Statement of Facts for CitiGroup Settlement – Dept. Of Justice Action

http://www.justice.gov/iso/opa/resources/558201471413645397758.pdf

1
STATEMENT OF FACTS
In 2006 and 2007, Citigroup Inc., through certain of its affiliates (“Citigroup”), securitized thousands of residential mortgage loans and sold the resulting residential mortgagebacked securities (“RMBS”) for tens of billions of dollars to investors, including federally insured financial institutions. Prior to securitization, Citigroup conducted due diligence on loans (including credit, compliance, and valuation due diligence). In securitizing and issuing the RMBS, Citigroup provided representations in offering documents about the characteristics of the underlying loans. As described below, in the due diligence process, Citigroup received information indicating that, for certain loan pools, significant percentages of the loans reviewed did not conform to the representations provided to investors about the pools of loans to be securitized.  Citigroup’s RMBS securitization process and representations In 2006 and 2007, Citigroup securitized and sold RMBS, through both “thirdparty” and “principal” transactions.  For “third-party” transactions, Citigroup served as an underwriter. In certain of those transactions, Citigroup served as the lead underwriter. In that role, Citigroup, among  other things, structured the transaction and sold RMBS certificates to investors. Citigroup acted as an underwriter through its wholly-owned subsidiary Citigroup Global Markets Inc. For “principal” transactions, Citigroup purchased groups or “pools” of loans from third parties prior to securitization and, in certain instances, originated the loans itself through another of its subsidiaries. Citigroup also acted as underwriter for certain of the principal transactions. Citigroup bought pools of mortgage loans from numerous lending  institutions, or “originators.” These lending institutions included Ameriquest Mortgage Company, Argent Mortgage Company LLC, Accredited Home Lenders, Inc., Countrywide Home Loans, Inc., New Century Mortgage Corporation, Wells Fargo Bank, N.A., and others. 
2
In these transactions, Citigroup securitized the loans under its own shelf registration, such as its shelf  known as “Citigroup Mortgage Loan Trust Inc.” or “CMLTI.” In various RMBS offerings, Citigroup provided representations, or otherwise disclosed information, in certain offering documents, about the loans it securitized, telling investors that:
 Loans in the securitized pools were originated generally in accordance with the loan originator’s underwriting guidelines.
 Exceptions to those underwriting guidelines had been made when the originator identified  “compensating factors” at the time of origination.
 The securitization sponsor or originator (which, in certain instances, was Citigroup) represented that each loan had been originated in compliance with federal,  state, and local laws and regulations.
 The loans being securitized had various characteristics, such as loan-to-value ratios at origination within various ranges.

In the base prospectus for certain RMBS offerings, Citigroup further represented that it would not include any loan “if anything has come to [Citigroup’s] attention that would cause it to believe that the representations and warranties made in respect of such mortgage loan will not be accurate and complete in all material respects as of the date of initial issuance of the related series of securities.”  Citigroup’s due diligence process Citigroup reviewed due diligence results on loans prior to securitization.
3
In principal transactions, before purchasing a pool of loans from a third-party originator, Citigroup conducted due diligence on those loans.  Citigroup typically conducted this due diligence by reviewing certain loans in the loan pool, rather than the entire pool. This sample was generally composed of certain loans from the pool with characteristics that Citigroup viewed as warranting review. Citigroup  would contract with a due diligence vendor to review the sampled loans. The vendor would “re-underwrite” the individual loan files in the sample.  Part of this review focused on “credit,” including whether the loan met the originator’s underwriting guidelines, or whether the originator had found the loan to possess sufficient “compensating factors” to warrant a deviation from the guidelines. Another part of this review was focused on “compliance,” to determine whether the loan had been originated in compliance with federal, state, and local laws and regulations. For each sampled loan reviewed for “credit” and “compliance,” the due diligence vendor assigned a grade. In general, the vendor graded a loan “EV1” when the loan was underwritten according to the applicable guidelines and originated in compliance with applicable laws. The vendor generally graded a loan as “EV2” when the loan did not comply with applicable underwriting guidelines, but nonetheless had sufficient compensating factors that the originator had found to justify the extension of credit. The vendor graded a loan “EV3” when the loan was not originated in compliance with applicable laws and regulations, the loan did not comply with applicable underwriting guidelines and lacked the sufficient offsetting compensating factors, or the loan file was missing a key piece of documentation.  Citigroup obtained the results of the credit and compliance reviews from the due diligence vendors and was provided information about the number or percentage of loans in the sample that the vendor had graded EV3. Citigroup also was provided with the reasons that the vendor had assigned the EV3 grades, including the nature of the defects, such as 

