Now here's poetic justice. 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.
For the sake of our (and the global) economy, our democracy, and our souls this willingness to allow elite control frauds to loot with impunity must end immediately. The control frauds must be taken down and their officers removed promptly. Receivership is the way to begin to reclaim our souls, our economy, and our democracy and Bank of America has the track record that makes it a good place to start. It is sufficiently large and powerful that its receivership will send the credible signal that America is restoring the rule of law and that even the most elite frauds will be held accountable.
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 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 proposes to Set the Record Straight on Bank of America foreclosures. Instead, she offers 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 continues to oversee theft of homes, throwing the owners out onto the street.
Our response 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 is now a outed fraudster. Read here.
She and her bank have been found guilty of 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.
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 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.
I am not exaggerating. Read this. Among the latest casualties was a 65 year old widow named Phyllis Walsh.
On the evening of Tuesday, July 30, Rhyner saw a police car in front of Walsh's home. Walsh had fired a single pistol shot into her head, killing herself, in the front yard. A note pinned to her shirt mentioned the "foreclosure vultures" were coming.... Walsh's death is just one piece of a Seattle-wide epidemic of foreclosures affecting more than 20,000 homeowners long after the housing crisis sent the country into a recession. A combination of state and federal foreclosure laws were written with the spirit of encouraging banks to negotiate with homeowners and let them keep their homes--but those laws are effectively a Swiss cheese of loopholes.
Walsh had fallen behind in her mortgage payments. She killed herself because she could not come up with $15,000 in payments and late fees that the banks claimed she owed. One of the mortgages was made by Mairone's Countrywide. Walsh was trying desperately to refinance into a more affordable mortgage--but as usual, she could not get the banks to respond.
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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