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Will WikiLeaks Be the Internet’s Titanic?

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Back in the early days of radio, there was a great amateur radio culture that in key ways resembled early internet culture: it was predominantly male, highly competent, espousing a belief that this new technology could democratize the world.

And in spite of the amateur radio community’s offer to set up an alternative communication system in the country–one that would provide a horizontal communication network in case the more centralized one failed in time of crisis–the powers that be were none too comfortable with the radio guys. Partly, it was just about decentralization of power. Partly, it was that the amateur operators were technically more skilled than the radio operators in the employ of the Navy.

And then the Titanic happened.

And in spite of the fact that the disaster had a lot more to do with hubris and incompetence and negligence, the amateur operators provided a handy scapegoat, based on the weak claim that amateur operators had hogged bandwidth that rescuers might have used. More importantly, the amateurs offered not only a convenient scapegoat, but the Titanic provided a wonderful opportunity to go after the radio guys, the fearmongering excuse to curtail the power of the operators, which the government did with bandwidth restrictions and a national regime covering broadcast, among other measures. Which launched the process that resulted in the top-down broadcast model offered by Westinghouse and CBS rather than the democratized horizontal network of people speaking in their own voices that might have been.

I’ve been waiting for our Titanic moment–the moment when the government would use some convenient excuse to shut down the imperfect but still better than broadcast model of the Internet. The moment when–as the government did with the Titanic and its demand for Navy hegemony of the airwaves–the government could sow fears about national security to shut down citizen media.

And as I was reading this post from Ian Welsh…

Let’s just state the obvious here: we’re seeing the end of the open internet with what is being done to WikiLeaks.  It’s one thing for Amazon to toss them, it’s another thing entirely to refuse to propagate their domain information.  This has been coming for quite some time, and WikiLeaks is not the first domain to be shut down in the US, it is merely the highest profile.  Combined with the attempt to make NetFlix pay a surcharge or lose access to customers, this spells the end of the free internet.

The absurdity, the sheer Orwellian stupidity of this is epitomized by Hilary Clinton telling students at elite colleges not to read the leaks, or they won’t get jobs at State.  As if anyone who isn’t curious to read what is in the leaks, who doesn’t want to know how diplomacy actually works, is anyone State should hire.  In a sane world, the reaction would be the opposite: no one who hadn’t read them would be hired.

This is reminiscent of the way the old Soviet Union worked, with everyone being forced to pretend they don’t know what they absolutely do know, and blind conformity prized over ability.

And as I contemplate Federal Communications Commission Chairman Julius Genachowski’s fake net neutrality proposal, and as I read news of MasterCard and Visa both freezing Julian Assange’s funds, I can’t help but think this is the Titanic moment I’ve been expecting for years.

Sure, the crackdown–which puts our counterterrorism efforts to shame–is a response to the scope of this latest leak. Sure, it’s an attempt to prevent the next leak, on Bank of America.

But just as much, it’s about creating the excuse they need–the government and the legacy media protecting their turf–to undercut the power of the Internet.

SEC Inspector General: Yes, BoA Got Special Treatment

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The WaPo reports that an SEC Inspector General report shows that the SEC gave Bank of America lenient treatment when it fined BoA for its funny business surrounding the Merrill Lynch acquisition, but did not place limits on BoA’s ability to issue securities that would normally be placed on a firm that violates securities law.

The inspector general found that the SEC showed leniency in the first settlement. He did not find that Bank of America’s status as a bailed-out bank affected the settlement’s price tag. Rather, he found that the SEC exempted Bank of America from other sanctions.

Like many of its competitors, Bank of America has long enjoyed a special status with the SEC that allows it to issue securities more easily.

Customarily, a firm that agrees to settle violations of securities law related to disclosures would lose this special status, thereby penalizing the firm with a lengthier and costlier process for issuing securities.

In settlement discussions with the SEC, Bank of America asked to retain that special status. The SEC, at first, declined, insisting that firms that violate the disclosure requirements of securities laws must suffer the consequences of those actions.

