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10 banking organizations to address misconduct and negligence (repost)
Action Date: April 14, 2011
Location: Washington, DC
The Federal Reserve Board on Wednesday, April 13, 2011, announced formal enforcement actions requiring 10 banking organizations to address a pattern of misconduct and negligence related to deficient practices in residential mortgage loan servicing and foreclosure processing. According to the press release from the Federal Reserve, these deficiencies represent significant and pervasive compliance failures and unsafe and unsound practices at these institutions.
The Board stated that it is taking these actions to ensure that firms under its jurisdiction promptly initiate steps to establish mortgage loan servicing and foreclosure processes that treat customers fairly, are fully compliant with all applicable law, and are safe and sound.
The 10 banking organizations are: Bank of America Corporation; Citigroup Inc.; Ally Financial Inc.; HSBC North America Holdings, Inc.; JPMorgan Chase & Co.; MetLife, Inc.; The PNC Financial Services Group, Inc.; SunTrust Banks, Inc.; U.S. Bancorp; and Wells Fargo & Company. Collectively, these organizations represent 65 percent of the servicing industry, or nearly $6.8 trillion in mortgage balances. All 10 actions require the parent holding companies to improve holding company oversight of residential mortgage loan servicing and foreclosure processing conducted by bank and nonbank subsidiaries.
In addition, the enforcement actions order the banking organizations that have servicing entities regulated by the Federal Reserve (Ally Financial, SunTrust, and HSBC) to promptly correct the many deficiencies in residential mortgage loan servicing and foreclosure processing. Those deficiencies were identified by examiners during reviews conducted from November 2010 to January 2011.
The Federal Reserve believes monetary sanctions in these cases are appropriate and plans to announce monetary penalties. These monetary penalties will be in addition to the corrective actions that the banking organizations are expected to take pursuant to the enforcement actions.
The enforcement actions complement the actions under consideration by the federal and state regulatory and law enforcement agencies, and do not preclude those agencies from taking additional enforcement action. The Federal Reserve continues to work with other federal and state authorities to resolve these matters.
The actions taken Wednesday require each servicer to take a number of actions, including to make significant revisions to certain residential mortgage loan servicing and foreclosure processing practices. Each servicer must, among other things, submit plans acceptable to the Federal Reserve that:
strengthen coordination of communications with borrowers by providing borrowers the name of the person at the servicer who is their primary point of contact;
ensure that foreclosures are not pursued once a mortgage has been approved for modification, unless repayments under the modified loan are not made;
establish robust controls and oversight over the activities of third-party vendors that provide to the servicers various residential mortgage loan servicing, loss mitigation, or foreclosure-related support, including local counsel in foreclosure or bankruptcy proceedings;
provide remediation to borrowers who suffered financial injury as a result of wrongful foreclosures or other deficiencies identified in a review of the foreclosure process; and strengthen programs to ensure compliance with state and federal laws regarding servicing, generally, and foreclosures, in particular.
The Federal Reserve will closely monitor progress at the firms in addressing these matters and will take additional enforcement actions as needed.
In addition to the actions against the banking organizations, the Federal Reserve on Wednesday announced formal enforcement actions against Lender Processing Services, Inc. (LPS), a domestic provider of default-management services and other services related to foreclosures, and against MERSCORP, Inc. (MERS), which provides services related to tracking and registering residential mortgage ownership and servicing, acts as mortgagee of record on behalf of lenders and servicers, and initiates foreclosure actions. These actions address significant compliance failures and unsafe and unsound practices at LPS and its subsidiaries, and at MERS and its subsidiary. The action requires LPS to address deficient practices related primarily to the document execution services that LPS, through its subsidiaries DocX, LLC, and LPS Default Solutions, Inc., provided to servicers in connection with foreclosures. MERS is required to address significant weaknesses in, among other things, oversight, management supervision, and corporate governance. The LPS action is being taken jointly with the Office of the Comptroller of the Currency, the Federal Deposit Insurance Corporation, and the Office of Thrift Supervision, while the MERS action is being taken jointly with those agencies and the Federal Housing Finance Agency.
The Federal Reserve Board based its enforcement actions on the findings of the interagency reviews of the major mortgage servicers, LPS, and MERS. A summary of the findings from the reviews of the mortgage servicers is available in the Interagency Review of Foreclosure Policies and Practices, which is simultaneously being released by the Federal Reserve Board and the other agencies.
