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Wednesday, July 15, 2015



Reposted by The Foreclosure Solutions Group on the Danny Hammond blog on July 15, 2015
because the article is still relevant.  It is three years later and the question has not been answered



Let’s be clear why there’s a mortgage deal: the banks broke the law. Several laws in fact, in ways that appear criminal as well as civil. Limiting their liability is the only reason the banks did a deal.
In this post I’m going to look at what the banks could be held liable for; how much liability “their” money persuaded law enforcers to ignore will be the next post. But one important kind of peace has not been bought: criminal. So as I detail the wrong doing exposed by the deal, I highlight the crimes our law enforcers seem to allege the bankers committed. After all, a liability release isn’t simply what it says, it’s what law enforcers do with their remaining freedom to act. If crimes were committed, and indictments don’t follow, the release is much broader than its text.
A close read of the complaint and the related language that precedes the releases (see Exhibits F and G) reveals:
1) broad origination fraud occurred but is weirdly not detailed in the complaint, probably for ugly, policy damaging political reasons;
2) HUD’s Office of Inspector General (and perhaps others) did a real investigation exposing apparently criminal and civil false claims and statements;
3) The United States Trustees did a real investigation documenting systemic stealing from debtors in bankruptcy and lying to the courts; and
4) the banks criminally abused our soldiers.
In all, at least three types of criminal conduct–False Claims Act violations, Servicemember Civil Relief Act violations, and False Statements violations–appear to have been substantiated.
So where are the indictments?
In The Beginning…
Victimizing Consumers
In the beginning, banks made loans. Banks can illegally abuse consumers many different ways when making a loan, and it seems these bankers did all of them. But you can’t tell by reading the complaint. Here’s the most specific it gets:
“67. In the course of their origination of mortgage loans in the Plaintiff States, the Banks have engaged in a pattern of unfair and deceptive practices.” (see page 28 at B)
To understand how badly the bankers abused consumers when making loans, you need to read the relevant section of the federal release (or state, they’re similar). After all, if the bankers didn’t do these things, why would they want to be released from related liability?
Note, because it’s the release and not the complaint, you have to insert the words “the government says the banks did illegal stuff relating to” before each type of activity.
The federal release says:
“D. The United States further contends that it has certain civil claims based on the … following conduct: …
(3)(a) Processing, underwriting, closing, or funding of loans and the terms and conditions of such loans;
(b) Approving or denying loan applications;
(c) Pricing of loans, including the charging and splitting of any fee or discount points;
(d) Recommendations of particular types of loan products, loan features or terms and conditions of any loan;
(e) Valuing the properties used as collateral for such loans…
[still more at (f), (g), (h), (i), (j), (k), (l) and (m)" (See F-6 through F-9)]
That’s quite a list, isn’t it? Wouldn’t you have liked to see the specific allegations detailed in the complaint? For example, (e) is talking about appraisal fraud, a topic that deserves much pointed attention at a time when so many borrowers are deeply underwater. But for the rampant, lender controlled appraisal fraud inflating the original principal balances, fewer people would be underwater, and those that are would be closer to the surface.
Why is origination fraud given such short shrift in the complaint, when the releases are incredibly thorough? Could it be that the banks and law enforcers thought folks might read the (mostly) plain English complaint, but not the nearly impenetrable releases? Did they hope most people wouldn’t focus on how the banks defrauded them when giving them loans?
I mean, it might be very difficult to maintain the irresponsible borrower stereotype if millions of people to start focusing on origination fraud. And solving the underwater problem doesn’t pose such a moral hazard if all those balances were fraudulently inflated by the lenders, does it? Sticking all the origination fraud detail in the complaint looks like an effort to hide truth that could impact policy if only people knew it.
Defrauding the Government
The Government is protected by a special law called the False Claims Act. That law allows whistleblowers to expose ways people are ripping of the government, and get a share of what the government recovers. The False Claims Act relates to mortgages because the government insures a lot of mortgages. (For background on federal mortgage insurance see the Complaint at pp 14-16, A.1-3, and pp. 28-30)
To qualify loans for federal insurance, lenders have to make well-underwritten loans. When they break the rules, make lousy loans and ask the government to pay their insurance claims anyway, they can be liable under the False Claims Act for triple damages plus $5k to $10k/violation. That is, big money.
