Congress, Criminal law, Politics, Society

Obama Administration Pressures Prosecutors To Drop Criminal Investigations Of Banks Over Mortgage Fraud

The last few years have been replete with stories of fraudulent and possibly criminal acts for banks in the mortgage crisis. Thousands have lost their homes and faced financial ruin. The Administration is yielding to demands from lobbyists for the banks and particularly targeting Eric T. Schneiderman, the attorney general of New York, in demanding support for a deal that would offer just civil fines rather than criminal penalties.

Various organizations have denounced the actions of the Obama Administration as caving into this powerful lobby — as it has caved into the oil/gas lobby on offshore drilling, pharmaceutical lobby on health care legislation, and telecom lobby on immunity from privacy lawsuits.

Schneiderman and other state prosecutors want to hold bank officials liable for the harm that they have caused. They believe there are strong cases for criminal prosecution. Shaun Donovan, the secretary of Housing and Urban Development, and various other Administration officials have been pressuring the states to give the industry a pass on any crimes. Bank officials are known to have contacted Donovan and other Administration officials to pressure prosecutors. The industry (and the Obama Administration) wants to force attorneys general to grant waivers from criminal liability in exchange for civil fines.

Among other possible cases, Schneiderman objects to giving a pass to New York Mellon and Bank of America that would cover 530 mortgage-backed securities containing allegedly fraudulent Countrywide Financial loans.

Source: NYT

83 thoughts on “Obama Administration Pressures Prosecutors To Drop Criminal Investigations Of Banks Over Mortgage Fraud”

  2. Why Is NYT’s Dealbook Blog Defending SEC Misdeeds?
    by Matt Taibbi
    http://www.rollingstone.com/politics/blogs/taibblog/nyts-dealbook-comes-to-the-secs-defense-20110823

    Excerpt:
    From the moment I first heard about the SEC’s 17-year history of document-shredding, I started wondering what defense the agency would eventually offer. For surely there had to be one; no great bureaucracy, public or private, just sits back and lazily accepts allegations of gross incompetence and/or corruption. There is always blowback, usually in the form of an outraged denial, and sometimes in the form of an attack upon the messenger, but always something.

    But in this particular case, in which one of the SEC’s own has come forward and told congress that the agency has been systematically destroying its own intelligence over the course of three presidencies, there hasn’t been any of this. My first clue came when I called the SEC before the story came out and asked them about the allegations by SEC attorney/whistleblower Darcy Flynn. I sent them a detailed questionnaire, both about the document disposal and the mini cover-up among SEC higher-ups like former Goldman executive Adam Storch (who was not sure he should “take on this exposure voluntarily,” because the SEC FOIA officer told him there “might be criminal liability”). Then, when I called back, I expected them to deny the whole thing and trash Flynn as an unreliable disgruntled employee.

    They did none of that. Instead, to my amazement, SEC spokesperson John Nester copped to the document destruction right away when I got him on the phone. When I asked him how long it had been going on, Nester not only offered that it had been “at least the early nineties,” but volunteered, without my even asking about it, that he couldn’t be sure it hadn’t “always been the policy.” He didn’t deny any of Flynn’s allegations at all. It was a very weird call – I kept waiting for the other shoe to drop, and it never did.

    Well, the SEC’s response finally did come down the pipeline yesterday, via the usual source – the New York Times’ banker-sponsored Dealbook blog, which is fast becoming the official mouthpiece of all guilty Wall Street. Although the Times in general has been home to some outstanding investigative journalism with regard to the financial services industry, the Dealbook blog occasionally feels like a thinly-disguised PR vehicle. This is one of those times, as Professor Peter Henning of Wayne University has now submitted what reads like a lengthy apologia on behalf of the SEC.

    The crux of Henning’s argument is as follows:

    The actual document destruction, which ended last year, probably had no significant effect on any continuing investigations because it only applied to inquiries dropped early. The greater effect is more likely to be on the S.E.C.’s reputation as a credible law enforcement agency, especially in cases involving corporate internal controls.

    So the argument is going to be that the SEC destroying 17 years’ worth of case documents is not consequential. The only thing that is consequential, in Henning’s mind, is the damage to the SEC caused by the revelation of this policy.

    Further down in Henning’s piece, he adds the following:

    What is clear, however, is a policy that may have violated federal law raises the specter that the S.E.C. was more concerned with making its life easier by getting rid of documents rather than complying with burdensome regulations. That is an often-repeated complaint about the S.E.C.’s own rules, a claim that might now gain greater resonance.