4
whether the borrower had unreasonable stated income, when the borrower’s credit score was below guidelines, when the ratios of loan-to-property value and debt-to-income exceeded the underwriting guidelines, and when the loan file reviewed was missing  documents or had inadequate documentation. Citigroup referred to EV3 loans as “kicks,” “kickouts,” or “rejects.” Citigroup also used a due diligence process to assess the reported values of the properties that served as collateral for the mortgage loans. This “valuation” review was intended to determine whether information about the property’s value sufficiently supported the reported value for the property. The valuation review was conducted by a vendor, using methods such as automated valuation models, broker price opinions, and appraisal reviews.  The vendor used one or more of these methods to calculate a valuation determination for the property being reviewed. Citigroup used thresholds or “tolerances” for the valuation firm to assess whether the information about the property’s value sufficiently supported the reported value as determined by an appraiser. Citigroup instructed the vendor to recommend the loan for rejection if the vendor’s valuation determination differed from the appraised value by more than 15 percent with respect to certain types of loans. In other words, Citigroup had an internal “tolerance” of up to 15 percent. This meant that Citigroup routinely accepted, for purposes of  the valuation review, specific types of loans for purchase and securitization when the valuation firm’s determination deviated by less than 15 percent from the reported appraised value. Citigroup’s thresholds further provided that if a valuation firm determined that the combined loan-to-value ratio for a loan exceeded 100 percent, the loan would be recommended  for rejection.  In third-party transactions, depending on the role played by Citigroup, Citigroup would work with due diligence vendors to perform diligence on samples of loans selected with
5
the participation of the issuer or otherwise review reports from due diligence vendors retained by the issuer or other underwriters to the transaction.  Due diligence on Citigroup RMBS in 2006 and 2007 In 2006 and 2007, Citigroup’s due diligence vendors provided Citigroup with reports reflecting that the vendors had graded certain of the sampled loans as EV3. For numerous pools, the reports showed that the vendors had graded significant percentages of the sampled loans as EV3.1  In addition, Citigroup’s internal due diligence personnel reevaluated loan grades and subsequently directed the due diligence vendor to assign grades of EV1 or EV2 to loans as  to which Citigroup’s due diligence vendors had previously assigned grades of EV3. Certain of Citigroup’s main due diligence vendors would track when loans that they had graded as EV3 were “waived” in by Citigroup. Citigroup’s contemporaneous records did not in all cases document Citigroup’s reasons for directing the due diligence vendors to re-grade loans.  Further, in certain instances, Citigroup learned from the vendors conducting valuation due diligence that loans in particular loan pools exceeded Citigroup’s valuation tolerances. The vendors also reported that a number of the properties securing the loans had reported or appraised values that were higher than the vendors’ valuation determination. In certain instances, Citigroup securitized loans that its vendors had reported exceeded Citigroup’s valuation tolerances or where the vendor’s valuation determination exceeded the reported or appraised value.

1 There were loans in each of the RMBS reviewed by the Justice Department that did not comply with underwriting guidelines, including the securitizations set forth on Appendix 1, which the Justice Department determined to contain significant percentages of  defective loans.
6
Examples In the following deals, Citigroup securitized loans, making representations of the type described earlier that the loans generally complied with underwriting guidelines or  had sufficient compensating factors, had been originated in compliance with law, and possessed certain characteristics.
1. In three CMLTI RMBS issued and underwritten by Citigroup in 2006, Citigroup’s due diligence vendors reported to Citigroup their findings that loans in the samples had not been originated in compliance with underwriting guidelines and with applicable federal law and regulations. Certain of these loans were missing documentation, such as HUD-1 documents that Citigroup had told the vendor were necessary. A due diligence report sent to Citigroup, after the re- underwriting was complete, showed that more than 12 percent of loans in the sample had been graded EV3. A due diligence report for another large pool, which contributed over 2,000 loans to another RMBS, showed that more than 29 percent of the sampled loans had been graded EV3. Citigroup securitized the loans from these pools that had not been rejected at the end of the due diligence process in the three RMBS. 

2. In an RMBS where Citigroup served as the lead underwriter in 2006, the due diligence report provided to Citigroup by its vendor showed that more than 25 percent of the loans in the sample reviewed for credit and compliance had been graded by the vendor as EV3 or were found to have missing file documents. Many of the loans did not comply with underwriting guidelines or represented exceptions to those guidelines: more than 67 percent were graded as EV2 by the vendor. The vendor graded only approximately 6 percent of the loans in the sample as EV1. Notwithstanding these results, Citigroup securitized loans from this pool in the RMBS. 

3. In a CMLTI RMBS issued and underwritten by Citigroup in 2007, the due diligence vendor initially reviewed a sample of loans selected based on certain criteria (the
7
“adverse sample”). Early in the diligence process, the vendor notified Citigroup employees that it had graded over 44 percent of the adverse sample as EV3s. The vendor identified trends associated with its review of those loans and stated that, if the trends continued, it expected the pool to have an “unusually large” number and percentage of rejects.  Later in the due diligence process, the vendor asked Citigroup whether it would  be “prudent” to perform additional diligence based on a random sample, to determine whether the large number of “kick outs” were the result of the adverse selection method or reflective of the loans across the entire pool. Thereafter, the due diligence vendor advised Citigroup that it had graded over 32 percent of the random sample as EV3.  In addition, during the due diligence on the same loan pool, Citigroup’s due diligence personnel reevaluated certain of the vendor’s loan grades and directed the due diligence vendor to change some of those grades from an EV3 to an EV2 or EV1. The final report from the vendor graded approximately 20 percent of the sample as EV3.  Apart from the random sample, Citigroup did not conduct further due diligence to determine whether the remaining loans in the pool contained defects. Instead, Citigroup securitized loans from this pool in the RMBS.