On this kind of wrong doing, the complaint is pretty detailed, but also weird, perhaps for political reasons. One section is aimed just at Countrywide even though it’s impossible to believe it acted alone. The other section talks about the “Banks”:
74. During the period 2003 through April 30, 2009, Countrywide knowingly failed to comply with [the rules] governing the origination and underwriting of FHA insured loans. As a result, the FHA has thus far incurred hundreds of millions of dollars in damages with respect to claims paid for loans that Countrywide knowingly made to unqualified borrowers. …
Given all the subprime lenders owned by the bailed-out banks taking this deal, how could Countrywide be the only one that broke FHA origination and underwriting rules? DOJ has already sued MortgageIT, now of Deutsche Bank, and Allied Home Mortgage on similar charges. Besides, the other kind of false claim relates to quality control (QC). How can a bank fail on QC but be kosher on origination? The quality of origination is what the bank’s supposed to be controlling. That take is confirmed by the QC failures alleged:
“82. The Banks failed to review early payment defaults. [a sure sign underwriting was bad]
83. The Banks failed to dedicate sufficient staff to QC.
84. The Banks failed to address dysfunctions in their QC system. …
88. Contrary to the annual certifications made by the Banks, they failed to have QC programs as mandated by FHA requirements.
Beyond the common sense of saying that if the banks failed on QC they failed on origination, the MortgageIT and Allied cases charge both kinds of fraud. Why name only Countrywide then? Did they not want to add up how much money that origination fraud had cost us already, multiply by three, add the penalties and match the number up with $25 billion?
The Complaint says the banks knew what they were doing:
“the Defendants acted knowingly; that is, the Banks possessed actual knowledge that the claims for payment were false or fraudulent; acted in deliberate ignorance of the truth or falsity of the claims for payment; or acted in reckless disregard of the truth or falsity of the claims for payment.”
Knowing you’re submitting false claims sounds criminal, so I talked to a former federal prosecutor with 26 years experience about the language. He agreed, yes, “it’s criminal to submit claims to the government you know at the time they are submitted are false.” As to the “deliberate ignorance” language, he noted that  ”federal criminal jury instructions provide that a jury may infer knowledge from a combination of suspicion and indifference to the truth.”
The former prosecutor pointed out the “reckless disregard” language was inconsistent with the criminal definition of knowing. He suggested it might reflect the fact that five different banks and a lot of different conduct was being covered, some of which was done knowingly, and some recklessly. That is, the complaint was alleging both criminal and civil liability. He also suggested it could be sloppy draftsmanship, or a bank-won linguistic concession as some sort of cover.
His bottom line: “taken as a whole, this part of the complaint charges what is essentially criminal conduct.”
Importantly, HUD’s OIG did a major investigation of the banks, which it released some memos about here. The information it found was apparently dynamite, as the Huffington Post reported. So that’s what investigated claims look like: detailed allegations that include criminal intent.
Next Up: Illegal Servicing and Lying to Courts
The loans were mostly sold to investors as mortgage backed securities, by way of a securitization trust. Based on information made public so far, it appears thebanks committed massive securities fraud in connection with these securities. However, this activity is not released in the deal, so I don’t discuss it further. (Except again, remember conduct not released in the document is still released if no prosecutions/lawsuits follow.) What’s important here is that securitization requires a company other than the trust that may own the loans to “service” the mortgages. And the banks taking this deal gave illegally awful service.
