California Atty. Gen. Kamala Harris, saying that years of unscrupulous lending still haunts the state, is creating a 25-person task force to target mortgage fraud of any size — from small operations that preyed on troubled borrowers to corporations that sold risky loans as safe investments.
The team of 17 lawyers and eight special agents from the state Department of Justice will pursue three major areas, Harris said in an interview:
• Corporate fraud, including instances in which bundled mortgages were sold as securities to the state or its pension funds under false pretenses. Harris said her office plans to prosecute some cases under California’s False Claims Act, which she described as “one of those very powerful tools that California uniquely has … to pursue, in essence, what are false claims that are submitted to the state.”
• Scams, including instances in which consultants, lawyers and others took fees from people in foreclosure, saying they would help the homeowners get loan modifications or other remedies, but delivered nothing.
• Fraudulent lending practices, including deceptive marketing, failure to fully disclose loan terms and qualifying people for loans who couldn’t afford the terms.
Harris said the mortgage fraud that ultimately led to the housing crash continues to be a drag on the state, causing huge losses in jobs, property values and state revenues.
“We are looking at a situation of up to $640 billion in wealth having been lost because of this wave of foreclosures that has hit the state,” Harris said, referring to the decline in homeowner equity. “There is a direct connection” between mortgage fraud “and the issue that we are challenged with in terms of our state budget crisis.
<br/><a href="http://www.bing.com/videos/watch/video/man-builds-moat-to-save-home-from-flooding/206r7g43?q=river+flood&rel=msn&from=en-us_msnhp&form=MSNRLL&gt1=42010&src=v5:embed::&fg=sharenoembed" target="_new"title="Man Builds Moat To Save Home From Flooding">Video: Man Builds Moat To Save Home From Flooding</a>
This 1800 sf home is located on a heavily wooded, medium-bank waterfront property on Lopez Island, Washington. The house is carefully sited amidst the existing trees and the existing land form which slopes up to the bank and view.
Connections to the outdoors and other features of the property informed the arrangement of space and form. The angle of the living wing corresponds to the bank and creates an embraced outdoor deck area. The house reaches out to the southeast path to the beach, to the gardens further to the east and most importantly to the west and northwest views of the water.
There were 33 sales over $2,000,000 between 2003 and 2010 in Fairbanks Highlands, a gate/guarded community on the east end of Carmel Valley’s 92130. But with 10+ listings not selling over the last half of 2010, we thought that prices of these would keep sliding, hopefully all the way to $1,500,000.
But then on December 20th, a listing finally went pending - after 167 days on the market.
Got a chance to meet Josh Rosner (co-author, with Times reporter Gretchen Morgenson, of the new book Reckless Endangerment) last night during an appearance on Eliot Spitzer’s In the Arena.
We were brought in to talk about the new investigation of the banks that apparently is being launched by New York State Attorney General Eric Schneiderman, which looks like it might be the first for-real attempt at a prosecution of the systemic corruption that led to the financial crisis.
Schneiderman’s probe reportedly targets the banks’ mortgage securitization process during the bubble years. Morgenson reported that Schneiderman is focused on at least three companies: Morgan Stanley, Bank of America, and old friend Goldman, Sachs.
This investigation has the potential to be a Mother of All Nightmares situation for the banks for a couple of reasons.
For one thing, the decision to go after the securitization process is a total prosecutorial bullseye. This is the ugly heart of the wide-scale fraud scheme of the bubble era.
The business model during this time was a giant bait-and-switch scam. Sleazy lenders like Countrywide and New Century first created huge masses of bad loans, committing every conceivable kind of fraud to get people into loans (from doctoring income statements with white-out to phonying FICO scores to engineering fake appraisals). They then moved the bad loans quickly to the big banks, which pooled them and chopped them up (this is the “securitization” process), sprinkled hocus-pocus math on them, and them sold them to suckers around the world as AAA-rated securities.
The questions Schneiderman will seek to answer are these: did the banks securitize loans they knew were fraudulent, throwing the rotten mortgages into the stew before serving them to customers?
Did they also commit insurance fraud by duping the bond insurers (known as “monoline” insurers) into thinking the mortgages were not as risky as they really were?
And did they participate in the fraud scheme on a more basic level by lending huge amounts of money to the Countrywides of the world, knowing that they in turn would immediately use that money to create the bad loans?
In other words, did the banks finance the fraud in addition to brokering it? The reason this is such a potentially deadly investigation for the banks is that they seemed to be so close to getting away scot free.
There is another investigation into the banks’ mortgage abuses by the states’ Attorneys General, led by Iowa AG Tom Miller, that was rumored to be headed toward a settlement, despite the fact that nothing like a complete investigation has been done.
The expectation for some time has been that the banks would eventually have to pay a significant, but eminently survivable, settlement for abuses during the bubble era. Although the Miller probe was focused on practices like robo-signing and other such documentation abuses, it could theoretically have covered securitization as well.
But if the AGs were to sign off on a friendly global settlement for mortgage abuses prematurely, it would be like a DA offering a millionaire murderer a 2-year plea bargain before the cops even had a chance to interview all the eyewitnesses. It would be a blatantly political arrangement.
Such a desire to get some kind of deal done and sweep the mortgage mess under the rug once and for all seems almost universal among high-ranking politicians, and particularly in the Obama administration, which has acted throughout like it wants more than anything to simply get all of this over with and put in the past.
Schneiderman’s investigation throws a monkey wrench into all of this.
The banks cannot enter into a settlement with 49 states. They need all 50 at the table. But if Schneiderman breaks ranks and goes off on an end-run investigation that plunges right into the rotten core of the fraud era, then the whole pipe dream of an easy settlement vanishes in an instant. This is particularly true since Schneiderman is the most important AG, being from the state of New York, where most of the crime was probably committed.
The amount of money investors lost in this fraud scheme is probably gigantic.
The ill-gotten money the banks made off that same fraud is probably similarly huge. And the damage to society, in the form of mass foreclosures and other losses, is incalculable. If the banks end up being found liable for all of these offenses, they could face truly crippling fines and penalties. This goes far beyond the question of whether one bank like Goldman defrauded a client or two or lied to investigators. This probe could be asking whether the banks’ entire revenue model during the crisis years was based on fraud.
Everything I’ve heard so far indicates that Schneiderman’s investigation is not a publicity stunt and is an in-earnest attempt to get to the bottom of things.
As you may know, there is a proposal before regulators to require a minimum of 20 percent down on all residential transactions. If allowed to take effect, the rule would put home ownership out of reach for middle-income Americans. It would take the average family 14 years to save up the down payment to buy a home. We just don’t need more hurdles. So please take time to visit the REALTOR® Action Center to answer the Call for Action and tell Congress this does not work for our industry or our country.
California Atty. Gen. Kamala Harris, saying that years of unscrupulous lending still haunts the state, is creating a 25-person task force to target mortgage fraud of any size — from small operations that preyed on troubled borrowers to corporations that sold risky loans as safe investments.
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