Finally! Someone takes on the Big Bankers and their foreclosure policies, the Nevada Attorney General : “Cortez Masto wants to revoke a 2009 settlement with BofA over loan abuses involving its Countrywide Financial Corp., saying the bank has violated its terms. She claims the banking giant has harmed homeowners by failing to modify their mortgages and maliciously deceived some by telling them their loans would be modified, then foreclosing on them. BofA denies the allegations.” [LVSun]
Among the problems with Bank of America’s procedures: Poor training for personnel dealing with customers, Limiting the time personnel could spend with customers, Requiring repeated and unnecessary resubmission of various kinds of documentation. The practice which appears the most egregious is that of telling a customer that the mortgage modification process was underway, collecting the payments — and then foreclosing anyway.
This isn’t the only litigation facing Bank of America and its assumption of Countrywide Financial’s highly questionable loans. It seems Countrywide routinely held on to documentation for its mortgages including the original notes. If true, then litigation in New Jersey could reveal that while BofA thought the mortgages had been securitized — approximately 96% were supposed to be — BofA may be on the hook for these. BofA’s other problem is that if the securities were supposed to be “mortgage backed” and aren’t, then investors can force BofA to buy them back. [DailyFinance]
Problems such as the November 2010 New Jersey litigation have multiplied. The decision by former BofA CEO Kenneth Lewis to purchase Countrywide for $4.2 billion is still creating problems. BofA posted a second straight quarterly loss in January 2011 resulting from its writedowns of mortgage losses. [Reuters] The problems were supposed to have been mitigated in 2009, but that may not necessarily be the case.
The “common wisdom” was that after the Housing Bubble burst and the Credit Crunch began banks were much tighter with their lending, their underwriting standards were better, and their mortgage products were improved. Not. So. Fast. There is evidence to the contrary.
“Bank of America was the second largest mortgage lender in 2009, behind Wells Fargo. Its volume was up 116% over the previous year. Meanwhile, Citigroup and JP Morgan were pulling back, allowing the size of their mortgage business to shrink. “ [CNBC] There was about $2 trillion in mortgages written in 2009, and obviously that isn’t all that far below the 2007 Bubble Level of $2.4 trillion. CNBC’s Jon Carney summed up the situation: “Bank of America is probably still screwed.”
By June 2011 Bank of America was looking at $27 billion in mortgage losses by 2013, and this figure didn’t include the $46 billion the Bank had already absorbed. Worse still, federal investigators were noticing that Bank of America was “purposely dragging its feet” when it came to disclosing its foreclosure practices and policies. HUD officials found that the Bank of America was refusing to allow its employees to discuss the foreclosure processes, and the Attorneys General in New York and California were launching their own investigations. [Forbes]
As of August 30, 2011 Bancorp was suing Bank of America:
“The lawsuit, which was filed in New York on Monday, claims Countrywide sold U.S. Bancorp a pool of over 4,000 loans originally valued at $1.75 billion. U.S. Bancorp claims Countrywide ignored its own mortgage underwriting guidelines when issuing those loans.
According to the complaint, Countrywide agreed to repurchase loans within 90 days if any of the statements made in the loan contract wound up being untrue. Those statements included an assertion that the loans complied with the bank’s underwriting guidelines.”
US Bancorp is asking that Countrywide/BofA repurchase the mortgages in this “pool.”
Thus Bank of America is in a double bind. On one hand, it can try to mitigate its losses by foreclosing on the toxic mortgages (and get itself in trouble with federal and state entities for failing to properly assist homeowners in the process) and on the other, it must find a way to satisfy those who bought the Countrywide mortgage “pools,” investors who thought they were purchasing securitized assets based on authentic mortgage underwriting guidelines.
That Big Deal on January 11, 2008 in which Bank of America paid $4 billion for Countrywide [CNN] now gives every appearance of being a Big Bust. But, CEO Lewis was confident at the time:
“Bank of America Chairman and CEO Kenneth Lewis suggested he was aware of the troubles that his firm was taking on, but said acquiring Countrywide was a “rare opportunity” for his company. “Countrywide presents a rare opportunity for Bank of America to add what we believe is the best domestic mortgage platform at an attractive price and to affirm our position as the nation’s premier lender to consumers,” Lewis said in a statement.”
The bloom was off the rose by September 2009 when Lewis announced he was retiring as CEO of Bank of America. [HuffPo] Lewis had been earning a $1.5 million annual salary from BofA until October 2009 when he announced he would not accept a salary for his remaining tenure. However, the “zero” didn’t include the $53 million in pension benefits and the $69 million in stock options which were also part of his final compensation package. [CNN]
Bank of America was allocated $45 billion in initial “bailout funding,” [BBC] and the bank was allowed to sell some $73 billion in toxic mortgages to Fannie/Freddie for $500 million. [TheStreet] As for Angelo Mozilo, the individual who “cooked” up the mortgages for Countrywide — he was allowed to cut a deal with the SEC and prosecution was dropped. [DailyFinance] Yves Smith at Naked Capitalism provides more background on this aspect of the Countrywide debacle. How was Mozilo’s fraud not prosecutable? Among the answers, “secondary liability:”
“Legislators also need to restore secondary liability. Attentive readers may recall that a Supreme Court decision in 1994 disallowed suits against advisors like accountants and lawyers for aiding and abetting frauds. In other words, a plaintiff could only file a claim against the party that had fleeced him; he could not seek recourse against those who had made the fraud possible, say, accounting firms that prepared misleading financial statements. That 1994 decision flew in the face of sixty years of court decisions, practices in criminal law (the guy who drives the car for a bank robber is an accessory), and common sense. Reinstituting secondary liability would make it more difficult to engage in shoddy practices.” [NC]
So, Lewis took home his compensation package and Mozilo escaped prosecution, keeping the $132 million he “earned” in 2007.
Meanwhile back in the neighborhoods, Bank of America is still trying to foreclose on the toxic (Countrywide) mortgages by any means available and homeowners in Nevada and elsewhere are being asked to submit and resubmit documentation as the foreclosure procedure drags on.
PS: Please don’t try to convince me that Mozilo and Lewis are “job creators.”