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How Much More Foreclosure Fraud Is Under Seal?

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The NYT has a fascinating story about the $75,000 house that led to the GMAC deposition on robosigning that finally alerted the world to the extent of the fraud behind foreclosures. It’s worth reading for the description of Thomas Cox, a lawyer who volunteers at legal assistance to make right for his years of doing foreclosures, the description of the errors GMAC made even after the court started looking closely, and the detail that GMAC has now spent more on legal fees trying to foreclose on this house than the house itself is worth.

But I’m particularly interested in this:

Mr. Cox vowed to a colleague that he would expose GMAC’s process and its limited signing officer, Jeffrey Stephan. A lawyer in another foreclosure case had already deposed Mr. Stephan, but Mr. Cox wanted to take the questioning much further. In June, he got his chance. A few weeks later, he spelled out in a court filing what he had learned from the robo-signer:

“When Stephan says in an affidavit that he has personal knowledge of the facts stated in his affidavits, he doesn’t. When he says that he has custody and control of the loan documents, he doesn’t. When he says that he is attaching ‘a true and accurate’ copy of a note or a mortgage, he has no idea if that is so, because he does not look at the exhibits. When he makes any other statement of fact, he has no idea if it is true. When the notary says that Stephan appeared before him or her, he didn’t.”

GMAC’s reaction to the deposition was to hire two new law firms, including Mr. Aromando’s firm, among the most prominent in the state. They argued that what Mrs. Bradbury and her lawyers were doing was simply a “dodge”: she had not paid her mortgage and should be evicted.

They also said that Mr. Cox, despite working pro bono, had taken the deposition “to prejudice and influence the public” against GMAC for his own commercial benefit. They asked that the transcript be deleted from any blog that had posted it and that it be put under court seal. [my emphasis]

GMAC’s first response to this affidavit was a request to the judge to prevent it from being posted to the Toobz (presumably 4closureFraud.org). But the judge refused.

Stephan’s deposition was taken to advance a legitimate purpose, and the testimony elicited has direct probative value to this dispute. Attorney Cox did not himself take action other than to share the deposition with an attorney in Florida. That the testimony reveals corporate practices that GMAC finds embarrassing is not enough to justify issuance of a protective order. Further, Plaintiff has failed to establish that GMAC has been harmed specifically as a result of the dissemination of the June 7, 2010 deposition transcript, given that similarly embarrassing deposition testimony from Stephan’s December 10, 2009 Florida deposition also appears on the Internet, and will remain even were this Court to grant Plaintiff’s motion. Accordingly, because Plaintiff has failed to satisfy its burden of persuasion under Rule 26(c), its Motion for Entry of Protective Order is denied.

There are, we are learning, depositions all over the country showing that servicer employees committed outright fraud. But presumably, every time they’re taken, the servicer attempts to hide them behind claims of trade secrets.

How much more evidence of corporate law-breaking is hiding in foreclosure courts under seal?

Treasury Sez Banksters Are Lousy Neighbors Who Broke the Law

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The Treasury Department gave Felix Salmon’s response to Crusader against Injustice Timmeh Geithner’s statement on foreclosures more attention than it gave mine–they emailed a response to Salmon’s questions about why foreclosures would hurt property values. And their response is even more telling than Crusader against Injustice Timmeh Geithner’s original statement.

First, at least 40 % of all homes in foreclosure are vacant.  Delaying conveyance of title and resale has devastating impacts on neighborhood values and increases demand for municipal services.

Also, a blanket moratorium equally impacts the banks that are acting in accordance with the law increasing costs for servicers and investors. This threatens the safety and soundness of smaller community banks that are not part of the document problem and ultimately limits market liquidity preventing low and moderate income borrowers from refinancing or buying a house as investors are ever more hesitant to lend to all but the most pristine credit borrowers.

First, note this statement very closely: “a blanket moratorium equally impacts the banks that are acting in accordance with the law.” Treasury is arguing that a blanket foreclosure moratorium will also hurt banks that acted in accordance with the law. Necessarily meaning, of course, that Treasury believes that some banks acted in accordance with the law, but some didn’t.

The Treasury Department is logically stating that some banks–big ones–broke the law.

Last I checked, Treasury had a pretty big role to play in law enforcement (just ask the terrorists). So if Treasury is so certain big banks broke the law, has it made referrals to DOJ?

Also note this formulation:

First, at least 40 % of all homes in foreclosure are vacant.  Delaying conveyance of title and resale has devastating impacts on neighborhood values and increases demand for municipal services.

At least 40% of homes in foreclosure are vacant. So up to 60%–a majority–are not. So Salmon’s point–that pushing more people into foreclosure will result in more empty homes–still stands, as foreclosures will have the result that up to 60% of foreclosures not already vacant will become vacant.

