Foreclosure fraud isn't about losing paperwork or having incorrect paperwork. It is about committing fraud and trying to manipulate the U.S. legal system. No one -- not even a bank -- can show up in court with phony evidence.
State Attorneys General decry foreclosure fraud, because among other things, people signed affidavits making representations that were untrue. This is fraud on the court. All of these foreclosures may be vacated.
Corrupt people in Congress and corrupt regulators cannot intervene for the banks this time. Banks have to face state courts, and many Attorneys General are happy to take them on.
Banks that committed fraud on the court do not get a do-over. Even if they can show up later with correct documents, it does not erase the original crime of fraud on the court. Anyone who presented phony documents as evidence in court broke the law.
Former Ohio Attorney General Richard Cordray advised banks that engaged in fraud on the courts (by submitting falsified affidavits) to negotiate meaningful loan modifications.
Jamie Dimon's Evasion
Jamie Dimon, CEO of JPMorgan Chase, said that JPMorgan did not foreclose on people who didn't deserve it. Dimon was dismissive saying JPMorgan might have to pay some penalties, but it should just carry on with foreclosures. JPMorgan's third quarter 2010 report contradicts its CEO:
JPMorgan's role in alleged foreclosure fraud had already been made public when Dimon made these ill-considered statements.
"But the financial statement itself proved the lie. The bank said it was carefully checking 115,000 mortgage affidavits. It set aside a whopping $1.3 billion for legal costs. And it put an extra $1 billion into a now $3 billion fund for buying back bunk mortgages and mortgage products."
"Too Big to Fail Rears its Head Again," by Annie Lowrey, Washington Independent, October 14, 2010.
In a CNBC interview, Former Ohio Attorney General Richard Cordray retorted to baseless claims made by Ally Bank, formerly known as GMAC Bank, which was bailed out by TARP. Ally said that it didn't know of instances of improper foreclosures. Cordray shot back that every foreclosure done with falsified affidavits was improper. It's fraud on the courts. He stated that as yet, no one knows the scope, but it could be tens of thousands or hundreds of thousands of instances of fraud on the court.
The fact that this happened repeatedly doesn't make it more excusable, it makes it worse. Ally Bank, Bank of America, and JPMorgan have admitted to this practice. Apparently they had "fraud as a business model."
The good news for banks is that Richard Cordray was not reelected to the post of Ohio's Attorney General. The bad news for banks -- and the good news for Ohio -- is that Cordray may become an Ohio Supreme Court Justice.
Robert Rubin Dodges Responsibility
The Economist's Buttonwood Gathering in New York on October 25 featured Robert Rubin, former senior advisor of Citigroup (also former Treasury Secretary under President Bill Clinton, and former Co-Chair of Goldman Sachs) as head of the first panel. He led a role-play about what might happen if one of the United States defaulted on its debt in the year 2013.
States cannot declare bankruptcy, but neither Rubin nor any other panel member mentioned it. Instead of putting states on notice now that they have to get their budgets in order -- even if it means cutting back on promises -- the panel suggested that the Federal Government should bail out the states.
When it came time for Q&A, I asked the first question and framed it by pointing out the irony of this panel discussing a potential state default and systemic risk. While many states have been fiscally irresponsible, their distress is now acute due to fraudulent lending further damaging the economy leading to reduced tax revenues.
Moreover, weak states also have higher borrowing costs, since municipal bond insurers' credit ratings imploded after they sold credit default swap (CDS) protection on value destroying securitizations (CDOs).
Rubin's Citigroup bought credit default swap protection from Ambac, one of the two largest municipal bond insurers, on Citi's value destroying mortgage backed securitizations.
During Rubin's watch as Citigroup's "risk wizard," Ambac sold protection on Citi's toxic CDOs including Diversey Harbor ($1.875 billion), Ridgeway Court Funding I ($1.57 billion), Ridgeway Court Funding II ($1.95 billion), Adams Square II ($510 million), 888 Funding ($500 million), Class V Funding III ($500 million). Citi settled many of these contracts with Ambac for deep discounts. (The Fed did not have taxpayers' interests in mind when it settled AIG's transactions with Goldman Sachs and others for 100 cents on the dollar.)
Ambac filed for Chapter 11 bankruptcy on November 8, 2010, two weeks after Rubin's shameful performance on this panel.
Robert Rubin didn't express an ounce of regret (or context) for his role in the crisis. On the contrary, he was insufferably smug. In his opening remarks, Rubin self-servingly asserted that no one could foresee the crisis in 2007, despite ample public evidence to the contrary. Citigroup and Ambac never came up. (See also "Congress's FCIC Nearly Nailed Former Citigroup Executives to the Wall -- Then Blew It," Huffington Post, April 8, 2010.)
David Fry, author of ETF Digest, and Janet Tavakoli (November 2, 2010) discuss a range of issues from foreclosure fraud, JPMorgan Chase, Goldman Sachs, AIG, Citigroup, Bank of America/Countrywide, and public denials and revisionist history by Robert Rubin.
Correction: During the course of this interview, I incorrectly stated that Laura Tyson had been on Ambac's Board. She is on the Boards of Morgan Stanley, AT&T, and Eastman Kodak.