The agency reversed course in a last-minute meeting with Bank of America before the full commission voted to approve the settlement.

“In this meeting, BofA argued that the dire state of the financial markets made it critical that it be able to raise money quickly” by issuing securities, according to the inspector general’s report.

SEC officials decided to allow the bank to retain the special status because it had received taxpayer bailouts and “it would not be in the interest of the market or investors to prevent them from getting to the market,” according to the report.

This first settlement, btw, was the one Judge Jed Rakoff rejected, saying this of the settlement itself:

Overall, indeed, the parties submissions, when carefully read, leave the distinct impression that the proposed Consent Judgment was a contrivance designed to provide the S.E.C. with the façade of enforcement and the management of the Bank with a quick resolution to an embarrassing inquiry…

Mind you, this IG finding appears to represent the facade of oversight. In addition to finding the teeny fine and the way it was assessed to be no problem, SEC’s IG also had no problem with the way Treasury and the Fed were involved in the merger of BoA and Merrill Lynch.

The whole thing sort of makes you wonder about what other special treatment BoA has been getting all this time, all in an effort to avoid admitting that it is insolvent. Maybe Julian Assange can help us out there?

Fed Orders New Stress Tests

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One of the things the Congressional Oversight Panel recommended the other day was new stress tests for banks, given the mounting evidence that botched securitization may make them insolvent (okay — that last bit is my shorthand).

Today, the Fed ordered up those stress tests.

The Fed, in guidance issued today, said all 19 banks must submit capital plans by early next year showing their ability to absorb losses under a set of conditions to be determined by the central bank. The request is part of the Fed’s effort to step up supervision at the nation’s largest financial firms.

While new stress tests are a no-brainer — at some point we’re all going to have to admit that Bank of America is insolvent and should be wound down — I’ve got zero confidence these new stress tests will be anything different than the kabuki stress tests the banks had in the last go-around: that is, a “test” designed to ensure everyone passes.

About that AG “Investigation” and “Settlement”

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About four hours ago, Iowa’s Attorney General Tom Miller testified to the Senate Banking Committee  it would be months before the combined AG “investigation” came up with a settlement (he also suggested that there were new aspects that were just being added to the “investigation”).

Dodd: How long AG investigation?

Miller: Months, rather than year or longer. Depends on negotiations. If we expand scope, expands time. Maybe something on fees allowed. Forced insurance, huge abuse. Same thing w/dual track. If you all could solve the 2nd lien problem.

That’s almost exactly the moment when the WaPo posted a story reporting the AGs were close to a settlement.

The 50 state attorneys general are in negotiations over an agreement over foreclosures that would include a victims’ compensation fund that would provide money for borrowers whose homes have been taken away improperly, according to state and industry officials.

The discussions are still preliminary and the final deal may change significantly as details are hammered out and the settlement is vetted by 50 separate state offices, the official said.

Now, there’s a lot that’s weird with this story, aside from the way it seemingly contradicted what Miller was saying to Congress at precisely the moment he was saying it. First, only three of the big servicers were mentioned in the story:

While there’s no universal agreement that would apply industry wide and the AGs are negotiating separately with each bank, many of the stipulations are the same for the agreements being discussed with the three largest mortgage servicers: Bank of America, JP Morgan Chase and Wells Fargo.

No mention of GMAC or Citi–or Goldman Sachs, which just announced a freeze on its foreclosures.

And this story reported that dual-track processing–in which people are being processed for modification at the same time they’re being foreclosed on–“should” stop.

They also agree that there should be no more “dual track” loan modification negotiations that end suddenly with foreclosures.

Yet at almost precisely the time when WaPo published this claim, BoA’s President of Home Loans, Barbara Desoer was explaining that they couldn’t end dual-track processing except on those loans BoA held on its own books and/or for loans that qualify for HAMP, and Chase’s CEO of Home Lending David Lowman was testifying that they wouldn’t end dual-track processing (he did suggest there was something Congress could do to give servicers safe harbor to end dual-track processing, but that he wouldn’t describe it in the hearing).