4. In two CMLTI RMBS issued and underwritten by Citigroup in 2007, Citigroup’s due diligence vendor identified a number of loans that were outside of Citigroup’s valuation rules and tolerances. These included loans where the difference between the reported original appraisal and the vendor’s valuation determination exceeded 15 percent, or otherwise exceeded Citigroup’s thresholds. Citigroup also instructed the due diligence vendor to change the grades of loans that its vendor had recommended for rejection, following Citigroup’s review of those loans and loan grades. Citigroup then securitized hundreds of the loans that its vendor had identified as outside of Citigroup’s tolerances.
8
In addition, early in the due diligence process, a trader at Citigroup wrote an internal email that indicated that he had reviewed a due diligence report summarizing loans that the due diligence vendor had graded as EV3s and had noted that “a lot” of these rejected loans had unreasonable income and values below the original appraisal, which resulted in combined loan- to-value in excess of 100 percent. The trader stated that he “went thru the Diligence Reports and think that we should start praying… I would not be surprised if half of these loans went down. There are a lot of loans that have unreasonable incomes, values below the original appraisals (CLTV would be >100), etc. It’s amazing that some of these loans were closed at all.”   Despite this trader’s observations, Citigroup securitized loans from this pool in the two RMBS.

5. In four CMLTI RMBS issued and underwritten by Citigroup in 2007, Citigroup securitized loans from two loan sellers.  Citigroup employees had been informed that in prior RMBS securitizations where the underlying loans were from the same companies, a significant number of loans had already gone into early default.  In addition, prior to the securitization of those four RMBS, Citigroup received additional information about the quality of mortgage underwriting at those companies. Prior to the issuance of the four RMBS in 2007, Citigroup had begun the process to acquire assets from one of the companies. As part of that acquisition, Citigroup conducted due diligence on the companies. As part of that due diligence, Citigroup received some of the company’s internal audit reports, and distributed them to, among others,  a Managing Director who was involved with Citigroup’s RMBS securitizations. The internal audit reports showed that the seller had itself found, in the prior year, that it lacked key internal controls over its quality assurance for loan production, and that substantial percentages of the loans failed to adhere to underwriting guidelines, which the seller itself labelled as “high risk.”
9
Citigroup also conducted its own reviews of a sample of loans provided by the seller. In that process, Citigroup identified issues with the seller’s internal quality controls. During this time, Citigroup’s due diligence vendors graded a number of sampled loans, both from loan pools to be securitized and from loans funded through “warehouse” lines of credit, as EV3, including loans that the vendors found did not comply with applicable laws and regulations due to missing documentation. In certain instances, Citigroup’s due diligence personnel reevaluated certain of the vendors’ loan grades and instructed its due diligence vendor to change some of those grades from an EV3 to an EV2 or EV1.  Notwithstanding the information Citigroup had received about the companies’ loans, Citigroup purchased the loan pools and securitized loans from those pools in the four RMBS.

Advertisements

CitiGroup Penalty “Largest of It’s Kind”! FINALLY Someone is Paying For Misleading Investors About Toxic Mortgages

Department of Justice

http://www.justice.gov/opa/pr/2014/July/14-ag-733.html

Office of Public Affairs

FOR IMMEDIATE RELEASE

Monday, July 14, 2014

Justice Department, Federal and State Partners Secure Record $7 Billion Global Settlement with Citigroup for Misleading Investors About Securities Containing Toxic Mortgages

Citigroup to Pay the Largest Penalty of Its Kind – $4 Billion

The Justice Department, along with federal and state partners, today announced a $7 billion settlement with Citigroup Inc. to resolve federal and state civil claims related to Citigroup’s conduct in the packaging, securitization, marketing, sale and issuance of residential mortgage-backed securities (RMBS) prior to Jan. 1, 2009.  The resolution includes a $4 billion civil penalty – the largest penalty to date under the Financial Institutions Reform, Recovery and Enforcement Act (FIRREA).  As part of the settlement, Citigroup acknowledged it made serious misrepresentations to the public – including the investing public – about the mortgage loans it securitized in RMBS.  The resolution also requires Citigroup to provide relief to underwater homeowners, distressed borrowers and affected communities through a variety of means including financing affordable rental housing developments for low-income families in high-cost areas.  The settlement does not absolve Citigroup or its employees from facing any possible criminal charges.

This settlement is part of the ongoing efforts of President Obama’s Financial Fraud Enforcement Task Force’s RMBS Working Group, which has recovered $20 billion to date for American consumers and investors.  

“This historic penalty is appropriate given the strength of the evidence of the wrongdoing committed by Citi,” said Attorney General Eric Holder.  “The bank’s activities contributed mightily to the financial crisis that devastated our economy in 2008.  Taken together, we believe the size and scope of this resolution goes beyond what could be considered the mere cost of doing business.  Citi is not the first financial institution to be held accountable by this Justice Department, and it will certainly not be the last.”

 The settlement includes an agreed upon statement of facts that describes how Citigroup made representations to RMBS investors about the quality of the mortgage loans it securitized and sold to investors.  Contrary to those representations, Citigroup securitized and sold RMBS with underlying mortgage loans that it knew had material defects.  As the statement of facts explains, on a number of occasions, Citigroup employees learned that significant percentages of the mortgage loans reviewed in due diligence had material defects.  In one instance, a Citigroup trader stated in an internal email that he “went through the Diligence Reports and think[s] [they] should start praying . . . [he] would not be surprised if half of these loans went down. . . It’s amazing that some of these loans were closed at all.”  Citigroup nevertheless securitized the loan pools containing defective loans and sold the resulting RMBS to investors for billions of dollars.  This conduct, along with similar conduct by other banks that bundled defective and toxic loans into securities and misled investors who purchased those securities, contributed to the financial crisis.                                  

“Today, we hold Citi accountable for its contributing role in creating the financial crisis, not only by demanding the largest civil penalty in history, but also by requiring innovative consumer relief that will help rectify the harm caused by Citi’s conduct,” said Associate Attorney General Tony West.  “In addition to the principal reductions and loan modifications we’ve built into previous resolutions, this consumer relief menu includes new measures such as $200 million in typically hard-to-obtain financing that will facilitate the construction of affordable rental housing, bringing relief to families pushed into the rental market in the wake of the financial crisis.”

