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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.

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.

Citi’s Fear

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I wanted to return to a detail I mentioned in yesterday’s book salon. As I noted, in his book on the auto bailout, Steven Rattner described Citi as being worried during the Chrysler negotiations that retail customers would retaliate if Citi played hard ball.

Bankers for Goldman and Citi had advised [JP Morgan Chase VP and the Chrysler bondholder’s lead negotiator] Jimmy Lee to make the best of a bad situation. Privately they felt his brinksmanship was embarrassing and potentially costly. Citi especially wanted to avoid a liquidation. Its analysis showed it would recover no more than 20 cents on the dollar in that instance. Citi also feared losing business in its branches in states like Michigan and Ohio where consumers might blame it for Chrysler’s demise. (173)

That didn’t make sense to me given that Citi doesn’t have branches in MI and OH; the closest actual branches are in Chicago. Compare that to Chase, which just took over from Comerica as the biggest bank in MI by deposits and was presumably second at the time of the bailout negotiations. Citi should only fear retaliation from consumers elsewhere, in those urban areas that actually have Citi branches, or they should fear retaliation some other way, presumably through their credit card business. I asked Rattner why Citi was worried, but JP Morgan Chase was not, given its much greater involvement in the auto states. He responded, “Yes, they were definitely worried.”

Frankly, I don’t know what to make of this. Given the context of the claim–in which Goldman and Citi are portrayed as talking Jimmy Lee down from a hardass negotiating position–JPMC appears not to have been sufficiently worried to change its behavior. And the Citi claim doesn’t make sense on its face. Perhaps Citi was worried about something else. Perhaps they were just more worried because they were insolvent? There are a few details he pretty clearly got wrong in his book (such as his claim that Nissan’s consideration of a deal with Chrysler was secret), but this seems instead like one of the abundant examples of where Rattner is an unreliable narrator. Rattner chose to portray Citi as worried (and quickly agree the hard-bargaining JPMC was, too), but it’s unclear whether that was really true or just nice spin on the banks.

What Rattner probably didn’t know was that FDL was trying to increase this worry at the time by encouraging people to take their money out of Chase. That was a mostly unsuccessful effort (let me tell you, Chrysler is  no more popular in this country than the big banks) to target the banksters for actions that hurt the communities they’re in.

As unsuccessful as our effort was in terms of numbers, if Rattner-the-unreliable-narrator’s claim has any basis in fact, then our effort to pressure JPMC to behave better worked. Sort of.

Since then, Arianna’s Move Your Money campaign has more successfully advocated for people and institutions to move their money out of the big banks. By April, they claimed $5 billion had been moved. And it does seem like some of the banks are losing market share to smaller banks.

The largest banks in Michigan are losing market share and Chase Bank now has the most deposits in the state, according to new data released Thursday by the Federal Deposit Insurance Corp.

As of June 30, the five biggest banks in Michigan — Chase Bank, Comerica Bank, PNC Bank, Bank of America and Fifth Third Bank — accounted for 55% of all deposits in the state. That’s down from 57.3% on June 30, 2009.

I raise all this because of another interesting discussion about whether consumer action might more effectively target the banks. Via Yves Smith, I found this Playboy article on Edmundo Braverman’s WallStreetOasis.com’s proposal on How to Destroy a Bank (Yup, it appears you have to have a pierced navel and no pubic hair to be a Playboy model these days).

This article set forth a plan for how consumers could destroy one of America’s four largest banks. Customers would deliver a series of escalating threats against Wells Fargo, Bank of America, JPMorgan Chase and Citibank, demanding policy changes. The threats would culminate in a series of flash-mob bank runs that targeted one of the banks.

In a comment in Yves thread, Braverman acknowledged his idea was a thought exercise to take Move Your Money the next step.

The whole thing was inspired by Arianna Huffington’s “Move Your Money” idea. I thought it was a good idea, but not one that would be dramatic enough to produce any changes in the way the banks did business. So I asked myself, “What would have an impact on the banks?” and that’s when I came up with the Tank-A-Bank plan.

It was always just a thought exercise, and never something I advocated.

Yves seems to be thinking more about this; what can consumers do that won’t get them jailed as terrorists but will get us to a point where the finance industry isn’t dragging our country down even while stealing our money in the process?

Read more →

JP Morgan Chase’s Several Week Timeline

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In addition to dropping MERS today, JP Morgan Chase had an earnings call at which Jamie Dimon was asked questions about JPMC’s foreclosure fraud. Calculated Risk has a transcription (both the AP and WSJ attribute these comments to Dimon, though CFO Douglas Braunstein made comments about the foreclosure fraud as well). But I just wanted to note the contradictory stories Dimon is telling about timing.