Then there’s the claim that there would be a compensation fund set up for those wrongly foreclosed.

The most radical part of the settlement deal has to do with providing monetary compensation for homeowners who have lost their homes but can prove that they have been foreclosed on wrongly. This is the most contentious item because the amount of the funds that would go into this have not been worked out and it’s also unclear how it would be administered.

At least the WaPo had the grace to suggest, without saying outright, that any such fund would be ripe for abuse by the banksters. The banks, after all, are often unable to give any real accounting of the amounts owned (and if they were able to, they’d be unwilling to show the illegal fees and accounting they were using). So how is a wrongly-foreclosed homeowner supposed to prove they were wrongly-foreclosed?

And then the article mentions nothing about modifications going forward. In other words, this “settlement” would achieve absolutely nothing–except for getting a bunch of banksters excused, again, for breaking the law. Not that I find that hard to believe. Just odd that WaPo wouldn’t mention that this alleged “settlement” wouldn’t accomplish the primary requirement of any “settlement:” fixing any problem but the legal liability of the banksters.

Mind you, I did note during the hearing that Miller didn’t seem to have consumers’ interests in minds when he was talking about any settlement, so I guess the outlined proposal is a possible one.

But most of all, note the big news in this story.

There is no mention of an investigation.

There was not a single soul at today’s hearing who claimed to have a good sense of the scope or reasons for the massive foreclosure fraud perpetrated by the banks. Indeed, almost everyone acknowledged the need for further investigation to make that clear.

That “investigation” was supposed to be conducted by the 50 AGs.

But if this article has even a shred of truth to it then the AG “investigation” is instead a fast-track effort not to “investigate” (god forbid, because you might actually expose how the banksters had ended private property and rule of law in the United States), but to find a way to get the banksters out of any accountability for their crimes.

Liveblog: Senate Banking Committee on Foreclosure Fraud

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See Part One of this liveblog here.

Shelby was actually pretty good, but then Johanns and Bennett went to some length to try to pretend the banksters weren’t doing what they were doing.

Johnson: Does the law need to be change?

Levitin: It’s not the law, it’s compliance w/the law. What was governing securitization was private contractual law. Servicers allowed to contract around UCC in Pooling and Servicing Agreements. Generally requirements set forth in PSAs not followed. A good reason for PSAs to be written the way they are: bankruptcy remote. If you don’t have that chain of endorsements, it’s going to be very difficult to prove you’ve got the chain of transfers in BK remoteness.

Levitin: This is a problem with following the law.

Johnson: What were barriers to recognizing doc problems that exist.

IA AG Tom Miller: People coming forward in foreclosure issues.

Johnson: What are the conflicts of interest?

BOA Desoer: “We do not take seconds into consideration” when modifying a first. 2nd Lien not an obstacle, does not get taken into consideration.

Chase Lowman: Second liens do not get in way of modifying first.

Tester: [referring to cases he’s followed in MT] It’s not a pretty picture. [Describes constituent told by BoA not to make any payments] Can you tell me how servicer can ever tell homeowner not to pay a mortgage.

BoA Desoer: That is not what we should be telling homeowners.

Tester: Would you attribute this to employee that screwed up.

BoA Desoer: We will reinforce that aspect of communication to our teammates.

Tester: How can someone receive notice he’s in foreclosure before foreclosure process restarted?

BoA Desoer: [Dodges] The sale will not take place, but that customer will continue to get notices.

Tester: These particular hearings not particularly enjoyable for me. Not an isolated incident. MT is not a state where people come to Senator willy nilly. I don’t know how many people didn’t come to me and they just wound up on the street. It’s clear servicers have been a little bit glib, particularly about risks to their own balance sheets. Quite frankly, there ain’t gonna be more bailouts.

IA AG Miller: We want to work with the banks and the Feds.

