Mortgage Papers

rimrocker · Nov 30, 2010

A hearing tomorrow...

Senate panel's focus: Foreclosures resulting from mortgage servicers' advice

By Ariana Eunjung Cha and Zachary A. Goldfarb
Washington Post Staff Writers
Tuesday, November 30, 2010; 8:39 PM
http://www.washingtonpost.com/wp-dyn/content/article/2010/11/30/AR2010113005973_pf.html

Mortgage industry executives have argued for weeks that they are foreclosing only on borrowers who deserve it for missing their monthly payments.

But consumer groups and attorneys contend that many homeowners are being pushed into foreclosure because of errors or bad advice by the companies managing their loans - an issue that will be a core focus of a Senate banking committee hearing Wednesday.

Many borrowers, foreseeing financial difficulty ahead, were told by their mortgage servicers to miss payments in order to get a loan modification. But after doing so, homeowners were served foreclosure papers instead of getting a modification, the advocates say.

In other cases, borrowers accrued late fees without their servicer telling them about the fines. The company would then consider the borrower in default of the loan.

The hearing follows a similar one last month by the committee during which Diane Thompson, an attorney with the Consumer Law Center, estimated that over half of the foreclosure cases she defends involve servicer problems.

Lawmakers plan to probe the cause of such "servicer-driven foreclosures" - and question regulators over whether they are adequately watching the activities of mortgage servicers. Scheduled to testify are senior officials from the Treasury Department, Federal Reserve, Federal Deposit Insurance Corp. and Office of the Comptroller of the Currency.

"The problems currently in the news may be just the tip of the iceberg," said Sen. Christopher J. Dodd (D-Conn), the committee chairman. "The mortgage servicing industry may be plagued throughout with more systemic failures."

These "are problems that may result in homeowners being put at unnecessary risk of default and foreclosure," he added.

Several of the nation's largest mortgage companies have acknowledged problems with their servicing operations. The largest, Bank of America, has pledged to put an end to the "dual track" process of negotiating loan modifications with borrowers at the same time they are being foreclosed upon.

The hearing, the final one for Dodd before he retires from the Senate, will also feature testimony from senior Fannie Mae and Freddie Mac executives, who will be on the witness stand for the first time since the uproar over foreclosures began.

Fannie and Freddie are expected to defend their practices while laying the blame for any problems in foreclosures on the law firm and mortgage servicers who oversee the process on their behalf. The companies have threatened financial penalties against these firms if they do not take corrective actions quickly.

Another issue that is likely to be raised this week on Capitol Hill is whether banks in many cases are trying to foreclose on borrowers when they lack the legal standing to do so. Besides Dodd's committee hearing, a separate hearing on the foreclosure debacle is being held Thursday by the House Judiciary Committee.

Doubts about the legal standing of banks are being raised amid allegations that they did not properly transfer paperwork proving the ownership of mortgages as they repeatedly traded the loans to investors.

In a case in New Jersey, for instance, a Bank of America executive, Linda DeMartini, testified that it was customary for the big lender Countrywide to hold on to the ownership documents even after the loans were pooled together, turned into securities and traded around the world. Bank of America bought Countrywide in 2008.

In a Nov. 16 decision that alarmed the mortgage industry, Chief Judge Judith H. Wizmur of U.S. Bankruptcy Court in Camden, N.J., denied a foreclosure against a homeowner based on Countrywide's failure to pass the documents to the proper party.

Bank of America has said that the situation was an aberration and disputed DeMartini's sworn testimony, saying she was mistaken.
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bnb · Dec 1, 2010

rimrocker's head may explode....

wikileaks is set to release major info on the big banks

(even if there's nothing criminal or overly surprising in the info they leak, you can bet the arrogance, smugness, and conceit in the tone of any casual correspondence by the bank execs will be astounding -- should be fun).

updawg · Dec 2, 2010

more on BoA
yahoo
The more we learn about the mortgage industry’s documentation snafus, the more troubling hints we get that the financial statements of some of our biggest banks may be less reliable than anyone imagined.

Here’s the latest: Thanks to a Nov. 16 court ruling in Camden, New Jersey, we now know that a Bank of America Corp. employee, Linda DeMartini, testified last year that the lender routinely retained possession of mortgage promissory notes and related documents, even after loans were packaged into bonds that were sold to investors. If we’re to believe what she said, it raises the prospect that some of those loans still should be on Bank of America’s balance sheet today.

