Journalism in the Public Interest

How Citibank Dumped Lousy Mortgages on the Government

A lawsuit, which Citibank just settled for $158 million, reveals how the bank pushed risky loans onto the government’s books. 


(Justin Sullivan/Getty Images)

Citigroup agreed yesterday to pay $158 million to settle a lawsuit over bad loans that the bank passed on to the Federal Housing Administration to insure. The whistle-blower who originally brought the case, Sherry Hunt, an employee of Citi's mortgage department, said the company actively undermined the process that was supposed to check for fraud in order to push through reckless loans and get higher profits.

The suit itself makes for good reading. We've pulled out the juiciest bits, and explain just what Citi appears to have been doing.

Some background: The FHA insures one-third of the mortgages loans in the country, taking on the risk of homeowners' default from lenders like Citi. The government requires lenders to certify that insured loans meet FHA standards.

Citi appears to have flouted those standards. According to the lawsuit, the bank passed along subpar loans to the FHA until very recently, making "substantial profits through the sale and/or securitization of FHA-backed insured mortgages" while "it wrongfully endorsed mortgages that were not eligible."

In the settlement, Citi, which was bailed out by taxpayers in 2008 to the tune of $45 billion, "admits, acknowledges, and accepts responsibility" for passing on bad loans.

The suit's allegations

Citi was passing on mortgages with particularly high rates of default to the FHA, costing taxpayers millions in insurance claims:


The quality control unit in charge of reviewing the mortgages had "marching orders" to pass questionable loans by "brute force":


The company started basing compensation for some employees on how many loans got through quality control, intensifying the pressure:


In January 2011, Citi gave awards to employees who had successfully challenged quality control ratings. In a detailed Bloomberg News story, the whistle-blower, Hunt, said that at the awards ceremony, quality control workers "were humiliated in front of everyone":


Lenders are supposed to self-report to the government when they discover fraudulent or shoddy loans. But Citi almost never did:


At one point, Citi erased the records of nearly 1,000 potentially fraudulent loans:


Citi's settlement

The company admits to passing on loans that were "not eligible" for government guarantees:


Citi has to pay $158.3 million within 30 days. Of that sum, $30 million will go to the whistle-blower. The suit was filed under the False Claims Act, which rewards whistle-blowers who bring cases resulting in settlements in which it was alleged that the government was defrauded:


The government has reserved the right to pursue criminal charges:


A spokesman for Citigroup said in an emailed statement: "We take our quality assurance processes seriously and have pro-actively undertaken process improvements to ensure that they are as robust as possible. Our government-related business is very important to us, and we will continue as a participant in the FHA's Direct Endorsement Lender Program with the full support of HUD."

Citi isn't the only bank facing these kinds of allegations — as part of last week's mortgage settlement, Bank of America will pay the FHA up to $1 billion for fraud and abusive foreclosure practices.

J. P. Dougherty

Feb. 16, 2012, 6:11 p.m.

So when does the Department of Justice, I presume, begin to conduct a thorough investigation of these institutions’ reported malfeasance, leading to federal indictments?

William Ballough

Feb. 16, 2012, 6:13 p.m.

Sale of properties to unqualified borrowers suggests they were the only ones ones willing to pay inflated prices, and that the appraisals were also inflated, The government should also go after the sellers, their agents and the appraisers.

Great article, gotta love it.  If a young kid steals $5,000 in TVs, he gets 15 years in prison…...Government & big banks…..same old, same old, same old. Slap on the hand is all it is. And as the banks stock flounders at such a low price, top executives are being rewarded with tons of stock options ! Gotta LOVE the system!

Walter D. Shutter, Jr.

Feb. 16, 2012, 6:28 p.m.

After working as an IRS collection agent for 7 years and later as a Goverment Lawyer for 17 years, let me share something here:  Never take anyone’s word for it.  Always check out the facts for yourself.  Where were the Government auditors? Were they simply incompetent or had THEIR own bosses told them to “pass things through”?