Analyst: I was wondering if you could give us any sense for timing of resolution in terms of reopening these 115,000 cases?

JPM: It’s going to take several weeks to go through the files and make sure and correct any errors that are in there. The underlying stuff is all accurate. So that’s the key substance. Obviously we know there’s a lot of state AGs and we have conversations with them. We’re hoping [to get back to] the normal process — for us, the sooner the better for everybody involved. We don’t think there are cases with people have been evicted out of homes where they shouldn’t have been. These foreclosures go through multiple process, so we’re hoping it will be sooner rather than later and those conversations are starting to take place.

[snip]

Analyst: And the foreclosure stuff, outside of how it directly may impact you or somebody else, how do you look at the drag it may have on the housing market, kind of the macro impact, what do you think about that?

JPM: Again, I hope — this is a hope. This is not a knowledge. Is that when people take a deep, sigh breath, go back to the right, look to the substance underlying the files and go back to modifying, foreclosing and doing the right thing, all told, it could be a blip. Talking about three or four weeks it will be a blip in the housing market. If it went on for a long period of time it will have a lot of consequences, most of which would be adverse on everybody.

Analyst: The foreclosure suspension, it’s a matter of weeks instead of months, did I hear you say that?

JPM: No. I didn’t say weeks to clean up the files. We actually have to have little in depth conversations with regulators and AGs and stuff like that. So I don’t know exactly when. I’m hopeful that it all starts to move at one point. I don’t know if it’s going to be three weeks or five. But I think it will be a real shame if we don’t get this resolved and moving again.

Analyst: In all likelihood you should be allowed to foreclose as we go into next year.

JPM: I hope so. It’s not up to me. [my emphasis]

First, note the clear reversal. At first, Jamie Dimon says it will take several weeks to “correct any errors” (meaning, to write new affidavits with proper notarizations to replace the ones he admitted to earlier). When asked about the overall impact on the housing market, Dimon gives a classic, “nice economy you’ve got here; it’d be a pity if it died if it takes us longer than three or four weeks to fix ‘our errors.'” But based on that statement, an analyst clarifies that he imagines it will take weeks. To which Dimon response, “I didn’t say weeks to clean up the files.”

But he did.

The real reason for his squirminess–aside from the fact that he all but admits that his company had fabricated affidavits and notarizations, amounting to fraud on courts in multiple states–appears to be the awareness that 50 Attorneys General and some unnamed regulators have him by the balls and will tell him, MOTU Dimon, when he can start foreclosing again. (Nowhere does he admit to doubt that JPMC will be able to foreclose.) He seems to be hoping that if the regulators and prosecutors just look at the “substance underlying the files”–that is, look at the delinquent payments rather than the insufficient paperwork–they’ll green light foreclosures and we can all go on to pretend that the banksters haven’t been engaged in systematic fraud to hide their larger systematic fraud.

But I do find it remarkable that in an earnings call, Dimon all but admitted to fraud, admitted that the Attorneys General will dictate what happens going forward, and yet didn’t lay that out (or the underlying problem of fraud built on fraud) as an earnings risk. It’ll be interesting if JPMC admits the legal jeopardy to the SEC.

Remember the Stress Tests?

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The other day, I noted that Administration claims that they were helpless to affect what they now depict as loan servicers’ “sloppiness” but what really amounts to fraud ignores their decision to stop pushing for cramdown–and with it, leverage over the loan servicers.

I think (though I’m less sure of this) they’re ignoring one other source of leverage they once had over the servicers: the stress tests.

First, remember that the top servicers also happen to be the biggest banks. Here is Reuters’ list of the top loan servicers.

  • Bank of America (19.9%)
  • Wells Fargo (16.9%)
  • JPMorgan Chase (12.6%)
  • Citi (6.3%)
  • GMAC (3.2%)
  • US Bancorp (1.8%)
  • SunTrust (1.6%)
  • PHH Mortgage (1.4%)
  • OneWest (IndyMac) (1.4%)
  • PNC Financial Services (1.4%)

And here is the list the nineteen banks that had to undergo stress tests in 2009.

  • American Express
  • Bank of America
  • BB&T
  • Bank of New York Mellon
  • Capital One
  • Citigroup
  • Fifth Third
  • GMAC
  • Goldman Sachs
  • JP Morgan Chase
  • Key Corp
  • MetLife
  • Morgan Stanley
  • PNC Financial
  • Regions
  • State Street
  • SunTrust
  • U.S. Bancorp
  • Wells Fargo

So all of the top mortgage servicers–Bank of America, Wells, JP Morgan Chase, Citi, and even GMAC–had to undergo a stress test last year to prove their viability before the government would allow them to repay TARP funds and therefore operate without that government leverage–which was threatened to include limits on executive pay, lobbying, and government oversight of major actions–over their business. Significantly, all but JPMC were found to require additional capital.

