Reuters Claims US Gov't Rigged Research on Wrongful Foreclosures

You are here

 

Reuters' research shows that the US Comptroller of the Currency may have used flawed methods to understate wrongful foreclosures resulting from bank misconduct.
 

After a few small law firms revealed in 2010 that banks and servicers submitted millions of knowingly false affidavits and forged legal documents to courts nationwide, states' attorneys general were forced to take action. We suggested that the investigations were political and (1) any sanctions would be minimal and pre-approved by banks in private negotiations, and (2) any resulting agreement will afford the banks more rights than they enjoyed before.

In the swirl of ongoing frauds and heists it was a few small laws firm in 2010  including Ice Legal in West Palm Beach, Florida that uncovered banks and servicers' intentional fraud and perjury.  Dustin Zachs and other attorneys took the depositions of bank executives who signed tens of thousands of falsified documents under penalty of perjury and used forged and falsified notarizations.  (read a few of the depositions here) State attorneys general and law enforcement had nothing to do with uncovering this misconduct.

The embarrassment of the public disclosure and proof through sworn depositions that small law firms were able to uncover mammoth criminal enterprises, unknown and until then uninteresting to law enforcement, forced states' attorneys general to make big press conferences promising "tough action" for the cameras.  The uncertainty of whether these TV-camera threats would materialize into real expensive sanctions, drove banks into the arms of their favorite non-enforcer - the one federal agency that not only does nothing to enforce the law, but actually sues other law enforcement agencies to make sure that they too do not enforce the law: The Office of the Comptroller of the Currency (OCC).

Usurping the state attorneys general newstime bravado, John Walsh, Acting Comptroller of the Currency, testified to the Senate Banking Committee in February that the banks' illegal activities resulted in only a "small number" of wrongful or illegal foreclosure sales.  This testimony was in preparation for OCC's effort to pressure a limited and ineffective settlement with banks that would extract a penalty probably less than bank executives spend annually on food and wine.  But Walsh's testimony also provided political cover and an invitation for some chest thumping states' attorneys general who may be seeking a plausable pubilc explanation for walking away with little or nothing.

Reuters noted that OCC's "investigation" into wrongful foreclosures used a sample of a mere 2,800 cases out of millions and sprinkled into the sample an unknown number of "in-process" foreclosures.  Reuters noted that because the thing to be measured - wrongful foreclosures - could only be measured from a sample of cases where foreclosures were complete, each "in-process" case would artificially reduce the incidence of wrongful foreclosures that the report found.

While this oversight initially seemed accidental, OCC then refused to disclose to Reuters the criteria it used to select the files, the definition used to determine erroneous foreclosures and the number of "in-process" foreclosures included in the sample.

Reuters noted that Walsh's statements to Congress were widely used by the Securities Industry and Financial Markets Association (SIFMA) trade organization and in a Washington Post editorial arguing against expensive sanctions and tight regulation of loan modifications.

We believe that regulators are refusing to release their criteria because their purpose is public relations and not investigation.  OCC and the US Treasury conduct investigations jointly with the entities being investigated.  The selection criteria and data analysis methods are developed in the course of the investigation rather than before it because the goal is to bend and twist these criteria to achieve the goal, which is to confirm that relatively little harm occurred.  It is likely that the banks themselves "helped" or are now helping OCC decide the selection criteria, one of which might be "the bank thinks these files would be best to include in the investigation, but not those"

Before serving as Acting Comptroller, Walsh served as the Executive Director of the Group of Thirty.  In all fairness to Acting Comptroller Walsh, he has served more in government and academia than many others the Bush and Obama administrations selected for positions in the US Treasury Department and other federal agencies (which are now dominated by millionaire ex-executives from Goldman Sachs, JPMorgan and other banks).