Eric Bischoff

Feb. 16, 2012, 6:29 p.m.

When are Greedy Bastard CEOs and Board Members finally going to go to jail?

You can’t fleece the government, ruin the economy, destroy real estate values and get away with just a fine!

Eric you said:

You can’t fleece the government, ruin the economy, destroy real estate values and get away with just a fine!

yes you can -

system today is not your past experience or ethical standards - we are in para-normal period when fraud is institutionalized as a business tool - and for Banks the only tool left in the bag that they can make money with

accept it !!

To Eric:  You are right, nothing willchange until someone above the rank of clerk goes to jail. We see it all the time.  This $158 million is walking around money for these large corps. One thing that has disapointed me about the Obama Admin. is their unwilligness to drag these ba****** into court to force all the facts to come into focus.

So… why is a company allowed to continue to do business with the government after such fraud? 

Why do they continue to sell to Fanny and Freddie, to have access to the window at the Fed, to warrant all sorts of special accommodations?

If an individual commits fraud against the government it can and will be banned from doing business with it.  If companies are deemed to be “people”, shouldn’t they have the same outcome?

And in ending… this is not the first time that all the large banks have been caught committing fraud against our government.

$158 million fine for $45 billion bailout based on fraud…Wish I could get that rate of return on any of my investments!

The way I see it there are two possibilities as to why the SOBs get away with a slap on the hand while the less influential, well heeled among us get the the max Either the government is scared that they might get their butt kicked by very well paid corporate attorneys which would be a huge embarrassment and would damage the government’s ‘credibility,’ such as it is when it comes to the intersection of the enforcement of the law and the influential; or the government is in bed with this scum.  The government is either ill equipped and cowardly or crooked.  I hope not the later.  I know that what I just wrote is harsh and cynical but that’s what I come up with.

Eric Bischoff

Feb. 16, 2012, 9:08 p.m.

No David I will never accept it and if you do you are part of the problem. Isn’t that what OWS is about.

The system is broken, unsustainable, rotten to the core and it’s time to break-up the big banks and many too big to fail monopolies.

Then we need to reverse Citizen’s United and get corporations out of our government.

Move your money to a local community bank, I bailed from BofA in 2006 when I started smelling the rat.

Wake up, it’s not impossible. Stop being so lazy.
We need equality in laws, taxes, government.

Then we might want to wake up because the biggest problem we are about to face is the collapse of our food systems, water, soil and even the bees.

These guys don’t have the answers, they are just trying to steal as much as they can before it all comes crashing down.

They need to go to jail now.

Big banks just keep looking worse & worse, don’t they? Maybe the American public can use its sheer numbers to say something to these banks by actually taking their accounts elsewhere, so that the monopolies can be broken up. And I think the government will encourage it because of the problems the big banks are causing. And the government, according to this article, is just getting started with Citibank, there’s stipulation for them to keep going after them with criminal charges. And that $30 million from the False Claims Act that the whistleblower is getting as part of the settlement? She won’t be the only one, there’s a new sheriff in town.
I love Ken’s comment, a kid stealing $5,000 gets 15 years in prison, how much will a judge send company executives away for $4.8 billion? May the scales of justice balance accordingly.

I would suggest the government also take a look at the SBA Loans the banks sell them.  We consumers have paid for those mistakes too.

Do you think the $158 million settlement is coming out of the $45 billion we lent Citi?

How can we expect the banks to be held accountable when the CEO is a regular visitor at the White House and a golf buddy of the President of the United States. We are now no different than the third world countries where corruption is just looked upon as business as usual.

Robert DuWors

Feb. 17, 2012, 3:46 a.m.