Now, I’m not sure what I make of this. The stress tests were no great analytical tool in the first place. Moreover, the stress tests focused on whether the banks could withstand loan defaults given worsening economic conditions, not whether they could withstand financial obligations incurred because their servicing business amounted to sloppiness fraud.

But in letters between Liz Warren (as head of the TARP oversight board) and Tim Geithner in January and February 2009 discussed foreclosure modification, stress tests, and accountability for the use of TARP funds (Geithner made very specific promises about foreclosure modifications and refinancing which Treasury has failed to meet). And those discussions–and the stress tests–took place as COP reported on the problems with servicer incentives, servicer staffing and oversight, and the lack of regulation of servicers more generally (the COP report came out March 6, 2009; the stress test results were announced May 7, 2009). So at the same time as the Administration was officially learning of problems with servicers, it was also giving those servicers’ bank holding companies a dubious clean bill of health. And with it, beginning to let go of one of the biggest pieces of leverage the government had over those servicers.

Beyond that, I’m not sure what to think of any relationship between the stress tests and the servicer part of these banks’ business. Rortybomb has an important post examining how this foreclosure crisis may go systemic. If it does, these same banks that eighteen months ago promised the government they could withstand whatever the market would bring will be claiming no one could have foreseen that they’d be held liable for their fraudulent servicing practices. Ideally, we would have identified this as a systemic risk eighteen months ago, and based on that refused to let the big servicers out of their obligations (which would have provided the needed incentive for the servicers not only to treat homeowners well, but to modify loans). Had the stress tests included a real look at these banks’ servicing business, these banks might not have been declared healthy.

Debt Negotiations: JP Morgan Chase and Friends Claim They Found a Pony!

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I’ll say this for the Administration. They’re driving a harder bargain on behalf of Chrysler and GM than Hank and Timmeh bargained with AIG (a cynic might say that’s to push both companies towards bankruptcy).

But I’m fascinated by the claims the creditors are making in the case of Chrysler. Where Chrysler estimated its secured creditors could get 25 cents on the dollar (around $1.7 billion; it picked the 25 cents out of the 11 to 43 cent range), and the Administration is offering them the 15 cents on the dollar they can currently get in the market (around $1 billion), the creditors claim they believe they can get 70 cents on the dollar (around $4.75 billion).

Some senior lenders believe they would get more than 70 cents for each dollar of their secured loans if Chrysler is broken up and sold, said people familiar with the talks. Other lenders don’t have an exact number nailed down and are awaiting detailed figures from the auto maker on its assets.

All of the 40-plus lenders and investors are nonetheless incensed by the last Treasury offer: that they accept about 15 cents per dollar of face value of their loans, or roughly $1 billion of the $6.9 billion owed them.

[snip]

But some of the senior secured lenders think that is a low-ball estimate and say recoveries could reach 70 cents on the dollar in liquidation, said another person familiar with the talks.

Gosh. Cerberus has been trying for two years to sell Chrysler, much of that time before the crash drove down the value of Chrysler and wiped out the ability of many potential buyers to do so. Yet these banksters think they’re going to get $4.75 billion off Chrysler’s remains now that the market is really abysmal?

Who knew Chrysler has secretly been a shiny pony all this time?

Or perhaps the creditors are using the 70 cent number for a different reason, and not just to drive an equally hard bargain in response to the Administration. Perhaps that’s what at least some of the creditors know they’ll get in bankruptcy, once you take what they’ll get to sell Chrysler’s pieces parts and get the payoffs of the credit default swaps and other hedges they’ve got on Chrysler. 

Are JP Morgan Chase and friends suggesting they’ve placed a $3 billion bet against American industry?

Will Alabama Join Michigan in Boycotting Chase?

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Turns out Michiganders aren’t the only ones fed up with JP Morgan Chase. JP Morgan Chase is even preying on Richard Shelby’s constituents. [h/t scribe]

The Alabama state school construction authority has declined to make a payment due to JP Morgan under a derivatives deal until a federal court rules on a state lawsuit seeking to have the contract thrown out. Alabama finance director has said he won’t make or accept any payment under the swap deal: the first contractual payment is due May 1.

[snip]

In October a lawsuit was filed in Montgomery, AL district court saying that a sale of a swaption (option on an interest-rate swap) wasn’t allowed under state law. The deal had been executed in connection with bonds sold by the Alabama Public School and College Authority.

As Zero Hedge asks, "what the hell are Alabama residents doing trading swaptions?"

How about it, Richard Shelby? Ready to close your Chase account in solidarity? Want to sign our petition? Join our Facebook group?