    Amazingly, Henning is using the SEC story as a means to argue that SEC regulations and reporting requirements are generally both burdensome and meaningless. It’s actually sort of a brilliant argument, when you think about it: if it’s too much of a bother for the SEC to follow its own rules, that means the rules must generally be stupid and, therefore, nobody should have to follow them.

  5. rafflaw,

    Little Julia Anna is doing well. Thanks for asking. She’s absolutely perfect! I’ve been spending a lot of time at my daughter’s house–helping with my first grandchild and preparing meals. I enjoy being around to lend a hand. I just wish my daughter and son-in-law lived closer.

  7. EDITORIAL
    It’s a Flawed Settlement
    New York Times
    August 22, 2011
    http://www.nytimes.com/2011/08/23/opinion/its-a-flawed-settlement.html

    Excerpt:
    The Obama administration has turned up the heat on Eric Schneiderman, New York’s attorney general, to go along with a proposed settlement with the nation’s largest banks over dubious foreclosure practices. Mr. Schneiderman should stand his ground in not supporting the deal. The administration says that a settlement would quickly deliver much needed relief to hard-pressed borrowers, but it’s doubtful it would provide redress on a par with the banks’ wrongdoing or borrowers’ needs.

    The deal has been in the works for nearly a year, after the state attorneys general announced an investigation into a robo-signing scandal in which banks were found to have filed false foreclosure papers in state courts. It was widely believed that the scandal would lead to a broad inquiry into how banks inflated the housing bubble, profiting as it expanded.

    As it turned out, the inquiry was narrow. Mr. Schneiderman, who became the attorney general of New York after the scandal broke, has rightly refused to go along with a settlement that is not based on a thorough investigation, and has ordered investigations of his own. He has been supported by a handful of other state prosecutors, who say that the proposed deal would restrict their own investigations and prosecutions.

    Shaun Donovan, the secretary of Housing and Urban Development, however, says that a settlement on the narrow issue of robo-signing would not preclude other investigations by individual attorneys general. But, clearly, once the robo-signing issue is off the table, investigators would lose leverage to pursue remedies for other possible illegalities in the packaging, marketing and transferring of mortgage securities.

  8. N.Y. bumped from 50-state foreclosure committee
    By Brady Dennis
    http://www.washingtonpost.com/business/economy/ny-bumped-from-50-state-foreclosure-committee/2011/08/22/gIQAG636ZJ_story.html

    Excerpt:
    Iowa Attorney General Tom Miller, who is leading foreclosure settlement negotiations with the nation’s largest banks on behalf of all 50 states, abruptly removed New York Attorney General Eric Schneiderman from the coalition’s executive committee Tuesday, saying he had “actively worked to undermine” the group’s efforts in recent months.

    Miller did not speak with Schneiderman before he sent word about the decision. Rather, Iowa assistant Attorney General Patrick Madigan e-mailed counterparts around the country just before 1 p.m. announcing that New York had been booted from the key group of states overseeing the negotiations, “effective immediately.”

    Despite the move, New York could still support whatever deal emerges. At the same time, it makes the path more difficult for Miller and others if they are forced to move forward without one of the most influential states, not to mention one hit hard by the foreclosure crisis and home to many of the financial firms under scrutiny. The absence of New York also could diminish the size of any settlement.

    Miller’s decision underscores tensions that have boiled over as officials try to finalize the multibillion-dollar deal with the banks whose widespread mortgage servicing problems — from appalling customer service to hundreds of thousands of “robosigned” documents — sparked national outrage last fall.

    A central issue is how broad a release from future legal claims banks should receive in exchange for agreeing to overhaul their mortgage servicing practices and paying tens of billions of dollars in penalties.

    Schneiderman, who has undertaken investigations into the way banks bundled and sold pools of mortgages, known as securitization, has said any settlement should not release banks from liability for all their mortgage-related sins committed before the financial crisis. Attorneys general from several other states, including Delaware, Nevada and Massachusetts, have expressed similar concerns.

    Inherent in Schneiderman’s warnings was an implication that officials negotiating the current deal are willing to give away too much, a suggestion that those involved in the talks describe as inaccurate and infuriating. Several people familiar with the talks said those at the negotiating table have never considered granting banks immunity from claims related to the securitization process, nor have they sought to prevent Schneiderman and others from pursuing broader investigations into other issues, such as securitization, fair housing claims and criminal fraud.

  9. Mike A.,
    The Scheer article was excellent. Are the judges handling these foreclosure cases actually looking at the files or are they just going along with the fraud?

  10. I’m keeping the email about this post marked as ‘unread’ so I remember to call the white house tomorrow and let them know, once again – and for a new reason – how disappointed I am in him.

