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Friday, December 02, 2011

 
Martha Coakley Sues the Big Banks for Fraud

by David Atkins

You won't see much mention of it in the traditional media, but Massachusetts Attorney General Martha Coakley is suing the big banks for foreclosure fraud. That's a really big deal.

Coakley will likely be most remembered in history for losing Ted Kennedy's Senate seat to truck-drivin' fraud Scott Brown. Admittedly, Coakley isn't the greatest campaigner. But that's a shame, because she has been a real champion against the overreaches of the financial sector for years. She may not possess Elizabeth Warren's down home charm and charisma, but she just as much in the way of real courageous action on behalf of the 99%. She's a national treasure, and I hope she learns from her defeat in the Senate race to brush up on her campaign skills to move into higher elected office one day. America needs more like her, because of moves like this (via Dave Dayen, who was all over this story yesterday):

Simply put, Coakley seeks penalties for “unfair and deceptive practices” in violation of state consumer protection laws, in particular the Massachusetts Consumer Protection Act. The top list of complaints tells the story:

1. Engaging in unfair and deceptive foreclosure practices by conducting foreclosures when the defendants lacked the right to do so and misrepresenting to homeowners their roles as mortgagees or as the holders of the mortgages;

2. Engaging in false documentation practices to facilitate their foreclosure practices;

3. Deceiving homeowners in the course of servicing mortgage loans by misrepresenting to borrowers regarding its loan modification programs, acting deceptively in implementing loan modifications and deceiving borrowers regarding foreclosure proceedings; and

4. Failing to comply with Massachusetts’ registration statute.

That’s a pretty clear rendering of what went on. Notice that she tags robo-signing and document fraud (in #2) as a facilitator for the main crime, which is to foreclose on borrowers without the legal standing to do so. To prove this, Coakley cites the Ibanez decision, and the upholding of it recently in Belivacqua, which clearly states that, under Massachusetts law, “any effort to foreclose by a party lacking jurisdiction and authority to carry out a foreclosure under the relevant statutes is void.” The layman’s term for that is “stealing homes.” Coakley is accusing banks of stealing homes. They didn’t have the proper proof of ownership to take control of the homes in a foreclosure, and they did it anyway, by forging documents and committing fraud upon state courts.

If that sounds like explosive stuff, that's because it is. It still probably won't land these crooks behind bars, but it will certainly be leverage toward much, much stiffer penalties against the banks than the Obama Administration is hoping for with their papered-over settlement.

As usual, Dave Dayen already has a better handle on this one than anyone in the mainstream press:

This is a big deal. In some cases there isn’t really a way to cure title: the true ownership of the property has become confused, or the statute of limitations on fixing the securitization has run out. The only way I can see where satisfaction could be reached is on a new mortgage, with the expectation of a mass principal write-down or some other accommodation, that cures title. In her press conference (which I wasn’t able to see), Coakley said that she was moving forward because the banks were proving unwilling to deliver any benefits to homeowners in the global settlement. They wanted too much liability release and wanted to deliver too little in return.

This is how you drive a bargain. If the other side refuses to go along with demands, you use the tools at your disposal. You do the investigation and you sue the pants of the offending party. You don’t go into an investigation by leaping right to the settlement. You carry out a credible threat. Maybe Coakley wasn’t a great Senate candidate. But she’s a damn sight better negotiator than anyone on the AG settlement. And that’s because she displays a responsibility to homeowners in her state and not bankers. The AG settlement is a sham, and if it wasn’t, every AG in the country would be doing this to secure the maximum benefit for homeowners as a result of their being abused in a criminal enterprise. This is a telling statement from a JP Morgan Chase spokesman:

“We are disappointed that Massachusetts would take this action now when negotiations are ongoing with the attorneys general and the federal government on a broader settlement that could bring immediate relief to Massachusetts borrowers rather than years of contested legal proceedings,” a spokesman from JP Morgan Chase tells CNBC.

Shorter version: “We really like how the AGs are trying to give us immunity. Coakley should try that.”

No doubt.

It's important to remember the context for all this. While the Obama Administration won't quite admit to it publicly, the policies they have pursued on this business are right in line with the Romney agenda to process foreclosures as soon as possible. The conspiracy-minded will immediately conclude that this is because of corruption, Wall Street payoffs, big bank influence, promised sinecures, lack of difference between the two parties, and all that jazz. What it really comes down to, though, is the commonly held neoliberal view that the economy cannot recover until housing and other assets do. Keep in mind that foreclosures are still at record highs. But the focus here is on overall assets, rather than the people affected.

Since conventional wisdom holds that those being foreclosed on will never be able to pay for their homes according to the original contract, that housing prices cannot continue to rise again until the foreclosures are processed, and that the economy cannot recover until housing prices do, then conventional wisdom also dictates that the banks should be allowed to push through the foreclosures as soon as possible for the good of the broader economy. That means evicting people ASAP, and letting the already teetering banks off with a slap on the wrist.

Except there are three big problems with that. The first is that housing is still overpriced in many areas, and unaffordable in others even where it may not still be technically overpriced. Attempting to reinflate that bubble is madness, a vain desire to return to an economy that cannot return, should not return, and will not return.

The second is that it's not really the value of housing and other assets that is keeping the economy down, but wage depression and the erosion of the middle class. The housing bubble was a virulently harmful cover for what has otherwise been a sustained economic recession for the last decade in terms of middle class wage growth and standard of living. Those who weren't buying houses and stocks during that period were actually losing ground even before Lehman's collapse. The true health of an economy should be measured not in volatile asset growth, but in wage growth versus cost inflation, together with leisure time and other happiness index indicators. In that context, pushing millions of people out of their homes in order to boost housing prices is madness. What is really necessary is programs to keep people in their homes, with the ability to repay lenders what they can, thus keeping both the people themselves and the banks solvent and able to boost demand in the consumer economy.

But the third and most important problem is that the banks are guilty of massive systemic fraud. People are being illegally foreclosed on. Sometimes that illegality takes the form of banks that sold and resold these mortgage CDOs with so little documentation and cross-checking that no one really knows who holds the title anymore, if anyone. Sometimes it takes the form of banks sloppily foreclosing on people who were actually still paying their mortgages on time. Other times it involves fraud in the modification process.

The moral hazard the Rick Santellis of the world were screaming about in letting homeowners who bought too much house off the hook would be multiplied a hundredfold in letting the banks that were responsible for gigantic fraudulent schemes get away with it for pennies on the dollar. Letting financial institutions get away with essentially the greatest organized criminal heist of the 21st century isn't just bad morals: it's bad economics, too.

Thankfully, theere is a new crop of Democrats like Coakley, Schneiderman, Warren and many others out there who are ready and willing to do the right thing. They aren't quite in positions of national leadership yet. But in time they will be.

For now, keep an eye on Massachusetts. What Martha Coakley is doing this week will end up as a bigger deal than anything in Scott Brown's insignificant and soon-to-be-ended career.


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