Granholm to JP Morgan Chase and Friends: You Got Your Help, Now Give Chrysler Theirs

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Governor Granholm sounds a lot like someone who has been wandering around these parts–calling on JP Morgan and the other banks that got bailout funds to return the favor to Chrysler.

Gov. Jennifer Granholm said this morning that any banks that received rescue money from the federal government should be open to concessions on the Chrysler debts they hold so the automaker can reach a deal with Italian carmaker Fiat necessary for its survival.

The White House last week suggested that Chrysler could be pushed into bankruptcy if it doesn’t find a partner in 30 days’ time.

Part of what stands in the way of a deal with Fiat is restructuring Chrysler’s debts and Granholm said following a panel discussion this morning that any of those debt holders who received backing from the government’s Troubled Asset Relief Program, or TARP, “should be willing to take a haircut.” Or, in other words, write down the value of that debt.

Nice work, Governor. Now, do you have any Chase cards you’d like to cut up?

How JP Morgan Chase Plans to Profit Off the 300,000 People It’s Forcing to Lose Their Jobs

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picture-96.thumbnail.pngAs I pointed out Saturday and yesterday, JP Morgan Chase is reportedly pushing Chrysler into bankruptcy. And as I explained yesterday, that will mean 300,000 people will lose their jobs.

So who will be left to bank with Chase in Michigan, you might ask, after JP Morgan Chase forces so many people out of work?

Well, as klynn pointed out, JP Morgan Chase has figured out a way to profit off all the unemployed people it is creating in Michigan. Chase, you see, provides Michigan’s unemployment insurance debit cards. 

And the services can end up being pretty expensive for beneficiaries. Here’s what Chase charges (and will be able to charge those that it causes to lose their job) for use of their debit card.

More than two withdrawals in a 2-week pay period: $1.50 each

Non-Chase withdrawals: $1.50 each

More than one bank teller withdrawal in a pay period:  $4.00 each

Transaction denied for insufficient funds at POS, ATM, or teller: $1.50 each

More than one ATM balance inquiry in a pay period: $1.00 for each

Statement delivered by regular mail: 95¢ per statement

Granted, if an unemployed person manages their meager finances well and has Internet access (those inquiries are free), they probably can get by on one weekly withdrawal. But if someone loses track of their spending or doesn’t have Internet access or likes dealing with human beings, these fees are going to start to take a huge bite out of what little they get.

Though debit card users can spend all they want in stores. As with Chase customers normally, Chase loves when you use your debit card at stores, because they get a bigger fee from merchants (back in the day when we still banked at Chase, that’s what the Chase guy told me) than if you use a credit card.  They’re profiting coming and going.

Now granted, for a company that already has gotten $25 billion from taxpayers (or $83 dollars from every man, woman, and child in this country), even $5 a month in fees from the 300,000 people JP Morgan Chase is pushing into unemployment is chump change–a mere $18 million a year. 

But don’t imagine for a minute that JP Morgan Chase hasn’t already lined up a way to profit from the unemployment it is causing in Michigan. 

CEO’s Eating Their Own Toxic Products

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We’ve got competing CEOs on the all-Congress channel today, with the Peanut CEO in front of Commerce Committee and the Bank CEOs in front of Financial Services.

There will be some scuttlebutt from the Bank CEOs–as when a few of them admitted they’ve been raising credit card rates since they started sucking on the federal teat.

But the news coverage will open today with Stewart Parnell (CEO) and Sammy Lightsey (Plant Manager) of the Peanut Corporation of America.

Both of them came in, got sworn in, and repeatedly invoked the Fifth Amendment. Neither of these guys appear to be as bright as their Wall Street counterparts–I got the sense that Parnell, and especially Lightsey–were under very strict orders to say nothing beyond "On the advice of my counsel, I respectfully decline to answer your question based on the protection afforded me under the US Constitution" Lightsey, in particular, was struggling with all the legalese.

But the highlight of the hearing came when Congressman Greg Walden (R-OR) offered up a plastic bin wrapped with big yellow CAUTION ribbons–with Peanut Corporation peanut material inside. Walden asked Parnell and Lightsey if they would be willing to eat some of their own product right there, before the Sub-Committee.

"On the advice of counsel, I uh respectfully exercise my rights Fifth Amendment of the Constitution."

A simple yes or no might have sufficed.

In any case, there’s real irony with the competing CEOs show. The ones before the Financial Services Committee, after all, have done far broader damage than the Peanut Corporation–and their actions may well lead to many more deaths than the salmonella outbreak (which is not to minimize the grief of the families affected by the peanut outbreak). 

But no one is asking those CEOs–the bank CEOS–to eat their own toxic products.