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Administration Favors Settling With Banks on Criminal Actions They’re STILL Engaged In

(photo: Mirko Tobias Schaefe)

Matt Stoller’s piece on the latest in the foreclosure fraud settlement follies makes one very important point that I missed in my writeup: robo-signing is still happening.

What makes these discussions so utterly absurd, so ridiculous, and farcical, is that robo-signing, an abuse the banks have admitted to and clam they’ve ceased, is still going on. The AP reported this in July; mortgage servicers in Nevada have stopped foreclosing because of a law explicitly criminalizing robo-signing. Yes, the banks are asking for a release of claims on acts, or perhaps crimes, that are ongoing. And these abuses are extensive: lying to investors about the quality of the mortgages; violating their own contracts by failing to convey mortgages properly to securitization trusts; charging fees that are impermissible under Federal law and the contracts; making a mess of property records and engaging in deceptive consumer practices through the use of MERS; and engaging in document forgeries and fabrications in foreclosures. All these people trying to give the banks “a settlement” are in fact immunizing banks against acts they are committing and will commit going forward. Only in the future, when a voter complains to his or her state AG, that official will have to explain to that voter that his/her rights have been given away.

We’re talking about an ongoing case of criminal theft of private property by mortgage servicers charging illegal fees and then using fraudulent documents to foreclose. Now, a settlement implies that this practice is over, and that the banks are remediating past wrongs. It isn’t over, but the AGs and Federal regulators are treating it as if it is. Think about this incentive – why should a bank change its mortgage servicing once it has immunity for robo-signing, origination, pyramiding of fees, etc? The last consent decrees weren’t enforced, why would this one be enforced?

If the banks weren’t able to robo-sign, they wouldn’t be able to foreclose on anyone, because without fraudulent means they cannot prove ownership. That’s the implication of the slowdown in Nevada, that’s the implication of the ongoing criminal activity. So a settlement then takes the role of really changing the law, and not just any law, but the laws of land ownership, which undergirds the entire system of capitalism, according to economist Hernando de Soto. What you’re doing when you change the law of private property rights to benefit one class is to bend capitalism into oligarchy or feudalism.

And it’s pretty clear that this is the favored path in Washington. Mike Lux, who has a fair bit of inside knowledge, explains what is happening: [cont’d.]

A dozen banks would contribute a grand total of $3.5 to 5 billion toward the settlement, pocket change for massive companies that apparently approved their foreclosure mill law firms likely committing over 1,000,000 counts of perjury in the robo-signing process. The rest of the money, about $20 billion, would come in the form of “credits” banks essentially give themselves if they agree to reduce a certain amount of the principal owed on mortgages. We don’t know the details yet, but given that all banks in the home lending industry write down some mortgages, unless the details are tough on the banks (a phrase not generally heard of among regulators in this era), this will be giving banks credit for mortgages they would be writing down anyway. And if they don’t end up writing down as much as they project, they probably won’t end up being penalized for it given the history of programs like HAMP […]

If the administration rams through this ultimate in Wall Street sweetheart deals — a laughably pocket change fine combined with “credit” for what they would have done anyway, at the expense for a get out of jail free card for 1 million counts of perjury and a wide range of other potential fraud — they will have zero credibility to run as the tough on Wall Street candidate. ZERO.

This makes no sense. For example, for the Obama administration to be leaning so hard on California Attorney General Kamala Harris to sign off on this is truly politically suicidal, both for them and for her after she so strongly announced she was pulling out a couple of weeks ago. Yet they continue to push her. Why are they pushing so hard for this? It all boils down to Treasury Secretary Tim Geithner. It is apparent that Geithner believes the only thing that matters in terms of fixing the economy is to keep the big banks in good financial shape, which is ironic given that in public he claims that everything is fine with the banking sector now.

Lux pretty clearly indicates that he’s going public with private knowledge he’s gained through contacts in the White House. This is what’s happening. The White House is hell-bent on protecting the banks, and bringing the AGs they need, particularly Harris, to heel. Lux rightly concludes that the next ten years of the US economy and the 2012 elections hang in the balance. But as much as that, so does the history of the United States as a country of laws and not men.