But that’s not the part I found most interesting. We’ve got to rush conveyance of the title and resale to protect property values of neighborhood properties and limit demands on municipal services. The conveyance of title I get; until the bank officially owns the property, it can’t do anything about maintaining a house. But resale? Is Treasury saying that until the property is sold, it won’t be cared for? That banksters don’t care for the properties they get in foreclosure? Banksters don’t mow the lawn? Don’t keep up the houses? Rely on municipalities to do what homeowners are obligated to do? I mean, yeah, I realize that is, in fact, the case. But why is Treasury simply observing this, and not haranguing the big banksters–the ones who Treasury apparently believes have broken the law–for free-loading on municipalities rather than paying for the things they, as property owners, are obligated to do?

And on top of the fact that an official statement from Treasury admits that banksters are lousy neighbors and broke the law, the entire premise is still flawed. Yes, for the 40%+ of houses that are vacant by foreclosure, postponing the ultimate sale of foreclosures will affect the property values of neighborhood properties. But until someone verifies that foreclosures have clean paperwork, up to and including the note, won’t foreclosures have an even more diminished value on the housing market? If that’s true, rushing more foreclosures onto the market without first ensuring that those foreclosures come with proper paperwork will have an even greater depressive effect on home values (or they should, if people were honest about what was going on).

Finally, note the implicit endorsement. We’ve got to continue to let community banks operate normally so we don’t penalize the banks that played by the rules. Okay, finally something I’m very sympathetic with! But if Treasury knows that the big banks broke the law and the community banks have played by the rules, then why are we spending so much money bailing out the criminal banks? Why not just reward the community banks for doing it right?

Did Servicers Commit Fraud So Banksters Could Get Big Bonuses?

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When I asked yesterday about the relationship between the stress tests and the servicers’ foreclosure fraud, I had a hunch that the banksters might have been committing that fraud so as to be able to show financial viability so as to be able to repay TARP funds so as to escape the oversight of the government. I wondered whether the stress tests were not just a means by which the government should have exercised some control over the servicers that they already knew to be having problems, but were also one reason the servicers were pushing for the most profitable outcomes (including choosing to foreclose rather than modify loans).

Rortybomb, who knows a lot more about how this stuff worked than I do, provides these damning details:

For what it is worth, I’m sure those conducting the stress test knew that this conflict existed and knew that it was very profitable to the banks. Servicing is considered a “hedge”, because as the origination business dries up foreclosures will increase and servicing income would go up, something Countrywide and others loved to talk about.

Let’s go to a Countrywide Earnings call from Q3 2007:

Now, we are frequently asked what the impact on our servicing costs and earnings will be from increased delinquencies and lost mitigation efforts, and what happens to costs. And what we point out is, as I will now, is that increased operating expenses in times like this tend to be fully offset by increases in ancillary income in our servicing operation, greater fee income from items like late charges, and importantly from in-sourced vendor functions that represent part of our diversification strategy, a counter-cyclical diversification strategy such as our businesses involved in foreclosure trustee and default title services and property inspection services.

The servicing operation will “fully offset” lost income from increased delinquencies and lack of origination business. This is by design. It’s tough to find good counter-cyclical strategies, but this appears to be one. If you were both TBTF and really in need of cash, could you squeeze this a bit further, say by violating the rule of law?

[snip]

Someone enterprising on the hill could ask how the servicing income was incorporated into the stress test and how predictive it was in the adverse scenario case. Things like this make it even more important that the government takes a strong hand in rooting out foreclosure fraud.  We cannot allow an impression to form that we collectively looked the other way at issues of foreclosure abuse, issues well documented since before the stress test, because this business line is one of the few profitable things available to TBTF firms.  TBTF firms that needed cash, were (and are) backstopped by taxpayers and wanted to get out of TARP to issue bonuses.   Nobody gets to be above the law, regardless of how systemically important they are or whatever numbers needed to be hit on the stress test.

In other words, going back to 2007, mortgage companies were upfront in claiming that their servicer-related profits served to offset their loan losses. That’s not to say they would have argued that in their stress test results (again, I’m not expert on this, but I’m not even sure that the stress tests looked at the servicer income). But it does say that to prove viability–to make a half-credible claim they weren’t insolvent and to evade restrictions on bonuses and political giving–they had an incentive to suggest their servicer income was enough to offset a significant chunk of their loan losses. That not only gave them a huge incentive to keep servicer costs low (by doing things like hiring WalMart greeters and hair stylists to serve as robo-signers), but it also increased the incentive to increase profits as a servicer by refusing to modify loans.

So I’d go further than Rortybomb in calling for some enterprising Hill person to look into this. Given that we know Timmeh Geither, campaigner against injustice, was officially warned and knew about this conflict, I’d like to know how much he knew about this hedge. The Administration now says it was helpless to stop this kind of fraud, yet it chose not to use at least two sources of leverage (cramdown and stress tests) to control it. Is that because they knew the servicer fraud was an important part of extend anad pretend?