OCC Has a History of Stopping States from Interfering with Bank Fraud

OCC has a history of serving as more of a trade group for US banks and mortgage servicers than as a regulatory agency.  From 2002 to 2004 in the run up to the mortgage crisis many states attempted to pass regulations and states' attorneys general sued banks for making ridiculous "predatory loans" that had no chance of being paid back.   State regulators, economists and law enforcement grew very worried during 2002-2004 as evidence grew that banks were closing $800,000 home loans for borrowers making $60,000 a year.  The OCC went on a litigation rampage suing states and states' attorneys general to stop them from passing and enforcing laws that were the "proper authority of the federal government."  OCC won most of these cases and then did not regulate and did not investigate the banks.  Then as now, OCC's job is to stop other agencies from investigating and prosecuting banks and bank executives, and then to stand by and do nothing.

In hindsight we see that OCC did not sue to preempt state laws from regulating banks because it interfered with federal regulation.  It sued to stop anyone from regulating the banks because the banks told the Executive that they did not want to be regulated.

On January 8, 2004 Richard Blumenthal, Attorney General of the State of Connecticut said in response to OCC lawsuits to stop Connecticut from regulating out of control fraudulent lending,

This arrogant, appalling effort to usurp legitimate state consumer protection laws will be challenged by Connecticut and other states and should be promptly struck down by the courts or by Congress... We will sue the OCC if necessary to protect state laws that safeguard our vital economic and consumer interests, and a tradition of dual regulation that has existed for more than a century.

Blumenthal represented the frustration of dozens of states' attorneys general and state legislatures that witnessed the disturbing rise in predatory lending.  Many remember the hundreds of daily ads bombarding consumers from 2002 to 2007 "refinance your home at 1% interest!"  It was impossible to escape the junk mail, telemarketer calls, television and radio ads.  Even a simple deposit at the local bank branch resulted in a hard sell pitch for a home equity loan.  Anyone armed with a calculator knew that the loans being pitched would be difficult or impossible to repay.  And the federal government used every power available to it to frustrate the states' ability to check the obvious growing risks.

Blumenthal continued in his January 8, 2004 statement attacking OCC:

This blatant attempt to shield banks from legitimate state law enforcement should prompt strong outrage and outcry from a bipartisan coalition of states, which we now hope to continue to help lead... we will fight this misguided power grab by the OCC [and] continue the fight against banking abuses, such as predatory lending, in Connecticut.

Connecticut and other states eventually lost their suits and the rest is history.  Now the same OCC that fought to make the mortgage crisis a reality is at it again trying to interfere with the possibility that states may rein in bank misbehavior; this time for state criminal violations including perjury, fraud and forgery.

Both Alan Greenspan and Ben Bernanke claimed repeatedly that there was no housing bubble and then that the the lending industry's problems were contained to "subprime."  The Federal Reserve claimed that it was not its job to regulate and it had little power to regulate.  The OCC fought to stop states from engaging in the necessary regulation that OCC refused to do.  And now, after the heavy losses our society has suffered from widespread fraudulent lending and securitization schemes, the entities with exclusive control over determining what went wrong and how to fix it are the same ones that fought so hard to enable the banks to achieve what they did: OCC, the Federal Reserve and the US Treasury Department.

Click here to read the Reuter's article on
OCC's efforts to help the banks.

Related Subjects: 
 
 

Call us at 408.797.0000

Call us at 408.797.0000

Call us for a consultation at 408.797.0000. We offer expert services and proven experience with complex issues that others can overlook.

Save this page

 

Who's Online

 
There are currently 0 users and 56 guests online.

visit us at:

  95 South Market St., Suite 363
    San José, CA 95113
 (408) 797-0000

  200 Washington St., Suite 208
    Santa Cruz, CA 95060
 (831) 245-0000

The Olender Pro Bono Project

We represent some clients who have compelling cases and little money at no charge. Sean received the Benito Juarez human rights award in 2008 and the ALRP Volunteer Award in 2012 for taking more than 10 pro bono cases in 12 months. We need volunteers. E-mail Debbie to volunteer.

NEWSLETTERS

Change Your Address at DHS!

If you are not a US citizen, you must change your address with DHS within 10 days of moving or face deportation. Click Here.