By Jim Hagerty
When mortgage lenders began to fall as far back as 2006, leading to an all-out banking implosion two years later, the industry’s work of selling hundreds of thousands of foreclosed properties seemed to be cut out for it. Investors lined up for miles to buy homes for pennies-on-the-dollar, while former homeowners exited fenced-in suburbia for the haunts of rental pools and bankruptcy court. Still, it took a $700 billion tourniquet to prevent a sector topple.
Today, loan modification plans and foreclosure avoidance counseling is commonplace for a growing percentage of homeowners, who are now flippantly labeled as “troubled” or “distressed.” Even the president has called on lenders and legislators to rush to those behind on their mortgages as the U.S. economy attempts to limp toward a sluggish and muddy homestretch. While there have been glimpses of a brighter tomorrow, banks are still unable to find homes for thousands of mortgage securities they can’t sell on the open market, despite a feverish attempt to turn fraudulent loans into legitimate instruments of profit. Truth is, there is no way to make a silk purse from a sow’s ear.
Fraud investigators have found lenders such as Bank of America, which acquired fraud-ridden Countrywide in 2007, to be doing little to cure the foreclosure epidemic. When Bank of America bought Countrywide Financial, it was clear the purchase would come with a massive amount of debt and bunk securities Wall Street had been avoiding for at least a year. Still, attempts were made to keep many of the loans, which included fake borrower documents, on the books and/or present them as suddenly profitable.
Regulators aren’t buying the smokescreen. Trading securities backed by fraudulent loans is only possible by turning a blind eye or with a heave of excrement with hopes that some of it sticks. Still, there are pools of mortgages that simply explode in mid-air before reaching the proverbial wall, forcing the foreclosure card. This continues to present a problem experts are calling simple, ordinary thievery.
Investigators claim that fraud—and fraud only—is leading the charge to foreclose on worthless home loans. When this occurs, the only paper trails that exist consist of documents that prove loans were marketed, originated and funded based on false information, largely provided by dishonest loan officers.
White-collar crime sleuth William Black, who investigated the savings and loan scandals in the 1980s, recently joined University of Missouri-Kansas City economics professor L. Randall Wray in a charge to “foreclose on the foreclosure fraudsters.” Black and Wray called on the FDIC last week to place banks, with Bank of America front and center, that are knowingly foreclosing on fraudulent accounts, into receivership.
“Receivership will send the credible signal that America is restoring the rule of law and that even the most elite frauds will be held accountable,” Black and Wray wrote in the Huffington Post. “Remove the senior leadership of the banks and replace them with experienced bankers with a reputation for integrity and competence, i.e., the honest officers that quit or were fired because they refused to engage in fraud.”
Black and Wray noted that despite a scare that a massive receivership would spark a nationalized banking system, the measure is a proven one. More than 1,000 receivers were appointed during the S&L crisis during the Ronald Reagan and George H.W. Bush eras, which, despite $126 billion bailout under Bush and a sizable blow to the federal budget, saved the industry.
As of Oct. 20, however, the federal government announced that lenders such as Bank of America were posing no threat to the mortgage sector and a freeze in foreclosures was all that was necessary to give lenders time to fix mistakes and oversights, not continue a ring of fraud.
“(They) cannot even bring themselves to use the ‘f’ word—‘fraud’,” Black and Wray charged. “They substitute euphemisms designed to trivialize elite criminality.”
Bank of America is the largest banking holding company in the country (by assets) and the fifth-largest company in the United States based on revenue. It partially lifted a nationwide foreclosure freeze Monday, Oct. 25, and will continue foreclosure proceedings on more than 300,000 homes in 23 states. Bank of America has foreclosed on approximately 3 million home loans since 2007.
From the Oct. 27-Nov. 2, 2010 issue