How bad? Well, the conduct alleged includes not crediting payments properly, ripping people off on fees and insurance and lying to people. (See p. 22). People needing loan modifications were treated particularly poorly, having their mods wrongfully denied and generally lied to in so many ways it took 19 items to list them all. (start on page 24 para 58.) People in foreclosure were abused perhaps worst of all, because the stakes were highest. The complaint lists eight abuses, my “favorite” of which is:
“c. preparing, executing, notarizing or presenting false and misleading documents, filing false and misleading documents with courts and government agencies, or otherwise using false or misleading documents as part of the foreclosure process (including, but not limited to, affidavits, declarations, certifications, substitutions of trustees, and assignments);”
[see p. 27; note, the complaint isn't just talking about 'technicalities' like "robo-signing;" that's paragraph d. The complaint means false and misleading information in the documents proper.]
Nothing says “we’re above the law” like regularly lying to the courts.
And the banks didn’t just lie to state courts in foreclosure proceedings; they deceived federal bankruptcy courts too. The bankruptcy process abuses are again well specified, which reflects the U.S. Trustees’ hard work defending the rule of law:
94. As a result of the use of inadequate bankruptcy procedures, the conduct of the Banks or their agents has resulted in…:
a. making representations that were inaccurate, misleading, false, or for which the Banks, at the time, did not have a reasonable basis to make…
c. filing lost note affidavits...that were inaccurate, misleading, or false, …
d. filing [various documents] where the Banks sought payment from debtors or bankruptcy estates for amounts that the Banks were not legally entitled to collect
g. commencing collection activities against the debtor or the debtor’s property without court authorization, or in violation of [bankruptcy's various protections];
h. …commencing collection activities seeking to recover amounts on debts that have been paid or satisfied, including through a refinance of the debt, or a sale or short sale of the collateral; …
j. failing to promptly and accurately apply payments resulting ininaccurate loan accounting and wrongful or inaccurate allegations of loan defaults; …
o. failing to promptly provide a reconciliation of payments receivedwith respect to the debtor’s obligations in the case or failing to appropriately update the Banks’ systems of record, including upon dismissal or closure of a bankruptcy case
That’s the kind of specificity and detail–and note, I didn’t include all 15 types of bankruptcy abuse alleged–that results from real, systematic investigation. And like the False Claims Act section, this section alleges the banks knew:
“95. The Banks implemented and relied upon inadequate bankruptcy procedures despite having actual or constructive notice that such procedures could, and did, lead to the errors described above.”
Criminal Conduct Unbecoming a (Bank) Officer
A particularly depressing part of the complaint relates to the banks’ abuse of our servicemen and women whose multiple, life-wrecking tours of duty have enabled our nation to wage our past decade of war. The Servicemembers Civil Relief Act is supposed to protect our soldiers from banker abuse, but as a matter of practice it generally doesn’t. The key reason is that the only enforcement options are criminal prosecution for misdemeanors and lawsuits by soldiers themselves, an expensive and risky approach.
The complaint makes clear that these banks have treated our soldiers particularly poorly, and have committed a large number of crimes in the process. Specifically:
a. The Banks foreclosed upon [covered service members'] mortgages without required court orders …[criminal under section 533(d)(1)]
b. The Banks failed to file an accurate affidavit [about the service member's status]… [criminal under section 521(c)]
In addition, the banks stole from our soldiers:
c. The Banks wrongfully charged interest rates in excess of 6 percent per annum [when our soldiers were entitled to have the interest capped at 6 percent]…
Does law enforcement think it has the proof of criminal behavior? The standard in both sections is “knowingly.” And again, the complaint weirdly combines criminal and non-criminal intent:
127. The financial firms engaged in the wrongful conduct described herein acted intentionally, willfully, and/or in disregard of the rights of the affected servicemembers.
Surely they wouldn’t say intentionally” and “willfullly” if they only thought they could prove “in disregard”, right?
False Statements
There’s nothing surprising in the idea that these bankers have made criminally false statements, as Count V alleges:
“122. In connection with matters within the jurisdiction of the United States, the Banks knowingly and willfully engaged in conduct that: (a) falsified, concealed or covered up by artifices, schemes or devices, material facts, (b) made statements and representations that violate 18 U.S.C. § 1001(a), and (c) made and used false writings or documents knowing the same to contain materially false and fictitious statements and entries. (See pages 43-44)
 Now check out what a violation of 18 U.S.C. § 1001(a) means:
“(a) … whoever… knowingly and willfully - [makes a false statement]
shall be fined under this title, imprisoned not more than 5 years or, if the offense involves international or domestic terrorism (as defined in section 2331), imprisoned not more than 8 years, or both.”