Contracts for such securitizations usually require the documents to be transferred to the trustee for mortgage bondholders, as Bloomberg News noted in a Nov. 30 article on DeMartini’s testimony. If the papers weren’t delivered properly, that tees up the question of whether any loan transfers were improperly treated as sales for accounting purposes, and whether the bank’s assets and liabilities may be understated.

DeMartini’s statements also place Bank of America’s outside auditor, PricewaterhouseCoopers LLP, in a tough spot. The firm has no choice now under U.S. auditing standards but to find out definitively if what DeMartini said is correct, and whether the answer would affect any of its prior audit conclusions. PwC billed Bank of America $128 million for its audit and other services last year. The mortgage at issue in the court ruling was originated in 2006 by Countrywide Financial, which Bank of America bought in 2008.

Your Witness

Bank of America is disavowing DeMartini’s testimony, which isn’t surprising considering the stakes. The bank’s P.R. office says DeMartini, a team leader in the lender’s mortgage- litigation management department, had no idea what she was talking about and wasn’t in the right job to know the correct facts, even though the company flew her in from California to testify as its witness. The company also says its local New Jersey attorneys botched the court case.

“The testimony is just wrong,” said Laurence Platt, an attorney at K&L Gates LLP in Washington, whom the bank designated to field questions about the case. “Countrywide’s policy and practice has been and remains to fully comply with the pooling and servicing agreements, including forwarding any necessary documents to the trustee.”

A Bank of America spokesman, Jerry Dubrowski, declined to answer questions about PwC, but said it was premature to speculate on the need for any accounting reviews. A PwC spokesman, Steven Silber, declined to comment. Countrywide’s financial filings show the company sold more than $1 trillion of loans from 2005 to 2007, primarily in the form of securities.

Last Thing

The last thing investors need now, of course, is a new reason to worry about a too-big-to-fail bank’s accounting. The company’s regulators would have every incentive to keep any serious problems from coming to public light, for fear of destabilizing the financial markets. PwC and the other major accounting firms haven’t exactly covered themselves in glory, either, since the financial crisis began in 2007.

What Bank of America can’t do is take back DeMartini’s words. During an August 2009 hearing, U.S. Bankruptcy Judge Judith Wizmur asked DeMartini whether the mortgage notes were “ever moved to follow the transfer of ownership,” according to a transcript released last week. Wizmur was presiding over a suit filed against Countrywide in 2008 by a debtor, John T. Kemp, as part of his Chapter 13 bankruptcy proceedings.

DeMartini replied: “I can’t say that they’re never moved because, I mean, with this many millions of loans as we have I wouldn’t presume to say that, but it is not customary for them to move.” Bank of America’s attorney at the hearing backed up her account, saying the notes weren’t moved in part because of the risk of losing them.

Little Attention

At one point DeMartini told Wizmur she wouldn’t be comfortable testifying about the extent to which notes were moved. She didn’t back off her statement about what was customary, though. DeMartini, who remains an employee, declined to comment.

The possibility that mortgage irregularities might point to accounting errors has received little public attention, compared with the robo-signer foreclosure scandal and mortgage-bond investors’ refund demands.

Generally speaking, for the transfer of a financial asset to qualify as a sale for accounting purposes, there must be a true sale at law. Otherwise, the transaction may have to be treated as a secured borrowing. One condition for sale treatment is that the party receiving the asset must have the right to pledge or exchange it. If the purchaser never received all the necessary paperwork, it might not have gained those rights or the ability to control the asset.

As for the New Jersey case, Judge Wizmur rejected a claim on Kemp’s home, ruling that Countrywide, which serviced his mortgage, failed to transfer the note to the trustee, as required by the Countrywide securitization contract covering his loan. DeMartini, who joined Countrywide about 10 years ago, testified that Kemp’s note never left the company’s possession.

rimrocker · Dec 2, 2010

"National" banks like BoA should go the way of AT&T... break 'em up.

rimrocker · Dec 8, 2010

This is getting ridiculous... and scary...