Of the $7 billion resolution, $4.5 billion will be paid to settle federal and state civil claims by various entities related to RMBS: Citigroup will pay $4 billion as a civil penalty to settle the Justice Department claims under FIRREA, $208.25 million to settle federal and state securities claims by the Federal Deposit Insurance Corporation (FDIC), $102.7 million to settle claims by the state of California, $92 million to settle claims by the state of New York, $44 million to settle claims by the state of Illinois, $45.7  million to settle claims by the Commonwealth of Massachusetts, and $7.35 to settle claims by the state of Delaware.

Citigroup will pay out the remaining $2.5 billion in the form of relief to aid consumers harmed by the unlawful conduct of Citigroup.  That relief will take various forms, including loan modification for underwater homeowners, refinancing for distressed borrowers, down payment and closing cost assistance to homebuyers, donations to organizations assisting communities in redevelopment and affordable rental housing for low-income families in high-cost areas.  An independent monitor will be appointed to determine whether Citigroup is satisfying its obligations.  If Citigroup fails to live up to its agreement by the end of 2018,  it must pay liquidated damages in the amount of the shortfall to NeighborWorks America, a non-profit organization and leader in providing affordable housing and facilitating community development.  

The U.S. Attorney’s Offices for the Eastern District of New York and the District of Colorado conducted investigations into Citigroup’s practices related to the sale and issuance of RMBS between 2006 and 2007.

“The strength of our financial markets depends on the truth of the representations that banks provide to investors and the public every day,” said U.S. Attorney John Walsh for the District of Colorado, Co-Chair of the RMBS Working Group.  “Today’s $7 billion settlement is a major step toward restoring public confidence in those markets.  Due to the tireless work by the Department of Justice, Citigroup is being forced to take responsibility for its home mortgage securitization misconduct in the years leading up to the financial crisis.  As important a step as this settlement is, however, the work of the RMBS working group is far from done, we will continue to pursue our investigations and cases vigorously because many other banks have not yet taken responsibility for their misconduct in packaging and selling RMBS securities.”

“After nearly 50 subpoenas to Citigroup, Trustees, Servicers, Due Diligence providers and their employees, and after collecting nearly 25 million documents relating to every residential mortgage backed security issued or underwritten by Citigroup in 2006 and 2007, our teams found that the misconduct in Citigroup’s deals devastated the nation and the world’s economies, touching everyone,” said U.S. Attorney of the Eastern District of New York Loretta Lynch.  “The investors in Citigroup RMBS included federally-insured financial institutions, as well as a host of states, cities, public and union pension and benefit funds, universities, religious charities, and hospitals, among others.  These are our neighbors in Colorado, New York and around the country, hard-working people who saved and put away for retirement, only to see their savings decimated.”

This settlement resolves civil claims against Citigroup arising out of certain securities packaged, securitized, structured, marketed, and sold by Citigroup.  The agreement does not release individuals from civil charges, nor does it release Citigroup or any individuals from potential criminal prosecution. In addition, as part of the settlement, Citigroup has pledged to fully cooperate in investigations related to the conduct covered by the agreement.

 Michael Stephens, Acting Inspector General for the Federal Housing Finance Agency said, “Citigroup securitized billions of dollars of defective mortgages, after which investors suffered enormous losses by purchasing RMBS from Citi not knowing about those defects. Today’s settlement is another significant step by FHFA-OIG and its law enforcement partners to hold accountable those who committed acts of fraud and deceit in the lead up to the financial crisis, and is a necessary step toward reviving a sound RMBS market that is crucial to the housing industry and the American economy.  We are proud to have worked with the Department of Justice, the U.S. Attorneys’ Offices in the Eastern District of New York and the District of Colorado. They have been great partners and we look forward to our continued work together.”

The underlying investigation was led by Assistant U.S. Attorneys Richard K. Hayes, Kevin Traskos, Lila Bateman, John Vagelatos, J. Chris Larson and Edward K. Newman, with the support of agents from the Office of the Inspector General for the Federal Housing Finance Agency, in conjunction with the President’s Financial Fraud Enforcement Task Force’s RMBS Working Group.

The RMBS Working Group is a federal and state law enforcement effort focused on investigating fraud and abuse in the RMBS market that helped lead to the 2008 financial crisis.  The RMBS Working Group brings together more than 200 attorneys, investigators, analysts and staff from dozens of state and federal agencies including the Department of Justice, 10 U.S. Attorneys’ Offices, the FBI, the Securities and Exchange Commission (SEC), the Department of Housing and Urban Development (HUD), HUD’s Office of Inspector General, the FHFA-OIG, the Office of the Special Inspector General for the Troubled Asset Relief Program, the Federal Reserve Board’s Office of Inspector General, the Recovery Accountability and Transparency Board, the Financial Crimes Enforcement Network, and more than 10 state Attorneys General offices around the country.

The RMBS Working Group is led by its Director Geoffrey Graber and its five co-chairs: Assistant Attorney General for the Civil Division Stuart Delery, Assistant Attorney General for the Criminal Division Leslie Caldwell, Director of the SEC’s Division of Enforcement Andrew Ceresney, U.S. Attorney for the District of Colorado John Walsh and New York Attorney General Eric Schneiderman.