So how “narrow” is the release? Much broader than it looks, if we don’t see indictments soon.

Wells Fargo Bank has fraudulently altered Barry Fagan’s Deed of Trust and the attached expert opinion dated 1/12/2012 from Forensic Document Examiner Dr. Laurie Hoeltzel specifically explains that the handwritten page 4 has been altered on two separate versions of that original Deed of Trust. Barry Fagan has recorded all 3 versions of the same deed of trust with the Los Angeles Registrar Recorders Office on November 29, 2011 as instrument no. 2011-1608398. The recorded Notice of Pendency of Action showing three different versions of that same July 9, 2007 Deed of Trust as originally recorded under instrument no. 2007-1622100. Judge Tarle, of The Superior Court of California, West District has taken Judicial Notice of that Recorded Document. Barry Fagan has submitted credible evidence from a forensic document examiner with over 20 years of experience that multiple fraudulent alterations have occurred on the “Handwritten Number page 4” which is located on page 3/4 of the Deed of Trust. All of the Deeds of Trust now reflect an entirely different handwritten NUMBER 4, and one of the exhibits also has a snake like line drawn on it, which is not present on the other two exhibits. C.P.A. Shawn P. Adamo stated: “It is my professional opinion that the altered deed of trust is concealing an irrevocable assignment, and explains why Wells Fargo is unable to produce loan level accounting concerning Mr. Fagan’s loan. Wells Fargo claims that any level of detail relating to Mr. Fagan’s mortgage is non- existent. As a result, CPA Shawn Adamo provided two expert opinions, (one an affidavit signed under penalty of perjury dated January 24, 2012 and the other is a Feb. 6, 2012 complaint letter sent to various regulatory agencies) from C.P.A Shawn Adamo explaining that Wells Fargo Bank has failed to provide a loan level balance sheet accounting and is concealing the fact that they do not own Barry Fagan’s loan. Additionally, forensic document Expert Dr. Laurie Hoeltzel has declared under penalty of perjury on January 2, 2012 that Wells Fargo Bank is robo-signing Discovery Responses by using multiple authors of the name Rhonda Bernard Thomas.(see attached declaration from Dr. Laurie Hoeltzel) I have also attached an affidavit from from forensic loan analyst/expert Javiar Taboas dated July 14, 2011 who is specifically stating that Wells Fargo securitized/sold Barry Fagan’s note and is fraudulently claiming continued ownership without any proof whatsoever.(See attached affidavit of Expert Javiar Taboas) Also attached is an illegally prepared Declaration of Default which is not actually signed by a natural person, but is signed by Wells Fargo Bank NA. This is a blatant California Civil Code Section 2923.5 and 2924 violation in that this illegally prepared document set in motion the entire illegal Non-Judicial Foreclosure. Also attached is a letter from Wells Fargo Bank dated December 5, 2011 and states that Wells Fargo Bank is reviewing Barry Fagan’s file and will respond on December 15, 2016 (THAT’S 5 YEARS FROM NOW!). Barry Fagan claims that this was a form of retaliatory contact. Wells Fargo is a criminal enterprise that is attempting to illegally foreclose on my primary residence by way of fraudulently altered documents, robo-signed discovery responses, invalid Declaration of Default, no loan level accounting and Barry Fagan’s loan file needs to be investigated at the highest level within your organization to see that a crime has actually occurred! The law offices of Kutak Rock LLP located in Irvine, California needs to have Barry Fagan’s NOTE and Deed of Trust subpoenaed so that your own CFPB organization can inspect those documents to see that they have indeed been fraudulently altered and photo-shopped. Please also visit http://www.fedup99.com/following-barry-fagan/ to see that Barry Fagan’s loan applications were fraudulently prepared by Wells Fargo private banker Dalia Warren.