'Unfortunate error' by bank and a home is gone
Cases of mistaken identity in foreclosure filings appear to be on the rise

By MICHELLE CONLIN
The Associated Press
updated 12/8/2010 8:11:48 PM ET 2010-12-09T01:11:48
http://www.msnbc.msn.com/id/40571573/ns/business-us_business/40569604#

Christopher Marconi was in the shower when he heard a loud banging on his door. By the time he grabbed a towel and hustled to his front step, a U.S. marshal's sedan was peeling out of his driveway. Nailed to Marconi's front door was a foreclosure summons from Wells Fargo, naming him as a defendant. But the notice was for a house Marconi had never seen — on a mortgage he never had.

Tom Williams was in his kitchen thumbing through the mail when he opened a letter from GMAC. It informed him that the bank would confiscate his house unless he immediately paid off his mortgage balance of $276,000. But Williams had never missed a mortgage payment. And his loan wasn't due to mature until 2032.

Warren Nyerges opened his front door in Naples, Fla., to find a scraggly-haired summons server standing on his stoop. He plopped a foreclosure notice from Bank of America in Nyerges' hands. But Nyerges had paid for his house in cash. And he'd never had a checking account, much less a mortgage, with Bank of America.

By now, you may have heard the stories of bank robo-signers powering through hundreds of foreclosure affidavits a day without verifying a single fact. But most of those involved homeowners who had stopped paying their mortgage. They were genuine defaulters. Now a new species of homeowner is getting pushed into foreclosure hell.

People have always loved to complain about their banks. The push-button circus that passes for customer service. The larding on of fees. But the false foreclosure cases are hardly the usual complaints. These homeowners paid their mortgages — or loan modifications — on time. Some even paid off their loans. Worse, those on the receiving end of a bad foreclosure claim tell similar stories of getting bounced from one bank official to the next with no resolution while the foreclosure process continues apace.

Many have to resort to paying a lawyer, even after presenting documentation. They say they have to sue not only to stop the wrongful foreclosure but also to attempt to win back their costs.

There are no official statistics for these homeowners, but lawyers, real estate agents and consumer advocates say their ranks are growing. In November, during foreclosure hearings on Capitol Hill, senator after senator scolded the banks about wrongful foreclosures. They said their offices were deluged with complaints from people who had done everything right but were being treated by banks as if they had done everything wrong. And the Florida attorney general's office is also investigating the issue as part of its foreclosure probe.

"This is the worst I've ever seen it," says Ira Rheingold, an attorney and executive director of the National Association of Consumer Advocates. Diane Thompson, a lawyer with the National Consumer Law Center, has defended hundreds of foreclosure cases. "In virtually every case, I believe the homeowner was not in default when you looked at the surrounding facts. It is a widespread problem throughout the country."

Homeowners in Florida, Nevada, Texas and Pennsylvania have filed lawsuits alleging that they were victims of mistaken foreclosure. In many of those cases, the bank went so far as to haul away belongings and change the locks on the wrong homes.

One such suit was filed in March by Pennsylvania homeowner Angela Iannelli. She was up to date on her payments when, she says, she arrived home in October 2009 to find that Bank of America had ransacked her belongings, cut off her utilities, poured anti-freeze down her drains, padlocked her doors and confiscated Luke, her pet parrot of 10 years. It took her six weeks to get the bank to clean up the house.

Iannelli's lawyer says the parties are in the process of "mutually resolving the issues" and the lawsuit is "in the process of being discontinued." Bank of America did not immediately respond to a request for comment on her case.

But the incidents haven't stopped. Maria and Jose Perez of Seguin, Texas filed suit in October after Bank of America sent them a notice that their house was scheduled for a foreclosure sale Nov. 2. The couple say they are current on their mortgage payment and they have no loan with Bank of America. A trial is set for June 13.

Now the class actions are coming. In Kentucky and California, class-action lawsuits have been filed against major lenders on behalf of homeowners in loan modification programs who allege that they made all of their payments but got foreclosed on anyway.

"It is mind-boggling that these large banks accepted billions and billions of TARP money from the government, and they are just committing a fraud on the American people," says Jack Gaitlin, who filed the Kentucky suit on Oct. 4. He was referring to the 2008 government bailout of the banks, the Troubled Asset Relief Program.

To understand the banks' back-office dysfunction, you have to travel back to the credit bubble of the early 2000s. Rising home prices were turning real estate into the new national casino. Lending standards evaporated. No job or down payment necessary! Banks, meanwhile, stopped holding on to mortgage loans and pooled them into securities that were sold to investors.