Learn more about the RMBS Working Group and the Financial Fraud Enforcement Task Force at: http://www.stopfraud.gov .

Once Upon a Time…. I Thought the Worst We Had To Face Was Foreclosure Hell, I WAS WRONG!

Ya know, I used to think that Foreclosure Hell was the worst thing we in this Country had to face.  Wow, Was I Wrong!

I didn’t realize that just like in Japan, they will cook us to death with radiation, and not even bother to tell us.  I have condemned the Japanese for nuking the world and not telling us the truth about it, but fuck me, this country is doing the same thing.

While most people go about their daily business, they never think about the fact, that a pleasure of getting rained on is killing them.  We are the walking dead, and being asleep to the fact is just fucking us up more.

I would apologize for my slang, no, crude language, but something needs to wake these sleeping zombies up!

So, they are not only going to take every house they can get their grimy paws on, but they are going to continue the slow kill of humankind from the planet.  

It is not the kids growing up now that will suffer so much, it is like the butterfly test in Fukushima.  It is the children’s children that will be riddled with deformities. 

No matter what they try to tell us, we cannot be stupid, and believe that radiation is ok.  The thought of believing that, well, it is, stupid.  The sheeple that make up this country now, is amazing.  If the government says the radiation is not hurting us, we’ll just believe them.  Because the government says so?  Yall need to get out from under the rock, and out of the sun, cause damn!  You been drinking too much water with fluoride in it, for too long, and it has made you dumb!  I take that back, it has made you dumber than dirt!

For years, they have been doing things with the weather, with our food, with our prescriptions, our health!  They have taken healthy human beings and turned them into out of shape, fat slugs that have lives that are meant for cattle.  Chemtrails is no lie either.  What about HARP?  I guess that you also believe that 911 was not an inside job.

No, I am not a conspiracy theorist, I believe in taking what is put before me, studying it, seeing it for what it is, listening to scientists, listening to experts, and deducing my own opinion.  You see, we woke up.  We quit drinking the tap water.  We quit watching the regular news.  The news media is brainwashing you sheeple, which is not hard for them to do.

Terrorists are here, they are going to get you, so we have to militarize the Police forces.  These false flag shootings, are to outrage you sheeple, so that you will agree that guns are bad, and they can confiscate our guns.  We are told that our rights have to be taken, so that we can be protected from the terrorists, etc.,

If you are so blind you cannot see your nose on your face, you will not notice that Fannie Mae, and the banks are throwing our elderly out on the street.  Right now, in Goodyear, Arizona, and 83 year old woman and her 86 year old husband are being thrown out of their home.  No one cares.  In Colorado Springs, CO, an 82 year old woman is being thrown out of her home.  No one cares.

What the hell is wrong with you sheeple?  It’s not you, so it is Ok?  The Bank With the Most Homes in the End Wins, Get Used to It!!!

Sheeple Awaken! 

5.83 Billion Against Bank Of America, N.A.

FHFA Settles With BofA for $5.83 Billion Over Countrywide Legacy Loans

http://nationalmortgageprofessional.com/news47937/FHFA-Settles-With-BofA-%245.83-Billion-Over-Countrywide-Legacy-Loans?utm_source=MadMimi&utm_medium=email&utm_content=NMP+Daily%3A+FHFA+Settles+With+BofA+for+%245_83+Billion+Over+Countrywide+Legacy+Loans+and+More+___&utm_campaign=20140327_m119753830_NMP+Daily%3A+FHFA+Settles+With+BofA+for+%245_83+Billion+Over+Countrywide+Legacy+Loans+and+More+___&utm_term=FHFA+Settles+With+BofA+for+_245_83+Billion+Over+Countrywide+Legacy+Loans

FHFA_Logo_04_13_12

The Federal Housing Finance Agency (FHFA) has announced it has reached a settlement in cases involving Bank of America, Countrywide Financial, Merrill Lynch, and certain named individuals totaling approximately $5.83 billion. Bank of America Corporation owns Countrywide and Merrill Lynch. The cases alleged violations of federal and state securities laws in connection with private-label, residential mortgage-backed securities (PLS) purchased by Fannie Mae and Freddie Mac between 2005 and 2007. Allegations of common law fraud were made in the Countrywide and Merrill Lynch cases.

The Agreement provides for an aggregate payment of approximately $9.33 billion by Bank of America that includes the litigation resolution as well as a purchase of securities by Bank of America from Fannie Mae and Freddie Mac.

“FHFA has acted under its statutory mandate to recover losses incurred by the companies and American taxpayers and has concluded that this resolution represents a reasonable and prudent settlement of these cases,” said FHFA Director Melvin L. Watt. “This settlement also represents an important step in helping restore stability to our broader mortgage market and moving to bring back the role of private firms in providing mortgage credit. Many potential homeowners will benefit from increasing certainty in the marketplace and that is very much the direction we should be taking.”

Of the 18 PLS suits filed in 2011, FHFA now has claims remaining in seven suits against various institutions and remains committed to satisfactory resolution of these pending actions.

The settlement agreement regarding private label securities claims between FHFA and Bank of America involves the following cases: Federal Housing Finance Agency v. Bank of America Corp., et al., No. 11 Civ. 6195 (DLC) (S.D.N.Y.); Federal Housing Finance Agency v. Countrywide Financial Corp., et al., No. 12 Civ. 1059 (MRP) (C.D. Cal.); Federal Housing Finance Agency v. Merrill Lynch & Co., Inc., et al., No. 11 Civ. 6202 (DLC) (S.D.N.Y.); as well as one Merrill Lynch security in Federal Housing Finance Agency v. First Horizon National Corp., No. 11 Civ. 6193 (DLC) (S.D.N.Y.).