Source: Fraud Digest
HUD Audits Accuse Major Lenders of False Claims Fraud
The Huffington Post reported late yesterday that five of the country’s largest mortgage lenders may have defrauded taxpayers by filing false claims with the Federal Housing Administration (FHA). Confidential audits conducted on Bank of America, JP Morgan Chase, Wells Fargo, Citigroup, and Ally Financial (formerly GMAC) provided information which has now been referred to the Department of Justice for a decision on filing charges.
The author of the article, Shahien Nasiripour, said the Inspector General (IG) of the Department of Housing and Urban Development (HUD) conducted five separate investigations in February and March and concluded that the banks filed false claims against the Federal Housing Administration, a violation of the False Claims Act, a Civil War-era law.
According to the Huffington Post, “The resulting reports read like veritable indictments of major lenders, the sources said. State officials are now wielding the documents as leverage in their ongoing talks with mortgage companies aimed at forcing the firms to agree to pay fines to resolve allegations of routine violations in their handling of foreclosures.
“The audits conclude that the banks effectively cheated taxpayers by presenting the Federal Housing Administration with false claims: They filed for federal reimbursement on foreclosed homes that sold for less than the outstanding loan balance using defective and faulty documents.”
Apparently Bank of America and one other company refused to cooperate with the investigations but the BoA audit finds that the company failed to correct faulty foreclosure practices even after imposing a moratorium that lifted last October. Back then, the bank said it was resuming foreclosures, having satisfied itself that prior problems had been solved.
The Huffington Post quoted a federal official as saying that most of the targeted banks have not seen the audits but they are generally aware of the findings.
The HUD actions are the latest in a series of investigations, discussions, and proposed settlements between lenders and mortgage servicers arising out of the housing and foreclosure crisis. Earlier this week the New York Attorney General Eric T. Schneiderman was said to have requested documents and requested “discussions” with three major banks apparently regarding the institution’s securitization activities prior to the crisis (FULL STORY). A task force composed of the 50 state attorneys general has been negotiating a settlement with major mortgage servicers, most of which are owned by the major banks, over claims of wrong doing related to foreclosures.
Also according to the Huffington Post, this week the mortgage servicers under investigation by the attorneys general offered $5 billion to set up a fund to help distressed borrowers and settle claims of inappropriate foreclosures. “That offer — also floated by the Office of the Comptroller of the Currency in February — was deemed much too low by state and federal officials. Associate U.S. Attorney General Tom Perrelli, who has been leading the talks, last week threatened to show the banks the confidential audits so the firms knew the government side was not “playing around,” one official involved in the negotiations said. He ultimately did not follow through, persuaded that the reports ought to remain confidential, sources said. Through a spokeswoman, Perrelli declined to comment.”
The Huffington Post article is available at http://www.huffingtonpost.com/2011/05/16/foreclosure-fraud-audit-false-claims-act_n_862686.html
New York AG Looks to Link Financial Crisis and Mortgage Securities
Industry analysts, economists, even lawmakers generally concede that the pooling of risky subprime mortgages into secondary market securities served to fuel the economic collapse that almost brought the nation’s financial system to its knees.
But New York Attorney General Eric Schneiderman is looking for proof that major financial institutions were hocking these dicey mortgage-backed securities during the days leading up to the collapse of the housing market and subsequent financial recession, knowing that these transactions were poorly underwritten and would result in billions of dollars in mortgage losses.
Schneiderman has launched an investigation into mortgage securitization practices during the housing boom, and he’s reportedly summoned executives from Bank of America, Goldman Sachs, and Morgan Stanley for face-to-face meetings at his office in the state’s Capitol and
requested documents from each of them related to mortgage bonds issued prior to the crisis.
Under New York’s Martin Act, the state attorney general can prosecute financial fraud under statutes beyond federal securities laws. Individuals called in for questioning as part of a Martin Act investigation do not have a right to counsel or a right against self-incrimination.
Separately, a New York Court of Appeals has dismissed a suit brought against the financial industry’s three major credit ratings agencies – Fitch Ratings, Moody’s Investors Service, and Standard & Poor’s.
The plaintiffs in the lawsuit, which included several union pension funds as well as other investors who bought some $155 billion in mortgage-backed securities between 2005 and 2007, claimed that the agencies should be held accountable as “underwriters” for assigning the mortgage bonds triple-A ratings when they were backed by high-risk home loans that eventually plummeted in value with a large number defaulting.