The banks charged fees for servicing the mortgages — tasks such as collecting monthly payments. The banks slap on the biggest fees when a borrower can't make payments and the bank forecloses. Says Rheingold, "They created a servicing model where they made the most money by foreclosing on people as quickly and cheaply as possible." When a foreclosed house is put back on the market and sold, the proceeds are used to pay creditors, like mortgage servicers, first.

Now it's becoming clear just how chaotic the whole system became. Depositions from employees working for the banks or their law firms depict a foreclosure process in which it was standard practice for employees with virtually no training to masquerade as vice presidents, sometimes signing documents on behalf of as many as 15 different banks. Together, the banks and their law firms created a quick-and-dirty foreclosure machine that was designed to rush through foreclosures as fast as possible.

Former employees at banks and foreclosure law firms have testified that they also knowingly pushed through foreclosures on the wrong people.

Tammie Lou Kapusta is a former paralegal with the law offices of David J. Stern, a Florida firm that works for all the major banks and handles up to 70,000 foreclosure cases a year. Kapusta testified in September that she received as many as 50 calls a day from homeowners who said they were the victims of mistakes. But she was told, she testified, to ignore the callers and push through the foreclosures anyway. The law firm is under investigation by the Florida attorney general.

The banks say they are reviewing their mortgage and foreclosure procedures and most of the people involved in foreclosure deals were behind on their payments. As for people wrongly caught in the foreclosure net, they say they are reviewing those cases, too.

But what emerges from court filings, depositions, and interviews is that once the bank places you on its foreclosure assembly line, it becomes nearly impossible to get off.

The minute Marconi ripped the foreclosure notice from the door of his house in Garrison, N.Y., on Oct. 20, he saw he was named as a defendant along with a woman who had run a red light and smashed into Marconi's car four years earlier. Marconi had received a payment from her insurance company. It was her house, in Rye, N.Y., that Wells Fargo was foreclosing on.

Marconi explained the bizarre mix-up to Wells Fargo's customer service department, its ethics complaint department, its law firm and the office of the chief executive officer, John Stumpf. Marconi says they all told him that they could not help him and that he needed to get a lawyer.

Wells Fargo spokeswoman Vickee J. Adams says Marconi was named in the foreclosure suit because he filed a judgment against the woman in the car accident. It is common for lien holders to be mentioned in foreclosure documents. But Marconi says the judgment against the woman was satisfied in April 2009.

"Now I have to pay a $3,500 retainer for a lawyer to get my name pulled off some lawsuit by Wells Fargo," Marconi says.

Equally puzzling is the case of Williams, the chief executive of a food distribution business in Kansas City, Kan. Williams lives in a 3,000-square-foot house with a luxurious patio and pool out back. Before his GMAC nightmare began, he says his credit score was 794 out of 800. "I've never been any days late on anything, ever," Williams says.

But when Williams, 52, tried to pay his $2,500 monthly mortgage payment online on Aug. 5, he found out that GMAC had put a "stop" on his mortgage account.

Since that day last August, Williams has found himself trapped in an alternative banking world worthy of the Twilight Zone. The trouble couldn't come at a worse time for Williams and his wife, Carol. She was in the process of buying the upholstery business where she has worked for 10 years. Bank of America lowered Carol's credit limit, citing "serious delinquency on other accounts." And the couple's credit score is sinking by the day.

During the past four months, Williams says he has talked with 25 GMAC representatives. He has twice contacted the offices of the CEO and the chief financial officer. He has sent packages of paperwork documenting and verifying his claims. And, he says, various GMAC employees have promised to straighten it out immediately. All the while, GMAC has repeatedly refused to take his mortgage payments, going so far as to mail them back to him. It is routine for banks to refuse payments once they start foreclosure proceedings.

Finally, on Nov. 9, a GMAC employee who said she worked in the executive offices contacted Williams and told him that an audit had revealed the bank had lost his loan's paperwork. But she couldn't explain why the stop had been put on Williams' account, why the bank was rejecting his payments or why the bank was assessing him for late fees every month. She said she would send letters to his credit agencies to correct the misinformation.

On Nov. 15, she sent Williams a package of documents for a loan modification and stressed that it was urgent that Williams "immediately" sign and return them, "prior to the Nov. 24 regulatory deadline." If Williams didn't do so, the GMAC employee said in an e-mail, the loan modification "would no longer be valid."