Citibank and its ilk almost certainly defrauded the US Government twice. Once when it entered wrongly into the mortgage insurance contract with the FHA for mortgages that did not qualify. Second it is more than 99% likely they packaged those loans into mortgage pools which were used to issue securities (bonds) further insured by Ginnie Mae. Ginnie Mae is a wholly owned corporation of the US government reporting to Housing and Urban Development (HUD). FHA is simply part of HUD. Thus HUD got taken twice. Further, in not maintaining proper records with a document custodian as they are required by contract with Ginnie Mae, as they further broke the terms of that contract and their legal duty to act in good faith with the borrowers alike.

The mortgage servicing debacle has resulted. The current foreclosure mess is just one of these aspects. Mortgage collection, recognition of mortgage satisfaction, and even property rights in case of future boundary disputes are at risk from these “clouded” aka “wild” titles. This applies even if you never had a mortgage but simply have property that shares a boundary with one that did. Borrows are at risk indefinitely from “nullity” titles and loans that can rise Frankenstein-like when rediscovered and enforced. We had a working system of land titles and re-conveyance stemming from before the country became independent but they broke it.

With this admission, isn’t Citi therefore also admitting that it was in non-compliance with respect to all these matters and it’s reporting requirements to the SEC?  Isn’t this willful stock manipulation under insider trading prohibitions?  Sarbanes-Oxley?

It seems to me that we are past the adage that the banks are “too big to fail” and the large ones have morphed into the reality that they are now “too large to function.”

How can the bank regulators, with all their existing tools, not override the excuse that this is just a “clerical error” and is, instead, a total abuse of the privilege that grants bank’s their authority to operate in any particular State?


Feb. 17, 2012, 9:31 a.m.

Private corp—stock owners—restrricted by govt as max mortgage they could purchase—Bush increased to $300,000.
F&F lost market share. They buy Mortgages from Banks and sell to investors. Banks made much more profit bundling and selling as securites worldwide. Triple A. Toixs became well know, Markets fell fast. Banks stuck with high priced Mortgages and F&F limit was $300,000.
Good Old Free Market Bush increased F&F limit to $729,000.

Banks UNLOADED junk on F&F courtesy Bush max increase.

Anyone smell that rat? FANNIE MAXIMUM LOAN

Thanks for great reporting.

At last, admissions of guilt and the beginnings of accountability are being pursued by our government. We citizens want more!. Hats off to Occupy Wall Street, which has demanded investigations and prosecutions.

I wonder if it’s time to attack this from a different angle.  I mean, it’s stupid to fight banks on an accounting battlefield, a classic example of bringing a knife to a gunfight.

This also wasn’t accidental, nor was it entirely private.  Obama stopped his campaign to vote for the bailouts.  The Bush administration stopped Eliot Spitzer and the other state Attorneys General from investigating.  Barney Frank wrote the legislation that encouraged subprime lending, which was Andrew Cuomo’s (and the Clinton administration’s, by association) vision via HUD.  It was non-partisan and a “public-private partnership,” as they say.

And the financial regulators?  They’re all ex-bankers, so even if they had the ability to challenge, they wouldn’t have the motivation.

We need someone outside finance, who’s not bound by the standard auditing rules, to follow the rat’s maze to the end.  And since this was essentially an attack on the country—a terrorist act to change the country—I think it’s only right that Homeland Security earn its paycheck.

After all, Washington keeps telling us we’re giving up our freedom for the greater good, so it’s time DHS shows us some results other than kids from Muslim families they spent months convincing to make a bomb…

I’ve always been very proud of my wife, but I couldn’t be more prouder than I am right now.  It’s been a helluva ride!

Jawaralal Schwartz

Feb. 17, 2012, 12:17 p.m.

To Jon Hunt:  congratulations to yo wife, who is now bringing in 30 million dollars.  You can be proud of the haul as well as yo wife.  Spend it wisely and enjoy.

Separately, yes it is time to send some of Citi’s swollen executive ranks to the slammer.  And yes, as one commenter said, why is Citi being allowed to remain a business partner of the government.  Technically, it is both a government contractor and a financial agent (the latter for its role in Treasury Bond sales).  It can be “suspended” and later “debarred” for its perfidy.  This is why the settlements typically do not call for an admission of wrongdoing, tho Citi has the blood of fraud and other crimes on its hands in this mess.