Tester: Go to what Levitin said about Countrywide. This can be taken care of by the servicers. Their heads need to roll.

Merkley: GSEs say if foreclosure has begun before mod, servicer continue foreclosure during Mod. Is continued pestering on foreclosure during mod due to parallel processing.

Chase: Foreclosure sale won’t take effect.

Merkley: You don’t take the final step. [Now repeats a story on similar story of parallel processing] Can’t we just change this policy and suspend proceedings while mod going on?

Chase: New process prescribed by HAMP would necessitate that we enter into Mod process and engage prior to commencement of foreclosure.

Read more →

TARP Oversight Panel: Securitization Mess May (Re)Crash the Economy

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The TARP Congressional Oversight Panel just released a report dedicated to the foreclosure fraud problem and the securitization mess underlying it. They conclude that the problems may represent a significant problem for the housing market and the financial system more generally.

Here’s a great summary of why:

If documentation problems prove to be pervasive and, more importantly, throw into doubt the ownership of not only foreclosed properties but also pooled mortgages, the consequences could be severe. Clear and uncontested property rights are the foundation of the housing market. If these rights fall into question, that foundation could collapse. Borrowers may be unable to determine whether they are sending their monthly payments to the right people. Judges may block any effort to foreclose, even in cases where borrowers have failed to make regular payments. Multiple banks may attempt to foreclose upon the same property. Borrowers who have already suffered foreclosure may seek to regain title to their homes and force any new owners to move out. Would-be buyers and sellers could find themselves in limbo, unable to know with any certainty whether they can safely buy or sell a home. If such problems were to arise on a large scale, the housing market could experience even greater disruptions than have already occurred, resulting in significant harm to major financial institutions. For example, if a Wall Street bank were to discover that, due to shoddily executed paperwork, it still owns millions of defaulted mortgages that it thought it sold off years ago, it could face billions of dollars in unexpected losses.

[snip]

In addition to documentation concerns, another problem has arisen with securitized mortgage loans that could also threaten financial stability. Investors in mortgage-backed securities typically demanded certain assurances about the quality of the loans they purchased: for instance, that the borrowers had certain minimum credit ratings and income, or that their homes had appraised for at least a minimum value. Allegations have surfaced that banks may have misrepresented the quality of many loans sold for securitization. Banks found to have provided misrepresentations could be required to repurchase any affected mortgages. Because millions of these mortgages are in default or foreclosure, the result could be extensive capital losses if such repurchase risk is not adequately reserved.

To put in perspective the potential problem, one investor action alone could seek to force Bank of America to repurchase and absorb partial losses on up to $47 billion in troubled loans due to alleged misrepresentations of loan quality. Bank of America currently has $230 billion in shareholders‟ equity, so if several similar-sized actions – whether motivated by concerns about underwriting or loan ownership – were to succeed, the company could suffer disabling damage to its regulatory capital. It is possible that widespread challenges along these lines could pose risks to the very financial stability that the Troubled Asset Relief Program was designed to protect. Treasury has claimed that based on evidence to date, mortgage-related problems currently pose no danger to the financial system, but in light of the extensive uncertainties in the market today, Treasury‟s assertions appear premature. Treasury should explain why it sees no danger. Bank regulators should also conduct new stress tests on Wall Street banks to measure their ability to deal with a potential crisis. [my emphasis]

There’s a lot of conditional language here, reflecting a general uncertainty about how deep the shitpile is this time around. But the demand that Treasury conduct another stress test of these obviously insolvent banks is a good start.

David Stern, Foreclosure King, a Deadbeat

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If only David Stern were being treated as badly as he treats homeowners, this would bring real schadenfreude.

In a regulatory filing published today, Stern’s publicly traded company revealed that one of its subsidiaries failed to pay rent in November on its towering office building in Plantation, Florida, and had received a notice of default.

[snip]

Stern’s financial troubles stem from the implosion of his foreclosure empire. In the months after Mother Jones published its investigation, he’s lost clients such as Citigroup, GMAC, Wells Fargo, Fannie Mae, and Freddie Mac, and laid off nearly 450 employees. New business to his companies, he wrote in a recent letter, has declined by a staggering 90 percent in the past six months.