  15. Let me share my experience on the ground. I have represented clients on both sides of the foreclosure process for many years. From a lender’s standpoint, a mortgage foreclosure is uncomplicated and straightforward if the documents are in order. Virtually all bona fide foreclosures result in summary judgments.

    Over the last several years, I have represented a number of homeowners in these cases. I have invariably found the lender’s files to be a complete mess. In addition, the foreclosure mills pursuing many of these cases are only marginally competent. I have been able to defend summary judgment motions without difficulty not because of any particular brilliance, but because many lender’s lawyers haven’t a clue how to prepare a competent, admissible affidavit. They get away with it because most homeowners either do not retain attorneys or are convinced that defending a suit would be pointless. A good lawyer can throw a wrench into any “fast track” process.

    I am also a firm believer in the notion of consumers as private attorneys general. Private civil actions are the most effective means for uncovering fraud and overreaching. They are also the most effective means for forcing shareholders to look beyond their dividend checks and take responsibility for the actions of directors and officers. That is why consumer contracts contain mandatory arbitration clauses. It is also why virtually every mortgage agreement contains a jury trial waiver.

    A quick and dirty settlement favors only the institutions. The fines are paltry and will not affect future behavior. Lenders are able to prevent disclosure of information that would be useful in civil actions, making private suits that more difficult and labor intensive. I suspect that the Obama administration wants to be able to announce some sort of settlement months ahead of the election, and use it to promote its “commitment” to consumer protection.

    The actions of the Administration in this instance are irresponsible and not at all in the public interest. I hope that Mr. Schneiderman stands his ground.

  17. Obama Goes All Out For Dirty Banker Deal
    by Matt Taibbi
    August 24, 2011
    http://www.rollingstone.com/politics/blogs/taibblog/obama-goes-all-out-for-dirty-banker-deal-20110824

    Excerpt:
    A power play is underway in the foreclosure arena, according to the New York Times.

    On the one side is Eric Schneiderman, the New York Attorney General, who is conducting his own investigation into the era of securitizations – the practice of chopping up assets like mortgages and converting them into saleable securities – that led up to the financial crisis of 2007-2008.

    On the other side is the Obama administration, all the banks, and, now, apparently, all the other state attorneys general.

    This second camp has all gotten together, put their heads together, and cooked up a deal that would allow the banks to walk away with just a seriously discounted fine from a generation of fraud that led to millions of people losing their homes.

    The idea behind this federally-guided “settlement” is to concentrate and centralize all the legal exposure accrued by this generation of grotesque banker corruption in one place, put one single price tag on it that everyone can live with, and then stuff the details into a titanium canister before shooting it into deep space.

    This deal is all about protecting the banks from future enforcement actions on both the civil and criminal sides. The plan is to provide year-after-year, repeat-offending banks like Bank of America with some stability and certainty, so that they know exactly how much they’ll have to pay in fines (trust me, it will end up being a tiny fraction of what they made off the fraudulent practices) and will also get to know for sure that there are no more criminal investigations in the pipeline.

    This deal will also submarine efforts by both defrauded investors in MBS and unfairly foreclosed-upon homeowners and borrowers to obtain any kind of relief in the civil court system. The AGs initially talked about $20 billion as a settlement number, money that would “toward loan modifications and possibly counseling for homeowners,” as Gretchen Morgenson reported the other day.

    The banks, however, apparently “balked” at paying that sum, and no doubt it will end up being a lesser amount when the deal is finally done.

    To give you an indication of how absurdly small a number even $20 billion is relative to the sums of money the banks made unloading worthless crap subprime assets on foreigners, pension funds and other unsuspecting suckers around the world, consider this: in 2008 alone, the state pension fund of Florida, all by itself, lost more than three times that amount ($62 billion) thanks in significant part to investments in these deadly MBS.

    So this deal being cooked up is the ultimate Papal indulgence. By the time that $20 billion (if it even ends up being that high) gets divvied up between all the major players, the broadest and most destructive fraud scheme in American history, one that makes the S&L crisis look like a cheap liquor store holdup , will be safely reduced to a single painful but eminently survivable one-time line item for all the major perpetrators.

    But New York’s Schneiderman, who earlier this year launched an investigation into the securitization practices of Goldman, Morgan Stanley, Bank of America and other companies, is screwing up this whole arrangement. Until he lies down, the banks don’t have a deal. They need the certainty of having all 50 states and the federal government on board, or else it’s not worth paying anybody off. To quote the immortal Tony Montana, “How do I know you’re the last cop I’m gonna have to grease?” They need all the dirty cops on board, or else the whole enterprise is FUBAR.

  18. I have a question re “perp walk”. Do you think brothel customers have a right to privacy when soliciting a prostitute is a crime and they probably also knew there was income tax evasion involved?

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