Lots of good comments…...I would recommend reading:
“Wall Street and the Financial Crisis: Anatomy of a Financial Collapse”
US Senate Permanent Subcommittee on Investigations….staff report.
(Cosimo Reports)
Add Citi to the “findings of fact” reported in this detailed description of other fraudulent enterprises…...WAMU (Washington Mutual), Moody’s, S&P, Goldman Sachs, Deutsche Bank.
Along with Pro Publica reporting this could be considered a kind of “handbook” laying out policies, procedures, repression of dissent, fraud by lending institutions, suppression of evidence, high risk lending, execution of those high risk lending practices, regulatory failures ((OTS, Office of Thrift Supervision), e-mail evidence and on and on…...
It is clear at this point that as long as the music played all the players who were the largest financial institutions in the US (global) there was no stopping the band.
After more than four years of research I’ve come to the conclusion that the biggest mistake made in the aftermath when we had the chance is/was not to break up the largest institutions, let shareholders, bondholders, etc. take a “slitzy cut” (remember the 1940’s) haircut….(almost bald) it is/was we have blamed the victims of the financial rape (isn’t that what our society does in actual rape cases?) that has occurred.
I totally agree with the writer who layed out several points involved with OWS…(I’m a member of a small town “OWS”)............Our whole system is very corrupt, from the political system to the financial one….and nothing will change until firstly, Citizens United” is overturned….........
We are headed for a financial “black hole” which will occur when other countries continue to dump our treasury securities…China and Russia have been dumping for more than a year….....
This scandal is only part of the destruction that has occurred to our civil liberties, our Bill of Rights and our Constitution…...
That American flag belongs to everyone, not just the military/industrial/political/financial part of our country!
Wake up!

fausto chavez

Feb. 17, 2012, 4:27 p.m.

Know why Government is the problem?
Because we keep electing people who are horrible at the job we elect them to do.

How can anyone oppose bank regulation and the full return of glass-steagall?

Gary J. Mallast

Feb. 17, 2012, 8:17 p.m.

What about the people sucked into the crappy mortgages?  Are they left with nothing: no home, no money, no future, no hope?

If I lose my home of 59 years, I lose the ability to look for a job, to get a job, or perform a job because I will lose my tools and my library.  My only choice is where I commit suicide.

They knew, or should have known, that financing mortgages with Federal Reserve funny money would create a bubble. With interest rates suppressed people would be sucked into dubious mortgages and the value of their homes bloated.  Then, just as in virtually every fiat money inflation going back to John Law’s Mississippi scheme of 1716-1720, in every country from Argentina to Zimbabwe, the economy collapses and people are left without jobs and without a way of paying the mortgages.

So the banksters get bailed out—with tax money from the victims, get punished with 50 lashes with a wet noodle, get the homes so they can re-mortgage them for the full value, and thousands of people’s lives are destroyed, their life savings and retirement wiped out, what little money they have left devalued by inflation-induced price increases, and they are left with the choice of living in a tent illegally pitched on public property or killing themselves.

All around me are good competent hard-working people who have been looking for a job for months and years.  I have been trying to get a job for nine years in spite of five degrees, 17 years work experience, master mechanic license, and being a published writer and photographer.

The thing was a scam right back to the original passage of the Community Reinvestment Act.  It has never been properly investigated because many members of Congress and of the Clinton, Bush, and Obama administrations were involved.

I would love to get Congressman Barney Frank (D-Bank of on the witness stand under oath.  His name keeps turning up in all this like a bad penny.

Aren’t liberal politicians grand in how they love the poor and the middle class and want to use the government to help the poor and soak the rich?  We see from this whole scam how much liberal politicians want to help the poor and soak the rich—especially the immoral rich who use the government as a means of armed robbery. Think Solyndra.

