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The Billion-Dollar Mortgage Fraud Club – New Members Welcome!

Posted  August 7, 2014

By Gordon Schnell

Apparently, Bank of America is close to inking a deal with the government under which it would pay about $17 billion to settle charges of its mortgage machinations in the run-up to the financial crisis.  If finalized, BofA would be just the latest big bank to cement its membership in the Billion Dollar Mortgage Fraud Club.  Some of the other major banks that make up this elite assemblage, and the prices they paid for admission, include:

  • JPMorgan — On November 19, 2013, the bank agreed to pay $13 billion to settle government charges arising out of the packaging, marketing, sale and issuance of residential mortgage-backed securities by JPMorgan, Bear Stearns and Washington Mutual prior to Jan. 1, 2009, which according to Attorney General Eric Holder “without a doubt . . . helped sow the seeds of the mortgage meltdown.”
  • Citigroup — On July 14, 2014, the bank agreed to pay $7 billion to settle government charges related to Citigroup’s packaging, securitization, marketing, sale and issuance of residential mortgage-backed securities, which according to Attorney General Holder “contributed mightily to the financial crisis that devastated our economy in 2008.”
  • Wells Fargo, Ally Financial — On February 9, 2012, these banks (along with BofA, JPMorgan, and Citigroup) agreed, as the country’s five largest mortgage servicers, to pay $25 billion to settle charges by the federal government and 49 state attorneys general that they engaged in a variety of mortgage loan servicing and foreclosure abuses.
  • Deutsche Bank — On December 20, 2013, the bank agreed to pay $1.9 billion to settle charges by the Federal Housing Finance Agency that it did not provide adequate disclosures about mortgage-backed securities it sold to Fannie Mae and Freddie Mac.
  • Morgan Stanley — On February 7, 2014, the bank agreed to pay $1.2 billion to settle charges by the Federal Housing Finance Agency that it sold billions in mortgage-backed securities to Fannie Mae and Freddie Mac during the credit boom, while presenting “a false picture” of the riskiness of the loans.
  • SunTrust — On June 17, 2014, the bank agreed to pay $968 million to settle charges of mortgage origination, servicing, and foreclosure abuses brought by the Justice Department, Department of Housing and Urban Development (HUD), the Consumer Financial Protection Bureau, and virtually every state attorney general in the country.

But the proposed BofA deal would set a new record in the government’s much ballyhooed campaign to hold accountable those responsible for sending the US economy into a tailspin for their trade in so-called toxic mortgages.  What is more, the record payment would be on top of the close to $60 billion the bank has already ponied up, largely for the mortgage transgressions of its Countrywide and Merrill Lynch acquisitions.

While the bank was playing hardball with the Justice Department over this most recent legal challenge, a ruling last week against the bank in another matter by New York federal Judge Jed Rakoff seemed to precipitate the bank’s decision to finally cave.  This is the same judge who has outspokenly criticized what he sees as the government’s “too big to fail” approach to dealing with banks gone bad.  He ordered BofA to pay nearly $1.3 billion for an old Countrywide Financial mortgage program called the “Hustle.”  This was a program that facilitated Countrywide’s notoriously shoddy mortgage program by rewarding employees based on the number of mortgages they peddled.  In ordering the unexpectedly large payout, the judge obviously was not swayed by the bank’s contention it should be let off easy given that the Hustle ended before BofA’s purchase of Countrywide.  Perhaps this highlighted for the bank its uphill battle in convincing the government it should go easy on BofA for the misdeeds of Countrywide and Merrill Lynch.

Despite the buzz of this almost done record-setting deal, many are still complaining that these billion-dollar fines — no matter how many billions they may comprise — are not a proper punishment to fit the crime.  Because as high as these fines are climbing, there have been few if any criminal charges brought against any of the executives or senior staff who led these banks in their mortgage misbehavior.  According to Judge Rakoff, this may be “one of the more egregious failures of the criminal justice system in many years.”  Nevertheless, if the price of joining the Billion-Dollar Mortgage Fraud Club continues on its current climb, perhaps it finally will be viewed as significantly more than simply the cost of doing business as usual.

Tagged in: Financial Institution Fraud, Housing and Mortgage Fraud,