And it gets worse for Stern and his foreclosure operation. The same regulatory filing shows that another Stern subsidiary recently defaulted on a $15 million line of credit from Bank of America, on which the company still owes $12 million in principal.

Alas, Bank of America has given Stern another month to pay that bill (though it does sound like Stern is planning on going out of business at the end of the month, just in time for Thanksgiving).

So now, eight months after the Mortgage Bankers Association managed to negotiate a short sale of its new headquarters, the Foreclosure King is about to be foreclosed on. But both got far, far better treatment than the average homeowners who–unlike these MOTUs–had nothing to do with the crash of our economy.

I guess some deadbeats are more equal than other deadbeats.

Richard Shelby’s Selective Investigation

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Let me make a rare statement: I agree with just about everything Richard Shelby said in his call for an investigation of mortgage servicers.

The Federal Banking Regulators should immediately review the mortgage servicing and foreclosure activities of Ally Financial, JP Morgan Chase and Bank of America. The regulators should determine exactly what occurred at these institutions and make those findings available to the Banking Committee without delay.

Furthermore, because it appears that the regulators have failed yet again to properly supervise the entities under their jurisdiction, the Committee should immediately commence a separate, independent investigation into these allegations. It is the Committee’s fundamental responsibility to conduct oversight of the banking regulatory agencies and the firms under their jurisdiction.

With the recent passage of the Dodd-Frank Act wherein the financial regulators were granted even broader powers, I am highly troubled that once again our federal regulators appear to be asleep at the switch.

But I am rather curious about one thing. Just days after Goldman Sachs announced that its servicing arm, Litton Loan Servicing, was suspending foreclosures in some states, why aren’t they–or the other big servicers, Citi and Wells Fargo, on Shelby’s list?

Mind you, given HUD Secretary Shaun Donovan’s announcement that the government has been investigating FHA servicers since May and had already identified problems from some servicers (but had apparently done nothing about those problems), maybe Shelby has reason to pick on just three of the servicers.

But Shelby’s choice of targets sure does bear watching.

Want to Sue the Banksters? Ask WhereIsTheNote

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Remember WhereIsTheNote?

In the face of mounting evidence that the banks foreclosing on homes did not comply with legal requirements during securitization of mortgages and therefore don’t have legal standing to foreclose, the SEIU and some community organizations teamed together last month to create an online tool that anyone can use to ask their mortgage servicer where their note is. By helping homeowners proactively check whether their bank has the right paperwork, it gives them more power in the event of a foreclosure.

The site launched just over three weeks ago. 200,000 people have visited the website; around 15,000 have used the tool to ask their bank for their note (I’ll have a more exact number shortly).

What has happened since gets very interesting. In the first few days, some banks responded quickly and in apparent good faith, some admitting there was a problem, and others sending what they claimed was the note, but was either something else entirely, or clearly did not meet the requirements for transfer.

But as banks realized those first requests were not isolated requests, two things happened. Either banks have sent back a response saying the homeowner had no right to see their note. Or, banks have not responded at all.

Here’s where things get interesting. The WhereIsTheNote-generated letters invoke the Real Estate Settlement Procedures Act (RESPA). Section 6 of RESPA dictates how loan servicers must reply to consumer complaints about their loan.

Section 6 provides borrowers with important consumer protections relating to the servicing of their loans. Under Section 6 of RESPA, borrowers who have a problem with the servicing of their loan (including escrow account questions), should contact their loan servicer in writing, outlining the nature of their complaint. The servicer must acknowledge the complaint in writing within 20 business days of receipt of the complaint. Within 60 business days the servicer must resolve the complaint by correcting the account or giving a statement of the reasons for its position. Until the complaint is resolved, borrowers should continue to make the servicer’s required payment.