Williams emailed the woman with several concerns and questions about the documents but he never heard back from her. He felt the only option he had left was to hire a lawyer. "It's really a bite — and I can't tell you how it chafes me — to have to pay hundreds of dollars an hour just to get to make my house payment because the mortgage company can't find their loan documentation," says Williams.

GMAC spokesman James Olecki says the bank is looking into Williams' situation.

Even those who have managed to clear up their misunderstanding say the fight was a full-time job.

After going to court and serving as his own lawyer, Nyerges got Bank of America to drop its foreclosure action. All along, he had been showing employees of Bank of America a copy of the $165,000 cashier's check he used to pay for his house in September 2009. "No one at Bank of America could wrap their brain around this concept that I had no mortgage," he says. In September, the court awarded Nyerges $2,500, plus 6 percent interest, for his costs.

Says Bank of America spokeswoman Jumana Bauwens, "This was an unfortunate error that was corrected when it was brought to our attention."
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Seriously... WTF and why is this stuff allowed in our country?

Dubious · Jan 7, 2011

A forum post from a real estate lawyer:

I'm helping a friend with her own farked up BOA nightmare and we got to discussing the "robo-signer"/forged document mess that has led the NJ supreme court to ask all 5 major lenders to explain to them why thecourt shouldn't simply toss out all 20,000+ foreclosures and force the lenders to re-file based on the amount of fraudulent/bad docs they've encountered so far. And she asked me a simple question I really hadn't considered:

"So then what would happen to those houses?"

and with All My legal knowledge I 'm simply not sure I know the answer to that. On the one hand, presumably the faked/forged documents were used because legit documents couldn't be obtained/found. If the real docs can't be found, and they are one required for a foreclosure, then it seems the bank could never perfect a foreclosure to enforce their lein.

However that wouldn't make the original, valid, lien disappear either. So the property would be impossible to sell/refinance because of the "cloud on title" caused by lein, even if it never could be enforced, because whatever new mortagage/re-fi is done, it would be, by law in second position behind the original.

It could lead to a sitaution where there are thousands of homes that can't be sold, but at the same time, ones in which the original owners could effectively live for free.

rimrocker · Jan 25, 2011

Crooks.

E-mails Suggest Bear Stearns Cheated Clients Out of Billions
By Teri Buhl

Former Bear Stearns mortgage executives who now run mortgage divisions of Goldman Sachs, Bank of America, and Ally Financial have been accused of cheating and defrauding investors through the mortgage securities they created and sold while at Bear. According to e-mails and internal audits, JPMorgan had known about this fraud since the spring of 2008, but hid it from the public eye through legal maneuvering. Last week a lawsuit filed in 2008 by mortgage insurer Ambac Assurance Corp against Bear Stearns and JPMorgan was unsealed. The lawsuit's supporting e-mails, going back as far as 2005, highlight Bear traders telling their superiors they were selling investors like Ambac a "sack of ****."

News of internal whistleblowers coming forward from Bear's mortgage servicing division, EMC, was first reported by The Atlantic in May of last year. Ex-EMC analysts admitted they were sometimes told to falsify loan-level performance data provided to the ratings agencies who blessed Bear's billion-dollar deals. But according to depositions and documents in the Ambac lawsuit, Bear's misdeeds went even deeper. They say senior traders under Tom Marano, who was a Senior Managing Director and Global Head of Mortgages for Bear and is now CEO of Ally's mortgage operations, were pocketing cash that should have gone to securities holders after Bear had already sold them bonds and moved the loans off its books. Mike Nierenberg, who ran the adjustable-rate mortgage trading desk at Bear and is now the head of mortgages and securitization for Bank of America, was a key player ensuring the defaulting loans Bear was buying would move off their books right after they bought them, with little concern for the firm's due diligence standards. He was joined in this scheme by Jeff Verschleiser, his peer and Senior Managing Director on the mortgage and asset-backed securities trading desk and head of whole loan trading. He is now an executive in Goldman Sachs' mortgage division. According to the lawsuit, the Bear traders would sell toxic mortgage securities to investors and then sell back the bad loans with early payment defaults to the banks that originated them at a discount. The traders would pocket the refund, and would not pass it on to the mortgage trust, which was where it should have gone to be distributed to the investors who owned the bonds. The Marano-led traders also cut the time allowed for early payment defaults, without telling the bond investors. That way, Bear could quickly securitize defective loans, without leaving enough time for investors to do their own due diligence after the bonds were sold and put-back any bad loans to Bear.

