck with. In two years no one was ever approved. That is why 97% of the home owners in my county lost their homes. The court reporters log for those days in court where we tried to tell the judge that the bank did not follow the law will show about 150 per day all with the same argument, all being told “now is not the time to discuss the details of their unlawful evictions. The judge was a bully and laughed at people when they needed a few extra days and said NO! I have reported and rereported these details, and in my dreams that ahole loan seller, who is still writing crap loans and hopefully he will see the inside of a courtroom. So before people try to lump us all into “people who borrowed more than they could afford, remember that the stupid credit score numbering system allowed this to happen, and it still harms us all. Anyone tried to buy a car after a foreclosure! 24% interest rates, just to be able to get a vehicle. Credit cards, who needs them, at 24% as well. That is the price we VICTIMS are paying. All of the fines wont put us back into home loans. Now we are stuck paying back of the lenders whom are now investors and landlords in my area. 80% of the foreclosed homes are being bought by a single entity and a dozen strawmen. Non arms length, and it still continues.