A borrower may bring a private law suit, or a group of borrowers may bring a class action suit, within three years, against a servicer who fails to comply with Section 6’s provisions. Borrowers may obtain actual damages, as well as additional damages if there is a pattern of noncompliance. [my emphasis]

In other words, RESPA says that if homeowners write their servicer and say, “I have a problem with the way you’re servicing my loan,” the law requires that the bank acknowledge that the homeowner has written that letter within in 20 days. And it requires that it resolve that complaint within 60 days. If banks don’t do so, homeowners can sue.

So, as I said, just over three weeks after people started using this site, banks have been writing back and either telling homeowners that the complaint basically saying “I have doubts about whether you actually have legal standing to collect my mortgage payments” doesn’t qualify as a “problem” under RESPA. Here’s how IndyMac made such a claim in one response letter.

Although your fax references the response as RESPA Qualified Written Response eligible, your request actually does not qualify. The statute and case law require that the correspondence disputes the servicing of the loan and requires the sender to provide the servicer specific facts that would enable the servicer to investigate and respond. For instance, a dispute may involve a misapplication of a payment or a miscalculation of a monthly escrow amount. The statement that you are concerned about what you may have heard on the news does not qualify as a dispute with the servicing of your loan. Consequently, we are not subject to the response requirements set forth in the Real Estate Settlement Procedures Act.

In other cases–such as Citibank in my case–the bank appears to have simply let the 20-day deadline pass without a response.

Now, the genius of the WhereIsTheNote campaign is twofold. First, for the first time, someone is collecting an independent set of data about whether banks have a right to collect payment on the loan or not (there is privately available data, but it’s very expensive). WhereIsTheNote has already recognized, for example, that Bank of America and its subsidiaries have adopted a uniform claim that RESPA doesn’t apply in this case (of course, Bank of America is one of the most suspect banks for note problems). And WhereIsTheNote is collecting information that will show that not just those houses in foreclosure, but performing loans have note problems, proving that this is not an issue of “deadbeat” homeowners, but rather banks that are playing fast and loose with private property rights.

But more interesting is enforcement. As the section I cited above makes clear, borrowers whose banks refuse to respond to a RESPA request can sue for damages.

And as it happens, the Attorneys General in all 50 states are already investigating whether the banks are engaging in foreclosure fraud to cover up securitization problems. Which means there are already lawyers out there ready to take on the banks that do things–like refusing to respond to homeowner RESPA requests. WhereIsTheNote will be referring these RESPA non-responses to the AGs to respond accordingly.

If you haven’t already done so, I encourage you to ask your servicer WhereIsTheNote. Because–on a day when all else seems hopeless–it may well be a means of holding the banks accountable for the shitpile they made of our nation.

Fidelity National Drops Nationwide Indemnity Requirement

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This whole title insurance thing is getting confusing.

Fidelity National Financial Inc., the largest U.S. title insurer, canceled a requirement for lenders to guarantee proper foreclosure procedures amid “heightened review” processes by banks.

The company won’t require an indemnity agreement before insuring individual foreclosed properties, according to a memorandum to employees yesterday. It will continue the arrangement with Bank of America Corp., the largest U.S. lender.

Fidelity National reversed course from a requirement put in place a week ago after institutions took steps to police foreclosure paperwork, according to the memo. Failure of other insurers to follow its lead also put the Jacksonville, Florida- based company at a competitive disadvantage, said Peter Sadowski, executive vice president and chief legal officer.

“Although competition was a factor, we wouldn’t take undue risk for competitive reasons,” Sadowski said in an interview. “We feel comfortable with the new process.”

But what I take it to mean is that, at least partly because other title insurers weren’t requiring Fannie and Freddie to indemnify their foreclosure sales, Fidelity National dropped the requirement that they (and other lenders) do so, too. But it’s not clear if, in lieu of this indemnity, Fidelity is going to require the lenders to actually prove they have standing to foreclosure.

Whatever the case, Fidelity National seems to be saying that a risk that was there just week ago, no longer exists.