Bank owners and CEOs who walked away rich from their government bailouts should be jailed for fraud. This is not news, but nothing has been done about it, and the evidence continues to pile up that the big banks were guilty of more than just greed and stupidity.
As I've been fighting my battle with Aurora Loan Services (and no, I've been promised a modification but I don't have the paperwork yet), I've been reading everything I can on the mortgage mess, which is still going on. Many thousands of five-year adjustable mortgages will reset this year, and 25 percent of homeowners are still underwater in their mortgages even as these resets continue to occur. Most communities still have falling home prices and "shadow inventory," which means more foreclosed homes to hit the market.
A group of homeowners who responded to my blog have begun a class action suit against Aurora. I haven't joined it, because I'm assured by people high up in the institution that my paperwork is on the way. But I am in their email thread, and all the stories sound the same. The people qualified, they bought the home, and then something happened in their lives or the world around them, and they were trapped.
The FBI began to warn in 2004 that there was an epidemic of mortgage fraud, which came from the lenders, rather than the borrowers. In the board rooms of big banks, loans were packaged in a way that created complex layers of securities that would leave the senior officers rich even if the institution itself (the bank) failed. This kind of accounting fraud was a sure thing:
1)Grow like crazy
2)Make deliberately bad loans
3)Have extraordinary leverage
4)Don't put on loss reserves so the loans show up as pure profit
Loss reserves fell to all time lows even as banks made their worst loans.
At the time, the regulators should have shut down the banks. There's a law, called The Prompt Corrective Action Law, that makes this necessary. This law was systematically ignored by regulators. Money and greed ruled everything, including the government. (HT: Barry Ritholtz, whose blog you really should be reading)