Whistleblower Michael Winston Screwed By the Appeals Court

POLICY: LAW

http://washingtonexaminer.com/a-whistleblowers-worst-nightmare/article/2546069

A whistleblower’s worst nightmare

BY DIANE DIMOND | MARCH 21, 2014 AT 2:52 PM

TOPICS: 2007 HOUSING CRISIS WHISTLEBLOWERS LAW

Photo – Sadly, there is not enough space here to tell you the entire 7-year saga of whistleblower Michael Winston, but the bottom line is this: He got royally screwed by the California judicial system.

Sadly, there is not enough space here to tell you the entire 7-year saga of whistleblower Michael…

Justice is supposed to be blind. But what happens when it turns out to be blind, deaf and dumb?

Sadly, there is not enough space here to tell you the entire 7-year saga of whistleblower Michael Winston, but the bottom line is this: He got royally screwed by the California judicial system.

Winston, 62, is a mild-mannered Ph.D. and a veteran leadership executive who has held top jobs at elite corporations such as McDonnell Douglas, Motorola and Merrill Lynch. After taking time off to nurse his ailing parents, Winston was recruited by Countrywide Financial to help polish their corporate Image. He was quickly promoted — twice — and had a team of 200 employees.

It’s almost unheard of for a top-tier executive turning whistleblower, but that’s what Winston became after he noticed many of his staff were sickened by noxious air in their Simi Valley, California, office. When the company failed to fix the problem, Winston picked up the phone and called Cal-OSHA to investigate. Retaliation was immediate. Winston’s budget was cut and most of his staff was reassigned.

Sign Up for the Politics Today newsletter!

Several months later, Winston says he refused Countrywide’s request to travel to New York and, basically, lie to the credit ratings agency Moody’s about corporate structure and practices. That was the death knell for Winston’s stellar 30-year-long career.

When Countrywide was bought out by Bank of America in 2008 — following Countrywide’s widely reported lead role in the sub-prime mortgage fiasco that caused the collapse of the U.S. housing market — Winston was out of a job.

In early 2011, after a month-long trial, a jury overwhelmingly found that Winston had been wrongfully terminated and awarded him nearly $4 million. Lawyers for Bank of America (which had assumed all Countrywide liabilities) immediately asked the judge to overturn the verdict. Judge Bert Gennon Jr. denied the request saying, “There was a great deal of evidence that was provided to the jury in making their decision, and they went about it very carefully.” Winston and his lawyer maintain they won despite repeated and egregious perjury by the opposition.

Winston never saw a dime of his award, and nearly two years later, B of A appealed. In February 2013, the Court of Appeal issued a stunning reversal of the verdict. The court declared Winston had failed to make his case.

“This never happens … this isn’t legal,” Cliff Palefsky, a top employment lawyer in San Francisco told me during a phone conversation. “The appeals court is not supposed to go back and cherry-pick through the evidence the way this court did. And if there is any doubt about a case, they are legally bound to uphold the jury’s verdict.”

None of the legal eagles I spoke to could explain why the Court of Appeal would do such an apparently radical thing.

The Government Accountability Project, a whistleblower protection group in D.C., has been watching the Winston case closely. Senior Counsel Richard Condit says he believes the appeal judge wrongly “nullified” the jury’s determination.

“This case is vitally important,” Condit told me on the phone. “Seeing what happened to Winston, who will ever want to come forward and reveal what they know about corporate wrongdoings?” GAP and various legal academicians are trying to figure out a way to get Winston’s case before the U.S. Supreme Court.

There have been whispers about the possible malpractice of Winston’s trial lawyer failing to file crucial documents that might have satisfied the appeal court’s questions. His appellate lawyer didn’t even tell him when the appeals court was hearing the case and Winston was out of town. The LA District Attorney and the Sheriff’s Department refused to follow up on evidence that Countrywide witnesses, including founder Angelo Mozilo, had blatantly committed perjury on the stand. Some court watchers speak of the, “unholy alliance” between big corporations and the justice system in California.

Winston, who says he spent $600,000 on legal fees, further depleted his savings by appealing to the California Supreme Court. That court refused to hear his case.

During one of our many hours-long phone conversations, Winston told me, “So, here I sit,” the whistleblower. The good guy loses. And the bad guys, officials at the corporation that cheated and lied and nearly caused the collapse of the U.S. economy — win.”

There’s a lot of talk out of Washington these days about “economic equality.” But seven years have passed since the housing crisis and the feds have not prosecuted one key executive from any of the financial giants that helped fuel the economic crash. Too big to fail — and too big to jail, I guess.

Bank of America has spent upward of $50 billion in legal fees, litigation costs and fines cleaning up the Countrywide mess. Their latest projections indicate they’ll spend billions more before it’s over. To my mind, a stiff prison sentence for the top dogs who orchestrated the original mortgage schemes would go much further than agreeing that they pay hefty fines. That’s no deterrent to others since they all have lots of money.

A recent email I got from Michael Winston, a proud man who has been unemployed for four years, said: “I have just received (a) court order mandating that I pay to Bank of America over $100,000.00 for their court costs. This will be in all ways — financial, emotional, physical and spiritual — painful.”

If a top-tier executive can’t prevail blowing the whistle on a corrupt company, if the feds fail to pursue prison terms, and if a jury’s verdict can be over-turned without the opportunity to appeal — what kind of signal does that send to the dishonest?