Socialist huffing and puffing about helping the poor has been a lie for 500 years going back to John of Leyden’s prototype socialist terror state in Munster in 1534-35. When from Munster to Jonestown, to the Soviet Union, to Attlee’s Labour Britain have these things really helped the poor?  If here is one I have learned from being poor, Socialism is a lie. Welfarism is a lie .Laissez faire forever! Liberty forever!

Gary J. Mallast

Feb. 17, 2012, 9:14 p.m.

What good is government bank regulation?  As this settlement shows, the banks own the regulators. There is a revolving door between Wall Street, the Treasury Department, The Federal Reserve, and the regulatory agencies.

What we need are few, stable, sensible laws everyone can understand rather than regulatory agencies that keep changing the rules to the benefit of their cronies.

The last two Secretaries of the Treasury, Federal Reserve Chairman Ben Benanke, and the heads of some of the securities enforcement agencies are all went to Harvard and all at one time worked for Goldman Sachs.

The only thing worse than corruption itself is cynicism that prevents taking action against corruption. The exploiters want you to be hopeless. Repression deals in that commodity. Revolutions, however, happen when there is rising expectations for a better way and impatience with the way things are. It never happens among the hopeless and the cynical. Anger is only a short term motivator, because without hope it is just more of the same leading into deeper despair.

So, no I don’t have much time or patience for whining teapots screamers or street theater purists of OWS. Grow up, focus and use your personal power against the institutional power so disliked. There is so much opportunity to take action against these creeps. Get your neighbors to demand of MERS who owns their mortgage. File a Question with Respect to force your mortgage servicers to say how they got in the loop. Research filing a Quiet Title against the mortgage parasites. If people with 60 million mortgages did just one of those things the system would cease up. It would have to change big time.

Consider how effective the Internet movement against SOPA and the Konen foundation. Think what can be done against the Mortgage abusers. Thermo-nuclear melt down. We could in weeks do to them what years of actions by the Attorney Generals could not. So if you must moan, look in the mirror first and stop doing the bad guys work for them.

The fish rots from the head down, not from the tail up.  You want to see an end to big bank/business- big government coordinated rape of society?  End big government and end big bank/business “relationships”. 
Read Dwight D. Eisenhower’s farewell address (1961) and substitute “business-politics complex” for his “militaryindustrial complex” word in this prophetic speech.  You will see the conditions today reflect almost perfectly his warnings.

In its Q3 2011 FRY9C filing, Citi reports $6 billion in delinquent FHA-insured mortgages that it had been forced to repurchase from GNMA investors. Citi has not presented these to the FHA for payment, fearing prosecution under the False Claims Act. It appears that fear has been negotiated away.

You need to investigate whether this deal now enables Citi to present this $6 billion in delinquent mortgages to the FHA for payment.

BofA is even worse with $27 billion in delinquent FHA-insured morgages repurchased from GNMA investors.

WFC has $17 billion.

JPM Chase has $10 billion, but has at least classified them as nonaccrual.

Interestingly, virtually all of delinquent FHA mortgages are reported by the 20 largest BHCs. 99% of the BHCs report zeros.

“We take our quality assurance processes seriously and have pro-actively undertaken process improvements to ensure that they are as robust as possible.

Yeah ! Sure they do, now that they have been caught !

@Go For it-The best post I’ve read lately. After 2 years of trying, I am now doing the things you suggest. This time with an attorney that “gets it”.

Where did the $45 billion number come from?

The recent audit of the Federal Reserve shows that Citi received over $2 trillion.

Does the author of this piece not have a clue?

Citi has repaid all the money it received from the federal government, over a year a go.  Just wanted that fact straight.

Having said that, it sounds like they have a culture of corruption at the higher levels of management where they willifully ignore their own employees and policies.

If only someone would address the ccorruption issue of their HAMP program.  Just google “Citimortgage + loan modification”.