Foreclosureblues on March 21, 2012 at 12:15 pm.
i think it’s pretty obvious that we are up against folk’s who just don’t give a damn, knowing they will not be held accountable, period. They intend to continue hell or high water.
i have again noticed lately that it is still the view of most folks that this is not a big deal, that it is a ‘paperwork’ issue…the power of the ‘cloaking device’ MSM to condition and apply blinders is stunning…i even sometimes wonder if what i’m seeing is the illusion, because so few others see it too…
The good news is that the economic power of market force can only be manipulated so far…i liken it to ‘water runs downhill’…and the dams are eroding…these events are like the rivets popping on a sinking ship…eventually reality prevails.
I just read where Wells Fargo isn’t going to do the HARP 2 loans the gubment wanted @ 125% or so LTV…lol…
I guess REAL investors, with REAL money, don’t like falling for the scam again.
PENDINGLAWSUIT on March 21, 2012 at 12:48 pm.
Attention All Wells Fargo Bank Employees With Knowledge of Criminal Activity by Their Employer Wells Fargo Bank N.A.
Charlton Butler on March 22, 2012 at 4:54 am.
I believe that a civil war is closer than anyone wants to admit and that the government will be surprised soon if they fail to act soon to put down those who wish to treat the American people as their personal
source of wealth without regard for the law that they so busily hold the common man to.
Jpmist on March 22, 2012 at 12:42 pm.
Thanks so much for still caring about this issue to put so much work into presenting all the details for us. This would be a major scandal if the mainstream media woke up to it, but they don’t seem to want to. . .
JENNA LaFLEUR on March 23, 2012 at 3:21 pm.
Thank you. I am going to submit, hopefully getting others to do it also, a
request that our DA (who does nothing for us) file criminal charges against Wells Fargo for fraudulent foreclosure sales when they do not own the properties they are selling. I don’t know if that is a good idea, but I do know Wells Fargo does not own my property which they sold into a trust(s), now many trusts, in 2005. My friend lost her house in court because W F SHOWED a deed they filed right before they SOLD IT to he trusts. He ignored the facts and gave WF her house. Marin County,CA . Happens all the time here.
My home of 42 years, and I as a disabled elder is up for a fraudulent foreclosure sale on April 2, 2012…..just around the corner. It’s very hard when my loan request for $30,000 (I got $29,000 plus change) has burgeoned into $537,000. god help us all. Thank you again. Jenna (415) 847-0912 if you have time for any ideas for me.
Shawnna on March 23, 2012 at 11:58 pm.
Fight it – with everything you have.
Martin Mandelman may have an attorney who would be willing to help you. Send him an email ASAP.
Martin Andelman
Mattie on March 24, 2012 at 3:17 pm.
Where are the indictments? This is the wrong question. The political steamroller has moved on, leaving 4M former and 7M soon-to-be former American homeowners choking in the dust, victims of what will eventually become recognized as economic genocide that was avoidable.
This dubious settlement so broadly and carefully releases massive lender origination fraud that it cannot be seen as anything short of a despotic proclamation of acknowledgment that 12M citizens were grossly and directly harmed and a nation was peripherally ravaged, but that the people’s interests are secondary compared to the lenders’.
The right question is – knowing now that borrowers and investors were defrauded on a massive scale – Why do we permit the spin doctors to continue framing the conversation around how to “help” the (pick one: “stupid” “irrationally exuberant” “dead-beat” “irresponsible” “responsible” “struggling”) homeowners still left standing?
When are we going to call them what they really are: defrauded and brutalized American families?
Enough with the illusion of concern for “taxpayer” protection and false generosity toward “struggling homeowners.”
Enough of stingy HAMP and HARP programs, or goofy half-assed tweaking of bankruptcy rules! These are all designed to further demean borrower protections against a parasitic financial services industry.
If those industry players and their federal abettors are to be granted the privilege of moving on, neither admitting nor denying culpability – well then so should every borrower that they raped.
Enough is enough.

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