You know the answer. We’re telling them it is OK to put profit above everything else. We’re telling them to continue their illegal behaviors because there will be no prison time for them. At worst, they may only have to part with a slice of their ill-gotten gains.

This is not the way the justice system is supposed to work.

 

DIANE DIMOND, a Washington Examiner columnist, is nationally syndicated by Creators Syndicate.

Hearsay on Hearsay Livinglies Neil Garfield

 

Hearsay on Hearsay: Bank Professional Witnesses Using Business Records Exception as Shield from Truth

by Neil Garfield

http://livinglies.wordpress.com/2014/03/19/hearsay-on-hearsay-bank-professional-witnesses-using-business-records-exception-as-shield-from-truth/

Wells Fargo Manual “Blueprint for Fraud”

Well that didn’t take long. Like the revelations concerning Urban Lending Solutions and Bank of America, it is becoming increasingly apparent that the the intermediary banks were hell bent for foreclosure regardless of what was best for the investors or the borrowers. This included, fraud, fabrication, unauthorized documents and signatures, perjury and outright theft of money and identities. I understand the agreement between the Bush administration and the large banks. And I understand the reason why the Obama administration continued to honor the agreements reached between the Bush administration and the large banks. They didn’t have a clue. And they were relying on Wall Street to report on its own behavior. But I’m sure the agreement did not even contemplate the actual crimes committed. I think it is time for US attorneys and the Atty. Gen. of each state to revisit the issue of prosecution of the major Wall Street banks.

With the passage of time we have all had an opportunity to examine the theory of “too big to fail.” As applied, this theory has prevented prosecutions for criminal acts. But more importantly it is allowing and promoting those crimes to be covered up and new crimes to be committed in and out of the court system. A quick review of the current strategy utilized in foreclosure reveals that nearly all foreclosures are based on false assumptions, no facts,  and a blind desire for expediency that  sacrifices access to the courts and due process. The losers are the pension funds that mistakenly invested into this scheme and the borrowers who were used as pawns in a gargantuan Ponzi scheme that literally exceeded all the money in the world.

Let’s look at one of the fundamental strategies of the banks. Remember that the investment banks were merely intermediaries who were supposedly functioning as broker-dealers. As in any securities transaction, the investor places in order and is responsible for payment to the broker-dealer. The broker-dealer tenders payment to the seller. The seller either issues the securities (if it is an issuer) or delivers the securities. The bank takes the money from the investors and doesn’t deliver it to an issuer or seller, but instead uses the money for its own purposes, this is not merely breach of contract —  it is fraud.

And that is exactly what the investors, insurers, government guarantors and other parties have alleged in dozens of lawsuits and hundreds of claims. Large banks have avoided judgment based on these allegations by settling the cases and claims for hundreds of billions of dollars because that is only a fraction of the money they diverted from investors and continue to divert. This continued  diversion is accomplished, among other ways, through the process of foreclosure. I would argue that the lawsuits filed by government-sponsored entities are evidence of an administrative finding of fact that closes the burden of proof to be shifted to the cloud of participants who assert that they are part of a scheme of securitization when in fact they were part of a Ponzi scheme.

This cloud of participants is managed in part by LPS in Jacksonville. If you are really looking for the source of documentation and the choice of plaintiff or forecloser, this would be a good place to start. You will notice that in both judicial and non-judicial settings, there is a single party designated as the apparent creditor. But where the homeowner is proactive and brings suit against multiple entities each of whom have made a claim relating to the alleged loan, the banks stick with presenting a single witness who is “familiar with the business records.” That phrase has been specifically rejected in most jurisdictions as proving the personal knowledge necessary for a finding that the witness is competent to testify or to authenticate documents that will be introduced in evidence. Those records are hearsay and they lack the legal foundation for introduction and acceptance into evidence in the record.

So even where the lawsuit is initiated by “the cloud” and even where they allege that the plaintiff is the servicer and even where they allege that the plaintiff is a trust, the witness presented at trial is a professional witness hired by the servicer. Except for very recent cases, lawyers for the homeowner have ignored the issue of whether the professional witness is truly competent,  and especially why the court should even be listening to a professional witness from the servicer when it is hearing nothing from the creditor. The business records which are proffered to the court as being complete are nothing of the sort. There documents prepared for trial which is specifically excluded from evidence under the hearsay rule and an exception to the business records exception.

Lately Chase has been dancing around these issues by first asserting that it is the owner of a loan by virtue of the merger with Washington Mutual. As the case progresses Chase admits that it is a servicer. Later they often state that the investor is Fannie Mae. This is an interesting assertion which depends upon complete ignorance by opposing counsel for the homeowner and the same ignorance on the part of the judge. Fannie Mae is not and never has been a lender. It is a guarantor, whose liability arises after the loss has been completely established following the foreclosure sale and liquidation to a third-party. It is also a master trustee for securitized trusts. To say that Fannie Mae is the owner of the alleged loan is an admission that the originator never loaned any money and that therefore the note and mortgage are invalid. It is also intentional obfuscation of the rights of the investors and trusts.

The multiple positions of Chase is representative of most other cases regardless of the name used for the identification of the alleged plaintiff, who probably doesn’t even know the action exists. That is why I suggested some years ago that a challenge to the right to represent the alleged plaintiff would be both appropriate and desirable. The usual answer is that the attorney represents all interested parties. This cannot be true because there is an obvious conflict of interest between the servicer, the trust, the guarantor, the trustee, and the broker-dealer that so far has never been named. Lawsuits filed by trust beneficiaries, guarantors, FDIC and insurers demonstrate this conflict of interest with great clarity.