The traders were essentially double-dipping -- getting paid twice on the deal. How was this possible? Once the security was sold, they didn't have a legal claim to get cash back from the bad loans -- that claim belonged to bond investors -- but they did so anyway and kept the money. Thus, Bear was cheating the investors they promised to have sold a safe product out of their cash. According to former Bear Stearns and EMC traders and analysts who spoke with The Atlantic, Nierenberg and Verschleiser were the decision-makers for the double dipping scheme, and thus, are named as individual defendants in the suit. Bear deal manager Nicolas Smith wrote an e-mail on August 11th, 2006 to Keith Lind, a Managing Director on the trading desk, referring to a particular bond, SACO 2006-8, as "SACK OF **** [2006-]8" and said, "I hope your [sic] making a lot of money off this trade." It's this blatant internal awareness inside the Bear mortgage trading division that the Ambac suits says led Bear to implement an across-the-board strategy to disregard its contractual promises and conceal the defective loans. By JPMorgan taking over Bear, it became the successor of interest in Bear Stearns. As the lawsuit lays out, JPMorgan is responsible for the flagrant accounting fraud started by Bear designed to avoid, and has continued to avoid, recognition of vast off-balance sheet exposure relating to its contractual repurchase agreements. This allowed executives to reap tens of millions of dollars in compensation from a bank that wouldn't have been able to buy Bear without tax payer assistance.

Almost Immediately In 2007, when Ambac started to realize something was very wrong with its high-rated bonds, it demanded Bear provide loan-level detail and reviewed 695 non-performing loans in its portfolio. Ambac's audit concluded that 80 percent of the loans showed an early payment default. This meant they should have never have been packed in the bonds Bear sold and were required to be repurchased. Bear refused, and of course had already been pocketing buyback money for itself from the originators. Bear also never told investors that its auditor Price Waterhouse and Coopers submitted an internal review in August 2006 that this repurchase process was not in-line with its due diligence standards and not typical for the industry. By January 2007, a Bear internal audit also reported the firm had collected $1.7 billion in repurchase claims -- a 227% increase over the previous year. Yet Marano's group of traders continued their double-dip payment scheme and kept selling the toxic loans with full awareness of the poor quality of the due diligence. Jeffrey Verschleiser even said in an e-mail that he knew this was an issue. He wrote to his peer Mike Nierenberg in March 2006, "[we] are wasting way too much money on Bad Due Diligence." Yet a year later nothing had changed. In March 2007, Verschleiser wrote to Nierenberg again about the same due diligence firm, "[w]e are just burning money hiring them." Then in November 2007, Verschleiser wrote to his risk committee that he knew insurers for mortgage securities were going to have big financial problems. He suggested they multiply by ten times the short bet he'd just made against stocks like Ambac. These e-mails show Verschleiser's trading desk bragging to firm leadership that he made $55 million off shorting insurers' stock in just three weeks. Eventually, as Ambac kept demanding a repurchase of the bad loans, Bear acknowledged in late 2007 it would have to buy some back. The lawsuit lists over $600 million in claims with $1.2 billion in damages from the soured mortgage securities it invested in and insured against. But according to the lawsuit, in the spring of 2008, JPMorgan dismissed an outside audit review of the loans' need to be repurchased and once again refused to pay Ambac. The suit asserts JPMorgan knew a repurchase would result in a huge accounting liability that would put their balance sheet in serious trouble at that time.