CommunityThe Bullpen

Administration Favors Settling With Banks on Criminal Actions They’re STILL Engaged In

Matt Stoller’s piece on the latest in the foreclosure fraud settlement follies makes one very important point that I missed in my writeup: robo-signing is still happening.

What makes these discussions so utterly absurd, so ridiculous, and farcical, is that robo-signing, an abuse the banks have admitted to and clam they’ve ceased, is still going on. The AP reported this in July; mortgage servicers in Nevada have stopped foreclosing because of a law explicitly criminalizing robo-signing. Yes, the banks are asking for a release of claims on acts, or perhaps crimes, that are ongoing. And these abuses are extensive: lying to investors about the quality of the mortgages; violating their own contracts by failing to convey mortgages properly to securitization trusts; charging fees that are impermissible under Federal law and the contracts; making a mess of property records and engaging in deceptive consumer practices through the use of MERS; and engaging in document forgeries and fabrications in foreclosures. All these people trying to give the banks “a settlement” are in fact immunizing banks against acts they are committing and will commit going forward. Only in the future, when a voter complains to his or her state AG, that official will have to explain to that voter that his/her rights have been given away.

We’re talking about an ongoing case of criminal theft of private property by mortgage servicers charging illegal fees and then using fraudulent documents to foreclose. Now, a settlement implies that this practice is over, and that the banks are remediating past wrongs. It isn’t over, but the AGs and Federal regulators are treating it as if it is. Think about this incentive – why should a bank change its mortgage servicing once it has immunity for robo-signing, origination, pyramiding of fees, etc? The last consent decrees weren’t enforced, why would this one be enforced?

If the banks weren’t able to robo-sign, they wouldn’t be able to foreclose on anyone, because without fraudulent means they cannot prove ownership. That’s the implication of the slowdown in Nevada, that’s the implication of the ongoing criminal activity. So a settlement then takes the role of really changing the law, and not just any law, but the laws of land ownership, which undergirds the entire system of capitalism, according to economist Hernando de Soto. What you’re doing when you change the law of private property rights to benefit one class is to bend capitalism into oligarchy or feudalism.

And it’s pretty clear that this is the favored path in Washington. Mike Lux, who has a fair bit of inside knowledge, explains what is happening:

A dozen banks would contribute a grand total of $3.5 to 5 billion toward the settlement, pocket change for massive companies that apparently approved their foreclosure mill law firms likely committing over 1,000,000 counts of perjury in the robo-signing process. The rest of the money, about $20 billion, would come in the form of “credits” banks essentially give themselves if they agree to reduce a certain amount of the principal owed on mortgages. We don’t know the details yet, but given that all banks in the home lending industry write down some mortgages, unless the details are tough on the banks (a phrase not generally heard of among regulators in this era), this will be giving banks credit for mortgages they would be writing down anyway. And if they don’t end up writing down as much as they project, they probably won’t end up being penalized for it given the history of programs like HAMP […]

If the administration rams through this ultimate in Wall Street sweetheart deals — a laughably pocket change fine combined with “credit” for what they would have done anyway, at the expense for a get out of jail free card for 1 million counts of perjury and a wide range of other potential fraud — they will have zero credibility to run as the tough on Wall Street candidate. ZERO.

This makes no sense. For example, for the Obama administration to be leaning so hard on California Attorney General Kamala Harris to sign off on this is truly politically suicidal, both for them and for her after she so strongly announced she was pulling out a couple of weeks ago. Yet they continue to push her. Why are they pushing so hard for this? It all boils down to Treasury Secretary Tim Geithner. It is apparent that Geithner believes the only thing that matters in terms of fixing the economy is to keep the big banks in good financial shape, which is ironic given that in public he claims that everything is fine with the banking sector now.

Lux pretty clearly indicates that he’s going public with private knowledge he’s gained through contacts in the White House. This is what’s happening. The White House is hell-bent on protecting the banks, and bringing the AGs they need, particularly Harris, to heel. Lux rightly concludes that the next ten years of the US economy and the 2012 elections hang in the balance. But as much as that, so does the history of the United States as a country of laws and not men.

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David Dayen

David Dayen