Here in Oz we have citibank who seem to be doing everything they can to get people into as much debt as possible via credit cards. I don’t know what their card issuing practices are like in the US but here if you earn more than $35,000/year you can get a ridiculous amount of credit from these leeches.

With regard to the above story i particularly liked the following bit: “A spokesman for Citigroup said in an emailed statement: “We take our quality assurance processes seriously and have pro-actively undertaken process improvements to ensure that they are as robust as possible.”

Isn’t the definition of pro-active generally taken to mean it is done on a continual basis to improve processes? In that case citibank would be pro-actively improving their processes every time they get caught so they don’t get done for the same thing next time. Maybe it’s just me, but something doesn’t seem right here. This is fraud on a massive scale rivaled only by a certain Mr Madoff, and $158 million in fines is all they do to these clowns? When does the greed stop? When will a government actually stand up to these blood suckers? At what point does the sheer greed for wealth get overtaken by embarrassment and shame?

Beam me up Scotty, there’s no detectable intelligent life on this rock.

Citi HAS repaid all the money it received from the federal government, over a year a go.  They repaid the cash they got by substituting worthless credit default swaps for it.  They made suckers out of the taxpayer.  Just wanted that fact straight.

Having said that, it sounds like they have a culture of corruption at the higher levels of management where they willifully ignore their own employees and policies.

Insofar as this article implies that loans were intentionally made to borrowers who would quickly default, raises questions about whether there was FHA mortgage fraud in these loans that defaulted. Just google FHA mortgage fraud and see what pops up. Falsifying mortgage borrowers’ incomes, falsifying appraisals, in short, submitting false information with respect to underwriting FHA mortgage loans etc. to qualify a homebuyer for an FHA mortgage loan is a felony. Did Citigroup’s loan officials do this? If these practices are the basis for and cause of these massive defaults, then the Citigroup individuals perpetrating them should be criminally prosecuted.

Gary J. Mallast

Feb. 21, 2012, 9:47 p.m.

RE: bigbill, “Falsifying mortgage borrowers’ incomes, falsifying appraisals, in short, submitting false information with respect to underwriting FHA mortgage loans etc. to qualify a homebuyer for an FHA mortgage loan is a felony.”

Citigroup, Bank of America, Wells-Fargo, etc. are some of Obama’s biggest campaign contributors.  Now is Eric Holder going to prosecute his boss’s biggest contributors? We have seen his level of integrity with “Fast and Furious.”

On my mortgage application, the proof of income page is blank.  How did it ever get approved?

Symphony Music

Feb. 21, 2012, 11:28 p.m.

Making false statements on a request for insurance is a criminal offense!  As such, all organizations and people involved are subject to criminal prosecution.  Management can no longer say that this is due to clerical error.  Jamie Dimon, along with members of your board, and the board members of other Office of the Comptroller of the Currency supervised banks, it seems we are all looking for your mea culpa and for you to sit in jail for the tremendous harm you have done to individuals and to Individual State economies.  Actions do speak loudly.  I’m looking for specific acknowledgement for the harm your policy decisions have caused.

The only way that we can stop this corruption is to impose lenghty prison sentences and ban them from the financal market forever. That will only happen when thier world of cronieisum is absolved.

I don’t understand why foreclosure victims are so passive: “Quod ab initio non valet, in tractu temporis non convalescit - What is not valid in the beginning does not become valid by time.” Statue of limitations notwithstanding. They are sitting on a potential gold mine, quite possibly their old property in fact. First, why do they, or potential investors who buy an assignment of title from them, not go after the illegal foreclosurers for manifest fraud and conspiracy?  Hey, it’s capitalism and distressed properties have many aspects.

While there may be a statue of limitations on the fraud, property rights who no limit: “The right of possession is the legitimacy of possession (with or without actual possession), the evidence for which is such that the law will uphold it unless a better claim is proven” - Wikipedia. The owners of such defrauded titles have the right to break the chain of title at their point where it still remained valid under their tittle and regain possession (that means the Deed of Trust or Mortgage blew up in fraud). Apparently the banks are afraid of this and are paying $35K (maybe more) to preempt such challenges.

