And Sometimes Managers Directed The Behavior
Update 3. Last month, the DOJ and 49 State Attorneys General proposed a $25 billion settlement with Bank of America, CitiMortgage, JPMorgan Chase Bank N.A., Wells Fargo Bank and Ally Financial after allegations that these “national mortgage servicers were engaged in widespread questionable foreclosure practices involving the use of foreclosure ‘mills’ and a practice known as ‘robosigning’ of sworn documents in thousands of foreclosures throughout the United States.” [Settlement filed Monday]
Tuesday, the FHA Inspector General released five reports that analyzed foreclosure practices at these five firms. Not only did managers turn a blind eye to problems with their foreclosure processes, sometimes managers directed the fraudulent behavior. Also each of the five banks impeded the audit by the independent Inspector General. The NYTimes writes:
But the report concludes that managers were aware of the problems and did nothing to correct them. The shortcuts were directed by managers in some cases…
From the Washington Post:
Employees at major banks who churned out fraudulent foreclosure documents, forged signatures, made up fake job titles and falsely notarized paperwork often did so at the behest of their superiors, according to a federal investigation released Tuesday.
I believe the reports we just released will leave the reader asking one question — how could so many people have participated in this misconduct? The answer — simple greed.
These reports were in the works as the banks negotiated with DOJ and the 49 states to avoid being charged with False Claims Act (and other) violations for illegal foreclosure practices from 2008 to 2010.
Read the reports and then ask the Obama Administration and your state AG why they agreed to settle the claims; $25 billion was a pittance and another example of the lack of accountability in corporate decisions. The legal status of incorporation (limited liability) is not intended to shield corporate officers and employees from illegal behavior. [See The shortcomings of the $25-billion deal with five major banks seem to proliferate with each passing day]
One of the arguments for these exorbitant salaries is that these men are capable of making the decisions needed to ensure profitability. In other words, there is some sort of “value add” that justifies the compensation. If that is the case, it seems to me that they are making the decisions (or failing to act, which is the same thing in my book) that led to these practices but where is the commensurate punishment? MIA.
- “Ally did not establish effective control over its foreclosure process.”
Ally Financial CEO Michael Carpenter made $9.54 million in 2011; he became CEO in 2009 and made slightly more than $9.5 million in 2010. ” Ally is the government-owned entity that provides financing to GM andChrysler Group dealers and their customers. Until 2008, we knew it as GMAC; it became a bank with the help of $17 billion in bailout money. Last year, the financial firm was reportedly considering bankruptcy protection for its residential mortgage unit, ResCap.
- “Bank of America did not establish effective control over its foreclosure process.”
Bank of America CEO Moynihan earned $10 million for 2010 (he became CEO in 2010).
Bank of America CEO Kenneth D. “Ken” Lewis left the firm with a package of stock and benefits valued at $83 million; for 2009, his compensation was only perks, valued at about $32,000; for 2008, his compensation was valued at $9 million. In 2007, his compensation was $24.8 million.
- “Chase did not establish effective control over its foreclosure process.”
JPMorgan Chase CEO Jamie Dimon received about $16 million in compensation in 2009. In 2007, his compensation was $27.8 million.
- “CitiMortgage did not establish effective control over its foreclosure process.”
CitiMortgage, Inc. operates as a subsidiary of Citibank, National Association. CitiMortgage CEO Sanjiv Das Das reports to consumer-banking head Manuel Medina-Mora and Eugene McQuade, head of Citibank N.A., the bank’s deposit-taking unit.
Citi CEO Vikram Pandit’s 2011 compensation was $14.9 million; his 2010 salary was $1; his 2007 package was worth $574,000.
Citigroup President John Havens received $12.98 million in total compensation for 2011, up 36 percent from 2010.
- “Wells Fargo did not establish effective control over its foreclosure process.”
Wells Fargo’s CEO John Stumpf received compensation worth $19 million in 2010; in 2009, it was worth $21.3 million; his 2007 package was worth $12.6 million.