I wonder if you should point out that if Chase was the Servicer, how could they not know who they were paying? As Servicer their role was to collect payments and send them to the creditor. If the witness or nonexistent verifier was truly familiar with the records, the account would show a debit to the account for payment to Fannie Mae or the securitized trust that was the actual source of funds for either the origination or acquisition of loans. And why would they not have shown that?  The reason is that no such payment was made. If any payment was made it was to the investors in the trust that lies behind the Fannie Mae curtain.

And if the “investor” had in fact received loss sharing payment from the FDIC, insurance or other sources how would the witness have known about that? Of course they don’t know because they have nothing to do with observing the accounts of the actual creditor. And while I agree that only actual payments as opposed to hypothetical payments should be taken into account when computing the principal balance and applicable interest on the loan, the existence of terms and conditions that might allow or require those hypothetical payments are sufficient to guarantee the right to discovery as to whether or not they were paid or if the right to payment has already accrued.

I think the argument about personal knowledge of the witness can be strengthened. The witness is an employee of Chase — not WAMU and not Fannie Mae. The PAA is completely silent about  the loans. Most of the loans were subjected to securitization anyway so WAMU couldn’t have “owned” them at any point in the false trail of securitization. If Chase is alleging that Fannie Mae in the “investor” then you have a second reason to say that both the servicing rights and the right to payment of principal, interest or monthly payments in doubt as to the intermediary banks in the cloud. So her testimony was hearsay on hearsay without any recognizable exception. She didn’t say she was custodian of records for anyone. She didn’t say how she had personal knowledge of Chase records, and she made no effort to even suggest she had any personal knowledge of the records of Fannie and WAMU — which is exactly the point of your lawsuit or defense.
 

If the Defendant/Appellee’s argument were to be accepted, any one of several defendants could deny allegations made against all the defendants individually just by producing a professional witness who would submit self-serving sworn affidavits from only one of the defendants. The result would thus benefit some of the “represented parties” at the expense of others.

Their position is absurd and the court should not be used and abused in furtherance of what is at best a shady history of the loan. The homeowner challenges them to give her the accurate information concerning ownership and balance, failing which there was no basis for a claim of encumbrance against her property. The court, using improper reasoning and assumptions, essentially concludes that since someone was the “lender” the Plaintiff had no cause of action and could not prove her case even if she had a cause of action. If the trial court is affirmed, Pandora’s box will be opened using this pattern of court conduct and Judge rulings as precedent not only in foreclosure actions, disputes over all types of loans, but virtually all tort actions and most contract actions.

Specifically it will open up a new area of moral hazard that is already filled with debris, to wit: debt collectors will attempt to insert themselves in the collection of money that is actually due to an existing creditor who has not sold the debt to the collector. As long as the debt collector moves quickly, and the debtor is unsophisticated, the case with the debt collector will be settled at the expense of the actual creditor. This will lead to protracted litigation as to the authority of the debt collector and the liability of the debtor as well as the validity of any settlement.

Foreclosure Hell, Keeps on Rollin

     Foreclosure filings were reported on 124,419 U.S. properties in January 2014, an 8 percent increase from December but still down 18 percent from January 2013.  Foreclosure filings were reported on 1,361,795 U.S. properties in 2013, down 26 percent from 2012 and down 53 percent from the peak of 2.9 million properties with foreclosure filings in 2010.  But still, 9.3 million U.S. residential properties were deeply underwater representing 19 percent of all properties with a mortgage in December 2013, down from 10.7 million homes underwater in September 2013.[1] 

            In 2006 there were 1,215,304 foreclosures, 545,000 foreclosure filings and 268,532 Home Repossessions.  By 2007 foreclosures had almost doubled – up to 2,203,295 with 1,260,000 foreclosure filings and 489,000 Home Repossessions.  2008 saw an even further increase to 3,019,482 foreclosures, 2,350,000 Foreclosure filings and 679,000 Home Repossessions.  In 20093,457,643 foreclosures, 2,920,000 foreclosure filings, and 945,000 Home Repossessions.  2010:  3,843,548 foreclosures, 3,500,000 foreclosure filings, and 1,125,000 Home Repossessions.  2011:  3,920,418 foreclosures, 3,580,000 foreclosure filings, and 1,147,000 Home Repossessions.  Then January to September 20121,616,427 foreclosures 1,382,000 foreclosure filings and 572,844 Repossessions.  The remainder of 2012 – September through December saw an additional 2,300,000 foreclosures, 2,100,000 foreclosure filings and 700,000 Repossessions.  In other words, from 2006 through 2012, there were a total of  21,576,117 foreclosures; 17,637,000 foreclosure filings; 5,926,376 Home Repossessions.  The foreclosures added to the repossessions is equal to:  27,502,493[2].  The numbers are staggering.

            Many of the homes have been wrongfully foreclosed upon, where either the party had not been in default, or the foreclosing party lacked standing to foreclose.  It has become almost as lawless as the wildwest, or comparable to a shark feeding frenzy.


[1] All of the foreclosure figures came from RealtyTrac:  http://www.realtytrac.com/content/foreclosure-market-report

[2] http://www.statisticbrain.com/home-foreclosure-statistics/                                                                 Statistic Verification  Source: RealtyTrac, Federal Reserve, Equifax