Gary J. Mallast

Feb. 24, 2012, 12:41 p.m.

RE:”I don’t understand why foreclosure victims are so passive…”

Because that is what our attorneys advise us.  My problem isn’t with Citibank but with Countrywide and Bank of America which took over what was left of Countrywide’s assets.

The whole matter needs to be investigated back to the origins of the Community Reinvestment Act which was sold to Congress and the Public as a way of letting people of modest means obtain their own homes when it is now clear it was a scam to put people into a state of permanent indebtedness, steal their retirement money, and steal their homes.

It was done by destroying the value of their earnings and investments via inflation, sucking them into over-leveraging via artificially low interest rates and readily available credit by the Federal Reserve’s funny money and then with the inevitable depression the victims lost their jobs and ability to pay and have everything taken from them as I said earlier.

I think the reason is that at the state level most judges are elected and receive sizable campaign contributions from the big banks.  I don’t think it is so much that the judges sell themselves to the banks as the banks simply make sure suitably flexible judges are the ones with the most campaign money.  The attorneys realize they can’t win in the courts of such judges so they use what angles they can to try to help their clients as long as they can in the face of judges in the back pockets of the banksters. Reading between the lines of the comments of my lawyer and others, there is one judge here locally in particular who has a reputation that she can be counted upon to always rule against the victim no matter how cruel the results.

Of course, on the Federal level, judges are appointed by politicians who also have received sizable contributions from the bankers.

An even bigger problem for the judges themselves—even the most honest and sympathetic ones—is enforcing laws so drafted as to leave the average citizen with little real recourse.

For example, for centuries it has been the case that the judges in bankruptcy cases could modify mortgage terms to keep people in their homes, businesses, or on their farms and minimize long term damage to both sides in the case.  A few years ago, the Federal bankruptcy laws were revised so that a bankruptcy judge can no longer stop a foreclosure nor modify mortgage terms.

The centuries-old common law tools which judges would use to try to come to an agreement least damaging to both the mortgager and mortgagee have been taken from them.  This appears to be part of an entire package of legislation pushed through Congress and the state legislatures.

To get several bills through Congress and the legislatures leaving the average citizen legally naked in these situations and the Federal Reserve and the Banks with virtually unlimited power took a lot of people, a lot of money, and a lot of time.

I have a little trouble with the idea that dozens of bankers, regulators, Congressmen, legislators, officials of THREE presidencies, and the Federal Reserve, were totally ignorant disciples of economic cranks like John Maynard Keynes, Pierre Joseph Proudhon, and Silvio Gessel who really thought such manipulation would help people and who somehow missed out on the last three centuries of economic history although I suppose it is possible.

But back to the original question, due to the pliable nature of so many state and Federal judges and the badly-drafted laws they are called upon to enforce, I think most lawyers would rather give their clients a realistic assessment of their chances of winning to help them minimize the damage to themselves even though that damage may unavoidably be their utter economic destruction.  At least, I suppose, the lawyers reason maybe by giving in, they can at least let them keep their underwear and a pup tent if nothing else.

Sorry don’t buy it. “My lawyer says”...blah, blah…Federal Reserve (wtf!)...Community Reinvestment Act (wtf!)...blah blah. Get philosophical and arguably the entire process of securitizaition severed the fiduciary responsibility of the lender from the loan: State real estate law is still presumes these relationships. Which in the end is more blah, blah.

A Note is a note.  The roles of grantor, trustee, and grantee are what they are under state law or else the role of mortgagor and mortgagee are what they are. Ultimately there is a a court of competent jurisdiction to review and decide any legal action (it why if you must we have State and Federal Supreme Courts). And ultimately lawyers are subject to malpractice, errors and omission, and disbarment. Consider finding a real lawyer with no more blah, blah if you really have been cheated and stop whining, take action. I am tired of political drivel covering up personal responsibility, especially political drivel so utterly misdirect to the problem at hand.