The plaintiffs alleged that the credit rating agencies made misstatements and omissions of material information in documents used as part of the securities trading and should be held liable.
But the appellate court upheld three lower-court decisions that the credit ratings agencies did not fit the bill as “underwriters” under federal securities laws because they were not involved in the creation, issuance, or distribution of the mortgage bonds.
Banks float $5 billion deal to settle foreclosure probe: report
(Reuters) – Major banks are willing to pay as much as $5 billion to settle claims by federal and state officials of improper mortgage foreclosure practices, the Wall Street Journal reported, citing people familiar with the situation.
The banks’ offer comes as mortgage companies and state and federal officials continue their efforts to strike a settlement of investigations sparked by allegations of “robo-signing” and other questionable foreclosure practices that came to light last fall, the Journal said.
The banks intend to propose that as much as $5 billion be used to compensate any borrowers previously wronged in the foreclosure process and provide transition assistance for borrowers who are ousted from their homes, the WSJ said, citing people familiar with the matter.
(Reporting by Sakthi Prasad in Bangalore; Editing by Ramya Venugopal)
US sues Deutsche Bank over mortgage fraud
* Bank accused of lying to join US mortgage program
* DoJ says bank profited even as homeowners defaulted
* Deutsche Bank shares fall (Rewrites; adds Deutsche Bank comment, background, byline)
By Jonathan Stempel
NEW YORK, May 3 (Reuters) – The United States sued Deutsche Bank AG (DBKGn.DE) for more than $1 billion, accusing the German bank of defrauding the government by repeatedly lying to obtain federal insurance guarantees on mortgage debt.
The lawsuit filed Tuesday against Deutsche Bank and its MortgageIT Inc unit is believed to be among the first targeting mortgage lenders under the federal False Claims Act.
It also marks the newest push by the government to hold the mortgage industry responsible for perceived excesses that contributed to a four-year-old U.S. housing slump and hundreds of thousands of foreclosures. It is unclear whether the government will target other banks in lawsuits.
Deutsche Bank shares fell 3.1 percent in late afternoon trading in Frankfurt.
“We just received the complaint and are reviewing it,” a Deutsche Bank spokeswoman said. “We believe the claims against MortgageIT and Deutsche Bank are unreasonable and unfair, and we intend to defend against the action vigorously.”
The complaint was filed in U.S. District Court in Manhattan. The government says MortgageIT from 1999 to 2009 endorsed more than 39,000 mortgages with principal totaling more than $5 billion for Federal Housing Administration insurance, meaning they were backed by the federal government.
Knowing they would profit from the eventual resale of the loans, the defendants were accused of recklessly choosing mortgages that violated program rules “in blatant disregard” of whether borrowers actually had the ability to make payments.
“POWERFUL” INCENTIVES, U.S. SAYS
The government said it has paid out more than $386 million of FHA insurance claims and related costs, and expects to pay out hundreds of millions of dollars more.
“Deutsche Bank and MortgageIT had powerful financial incentives to invest resources into generating as many FHA-insured mortgages as quickly as possible for resale to investors,” the complaint said.
“By contrast, Deutsche Bank and MortgageIT had few financial incentives to invest resources into ensuring the quality of its FHA-insured mortgages.”
The complaint seeks triple damages on the $386 million of claims, as well as punitive damages, fines and other remedies.
Deutsche Bank bought MortgageIT for $430 million in 2007.
The office of U.S. Attorney Preet Bharara in Manhattan, which brought the case, had no immediate comment.
The bank was also a target of last month’s report by the U.S. Senate’s Permanent Subcommittee on Investigations criticizing lenders for contributing to the financial crisis.
That report detailed how investigators believed Deutsche Bank deceived clients into buying securities it believed were likely to implode.
Deutsche Bank lost an estimated $4.5 billion tied to the mortgage market collapse, but could have lost more had it not sold such securities, the report said.
The case is U.S. v. Deutsche Bank AG et al, U.S. District Court, Southern District of New York, No. 11-02976. (Reporting by Jonathan Stempel; Additional reporting by Scot J. Paltrow in Washington, D.C. and Edward Taylor in Frankfurt; editing by Gerald E. McCormick, Dave Zimmerman)
Here is the document:
United State of America vs Deutsche Bank and Mortgage It, Inchttp://www.scribd.com/embeds/54527422/content?start_page=1&view_mode=list