Last week, JPMorgan CEO Jamie Dimon said it will take years to get through mortgage litigation risk the bank inherited and had set aside around $9 billion for litigation-related risk. Yet in the bank's January earnings call, Dimon suggested that the bank may not have to buy back any soured mortgages from private investors and said that the issue is "not that material" for JPMorgan. Still, Ambac recently won a court order in December to add accounting fraud against JPMorgan to its suit, which can double or triple lawsuit awards. So it's hard to tell whether America's largest bank is prepared to pay for the sins of Bear. JPMorgan did fight tooth and nail for the Ambac suit not to be made public, however, because the firm argued it could damage the reputations of senior bank executives currently working in the industry. Individuals named as defendants included: Jimmy Cayne, Alan "ACE" Greenberg, Warren Spector, Alan Schwartz, Thomas Marano, Jeffrey Mayer, Mary Haggerty, Baron Silverstein, Jeffrey Verschleiser, and Michael Nierenberg. Ambac's lawsuit is led by Eric Haas of Patterson Belknap Webb & Tyler LLP. Depositions show internal Bear executives saying Nierenberg and Verschleiser were responsible for deciding how much risk to take when acquiring loans and for aspects of the securitization process. They reported up to Marano. Testimony shows Marano would have known about the decisions his head traders were making. When asked about these accusations, Nierenberg's, Marano's, and Verschleiser's current employers had no comment. The defendants' lawyers at Greenberg Traurig LLP failed to respond to calls for comment. A public hearing is currently scheduled to be held by the New York State assembly regarding whether legal action should be brought against banks for misleading insurers about mortgage related securities. If approved, the New York Attorney General will likely be asked to bring criminal fraud charges against these banks. Now we must wait and see if JPMorgan will settle or go to trial -- or if the bank tries to claw back tens of millions of dollars in pay from the former Bear executives.

This article available online at:

http://www.theatlantic.com/business...tearns-cheated-clients-out-of-billions/70128/
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rimrocker · Feb 10, 2011

Interesting report on the role played by the ridiculous bankruptcy bill of
2005...

Three economists at the New York Federal Reserve have put out a paper laying the rise in foreclosures partially at the feet of the 2005 bankruptcy bill. Economists Donald P. Morgan, Benjamin Iverson, and Matthew Botsch find that the subprime foreclosure rate increased by 29,000 per quarter nationwide after the passage of the bill, which equals well over 200,000 foreclosures that may not have occurred otherwise.

The bankruptcy bill of 2005, strongly supported by Republicans, bank lobbyists and the Democrats who own them (see Joe Biden, D-MBNA), forces households with higher incomes who file for bankruptcy into a means test that does not allow them to discharge their unsecured debts under Chapter 7, but instead puts them into Chapter 13, where they must still pay unsecured lenders. While mortgages are not unsecured, the money freed up through the discharge of the other debts could have gone to mortgage payments, thereby saving the home. In addition, bankruptcy judges were not allowed under the new reform to modify the terms of a primary residence mortgage, even though they could modify a yacht, a vacation home or the loan on most other assets. That was a longstanding practice that didn’t change in the 2005 law; however, under the new rules, bankruptcy filers under Chapter 13 are not able to cram down auto loans, either, again raising their monthly payments post-bankruptcy.

You can see in a chart on page 2 that the subprime mortgage foreclosure rate began its upward trend almost immediately after the implementation of the bankruptcy bill in 2005. That doesn’t mean the two things are perfectly correlated; the popping of the housing bubble had much to do with the rise in foreclosures. But the New York Fed economists think that what they call BAR (Bankruptcy Abuse Reform) had a role:

The estimated impact of BAR on subprime foreclosures is substantial. For a state with average home equity exemptions, the average subprime foreclosure rate over the seven quarters after BAR was 11 percent higher than the average rate before BAR. This translates to about 29,000 more subprime foreclosures nationwide per quarter attributable to the reform.
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In addition, if more homes per quarter fell into foreclosure because of the inability to discharge credit card debt in bankruptcy, then that would necessarily lower home prices, putting more borrowers underwater and at threat of foreclosure. The economists surmise that the bankruptcy bill, then, indirectly added to foreclosures via lower home prices. This becomes a vicious circle.

This does not lead the New York Fed economists to conclude that the bankruptcy bill was a bad deal; in fact they explicitly say that it may have been “wise policy that simply came at a bad time,” when the subprime market crashed and foreclosures spiked. But that’s the entire point. The bankruptcy process is designed for bad times. It’s supposed to provide a backstop for borrowers who cannot keep up and have become overwhelmed with debt. Elizabeth Warren has called this a bedrock principle of America that has existed for hundreds of years, one of the strongest parts of the safety net, the ability to start over. That only exists for large financial institutions nowadays, not everyday people. And this research from the New York Fed proves it.
http://news.firedoglake.com/2011/02...eds-of-thousands-of-unnecessary-foreclosures/
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Here's the study:

http://www.newyorkfed.org/research/epr/forthcoming/1102morg.pdf

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