Want to severely punish the CEOs/Banks, corrupt politicians, that let them ransack America? Destroy the GOP. Vote everyone of these parasites from office at all levels of government, federal, state, local. You will nor regret it. Or nothing will get done to correct the abuses.

Symphony Music

March 2, 2012, 2:41 p.m.

To Rod D:  A Note is a note.  Yes.  But it needs to be owned by someone.  The Servicer is usually not the party that owns the note.  As such, the Servicer is representing itself falsely to both the Homeowner and, if it chooses to do so, to the credit bureaus. 

For most mortgages, the Servicer acts as a shill allowing an accredited investor to direct the actions of a Servicer with a consumer while circumventing the banking rules that are meant to regulate that activity.  This is wrong.

The accredited investor is not a regulated bank that requested the privilege of receiving a banking charter.  Receiving a banking charter is not a “right;” it is a privilege for which individuals apply and which include a pledge to adhere to banking rules and the spirit associated with a compact that exists within every State where the bank is allowed to operate.  It includes compliance with the spirit associated with the original creation of such law as The Community Reinvestment Act.

The accredited investor, the party that invested in a tranche - a priority to a sum of cash flow from multiple mortgages, does not own the note.  The Note is owned by a Trustee. 

The Trustee does not suffer any financial harm when a homeowner does not pay his mortgage.  The Trustee is ambivalent.  The significant Tranche investors are also ambivalent.  The largest Tranche Investors continue to receive the amount of cash they were expecting (for example, 70% of the collected cash flow from 200 mortgages).

The most affected Tranche Investor is the one with the lowest priority to the pool of cash flow associated with a securitization.  That Investor now receives less cash.  For this Tranche Investor, this “loss” follows the much greater cash flow he received while the homeowner’s note in question was performing.

Making a fuss about that cash is double dipping, but that “right” is strongly limited to his right to voice his complaint.  At that moment, that Tranche Investor has few other rights that don’t require other significant actions and new cash commitments.  That Tranche Investor, of course, wants to receive the principal amount of his note, as quickly as possible.  That Tranche Investor wants to receive the principal amount associated with the homeowner’s note without becoming subject to any of the understandings and obligations associated with ever having applied for a banking charter.  That Tranche Investor wants to apply contract law only for the specific mechanics of their situation without ever recognizing that other law and obligations may also apply.

As a whole, the individual Tranche investors have no ownership to the Notes on which they are trying to foreclose.  They only have a right to a portion of a pooled cash flow associated with those mortgages when the homeowners pay.  Even if one Tranche Investor purchased all the other Tranche positions and took control of the Trust, they do not have the authority to interact with unaccredited homeowners without first obtaining a bank charter.

Even at such a point, it is unclear how the Tranche Investors ever receives an ownership right in a “defaulting” note with a right to interact with a non-accredited investor.  As one step, they would have to break up the Trust.  Everyone may not agree.

I wonder which State is going to issue a charter to a bank whose sole purpose is to foreclose on defaulting homeowners, especially when those homeowners may be in dispute about what is owed to the Trust that owns their note in the first place.

Symphony Music

March 2, 2012, 3:11 p.m.

(Please add a question mark to that last paragraph!)

This article is part of an ongoing investigation:
Foreclosure Crisis

Foreclosure Crisis: Banks and Government Fail Homeowners

Banks and the government have fallen short in helping homeowners in danger of foreclosure.

The Story So Far

Systemic failures at the country’s banks and mortgage servicers have exacerbated the most severe foreclosure crisis since the Great Depression, and government efforts to limit the damage have fallen short. ProPublica created an unrivaled database of homeowners who have faced foreclosure, opened a Facebook page to encourage homeowners to share their stories, wrote profiles of some of them, and incorporated their experiences into our reporting. We also provided a comprehensive rundown of the numbers behind the crisis.

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