The following Inspector General reports are PDFS:
Audit Memorandum No. 2012-PH-1801
Title: Ally Financial, Incorporated Foreclosure and Claims Process Review Fort Washington, PA
“Our review was significantly hindered by Ally’s refusal to allow us to interview responsible personnel and its failure to provide the documentation we requested in a timely manner… Ally’s attorneys [denied access to individuals] … individual counsel … [cited] Fifth Amendment concerns, and we were prohibited from interviewing them.”
From 2010: “We screwed up… We had a robosigner affidavit problem. No question about it. We’re embarrassed about it and we fixed it going forward.”
Audit Memorandum No. 2012-FW-1802
Title: Bank of America Corporation, Foreclosure and Claims Process Review Charlotte, NC
“Our review was significantly hindered by Bank of America’s reluctance to allow us to interview employees… we issued Inspector General subpoenas because Bank of America did not provide information and data in a timely manner… however, the information and data provided … were not complete.”
Updated: BOA says that the Inspector General is lying.
- Audit Memorandum No. 2012-KC-1801
Title: CitiMortgage, Inc. Foreclosure and Claims Process Review O’Fallon, MO
“Our review was significantly hindered by CitiMortgage’s lack of records…. CitiMortgage did not establish effective control over its foreclosure process.”
Audit Memorandum No. 2012-CH-1801
Title: JPMorgan Chase Bank N.A. Foreclosure and Claims Process Review Columbus, OH
“Our review was hindered by Chase’s reluctance to allow us to interview employees outside the presence or involvement of its management staff or attorneys … In addition, Chase did not provide read-only access to its mortgage servicing systems… Chase was unable to provide electronic production records [incomplete Excel documents] for all operations specialists during our review period”
Audit Memorandum No. 2012-AT-1801
Title: Wells Fargo Bank, Foreclosure and Claims Process Review, Fort Mill, SC
“Our review was significantly hindered by Wells Fargo’s reluctance to allow us to interview employees or to provide data and information in a timely manner.”
Update 1, 12:51 pm Pacific, from Reuters:
One person hired as vice president of loan documentation had worked at a pizza restaurant and as a bank teller before that, the report said. Another had been a department store cashier and daycare worker, while another had worked on the production line in a factory.
Update 2, 1:05 pm Pacific, from LA Times, March 7:
The Office of the Comptroller of the Currency, a major bank regulator, said on the very day of the settlement announcement that it was giving the five banks in the deal a pass on $394 million in penalties it would otherwise have assessed them for shoddy, and shady, mortgage and foreclosure practices.
It turns out that two other federal regulators quietly took similar steps. The Federal Reserve Board rolled $766.5 million of penalties it assessed the banks for unsafe and unsound mortgage practices into the foreclosure settlement. And just last week, the Treasury Department announced that it would pay BofA and JPMorgan Chase some $171 million in incentives it had withheld since June because of the banks’ shortcomings in dealing with homeowners under the government’s chronically underperforming Home Affordable Modification Program, or HAMP.
BofA, for example, was assessed $175.5 million in sanctions by the Fed. If it attains credits of $175.5 million under the foreclosure settlement by modifying borrowers’ loans and taking other steps, it will owe the Fed nothing.
You might think that means the banks will be required to amass $1.16 billion in credits to satisfy the bills presented by the Fed and the comptroller’s office. Nope. It’s possible that the banks will be permitted to apply one dollar of performance to both sets of sanctions, which means they may be on the hook for only $766.5 million.
Update 3, 1:30 pm Pacific, from BizJournals Network (October 2010)
Lenders are expected to foreclose on 1.2 million homes [in 2010], up from 1 million last year. In 2005, two years before the subprime-mortgage bubble burst, there were just 100,000 foreclosures, according to researcher RealtyTrac.
On Wednesday, attorneys general in all 50 states announced a joint investigation of industry practices, which reportedly include the use of “robo-processors” to sign thousands of documents without a proper review. Bank of America already has halted foreclosure in all 50 states, and JPMorgan Chase and Ally Financial, the former GMAC, have halted them in 23 states.
RealtyTrac estimates that the average foreclosed home is worth $175,000, and that the total value of the 1.2 million homes expected to be seized this year is about $210 billion. That’s in addition to the $157 billion in home value that banks already have on their books. Before the recent halt, foreclosures accounted for about one-in-four home sales.