probably the most deceiving lieing nation in the world
Yahoo automatically deletes posts that criticize this administration
Not all posts, and if this post is not deleted again, just some posts.. Must be a program they use when a post contains certain buzz words it gets bounced.. And the posts that get deleted have no profanity or insults, just a different point of view on policy.. Must be a program approved by democrats..lol
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Not all posts, and if this post is not deleted again, just some posts.. Must be a program they use when a post contains certain buzz words it gets bounced.. And the posts that get deleted have no profanity or insults, just a different point of view on policy.. Must be a program approved by democrats..lol
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THE World Is Finally Aware of "who caused the crisis"
The gov tried to slide a fast one through but thanks to social media the truth was exposed.
Fock you Obama and cronies.
Get your hand out of the cookie jar before someone goesnuts andshoots.
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The gov tried to slide a fast one through but thanks to social media the truth was exposed.
Fock you Obama and cronies.
Get your hand out of the cookie jar before someone goesnuts andshoots.
Fock you Obama and cronies.
Get your hand out of the cookie jar before someone goesnuts andshoots.
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"The Stench of Freddie Mac"
David Stockman lays it all out. Crony capitalism rules at the GSEs. "We should have taken them out back and shot them." The full text is on Huffington Post, just filed.
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David Stockman lays it all out. Crony capitalism rules at the GSEs. "We should have taken them out back and shot them." The full text is on Huffington Post, just filed.
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Administration Supports Relaxed Boarder Entry and the Elimination of Fannie Mae and Freddie Mac.
A stark contradiction is evident through the Administration policy to ease immigrant entry requirements and the road to citizenship on one hand and the elimination of the 30 year mortgage guarantee through FnF on the other. The result of their policy is a drastic increase in the homeless population, tent cities and slaves to greed based landlords. This policy is not the American dream. The Administration needs to demonstrate "change" in their policy
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A stark contradiction is evident through the Administration policy to ease immigrant entry requirements and the road to citizenship on one hand and the elimination of the 30 year mortgage guarantee through FnF on the other. The result of their policy is a drastic increase in the homeless population, tent cities and slaves to greed based landlords. This policy is not the American dream. The Administration needs to demonstrate "change" in their policy
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The Full Faith of the US Government
As Ronald Raygun said, "the scariest words you will ever hear are I'm from the government and I'm here to help". This continues to hold true, and the folks in our government are the biggest failures that can be found in the entire country. They only continue to exist because the taxpayers bail them out at their every failure. Now, the dilemma is we are relying on federal courts, run by the government, to abide by the law, and rule in direct conflict of what our government is doing with the GSE's.
I'm sorry I ever bought the stock because I have to rely on the government run court system to do the right thing. I am betting on the very people that I know are failures, and expecting them to do the right thing. This is a scary position to be in, and not one I would normally place myself. I continue to hold the stock because I want to believe in my country, the constitution, the rule of law, and that in the end even dirty rotten scoundrels will do what is right
I'm sorry I ever bought the stock because I have to rely on the government run court system to do the right thing. I am betting on the very people that I know are failures, and expecting them to do the right thing. This is a scary position to be in, and not one I would normally place myself. I continue to hold the stock because I want to believe in my country, the constitution, the rule of law, and that in the end even dirty rotten scoundrels will do what is right
----
HELLO FELLOW SHAREHOLDERS! THOUGHT I WOULD STOP IN & POUND ON THE #$%$!
Well it has been quite a fall already. No I have not sold one share but I have added.
1. Berko & Team seem to be digging up depos of very important wittnesses which only gives us more nails in the coffin for the defense.
2. Carney , Joe light and the WSJ are not even worth worrying about. Nobody reads the commics anymore and most shareholders left are owners not speculators.
3. Obama still seems to defy logic in punting this theft but what this proves is how a thug gets money and looses reality.
4. Mel Watt should quit he is so useless not sure he evens needs to come to work, you would have thought the idiot would have vetted the pay raises?
5. Steagman really should be sent to Syria to a camp.
6. Lewzer is such a moron I can not respect the idiot.
7. DOJ wow these morons dropping like flies and the Delaware response was copy past from the first case before we had AMICI evidence to pull over and abuse the jerkoffs.
8. Big yank and the rest of the moronic idiots here or on Ihub well not even worth arguing with the limited intelligence.
Tweeter has been fun we have a cool group! Bash the heck out of everyone and nobody stopping posts.
You get blocked then start a new ID and begin pounding again. We do not have paid morons to deal with everyday. I will be adding end of year and through first quarter.
1. Berko & Team seem to be digging up depos of very important wittnesses which only gives us more nails in the coffin for the defense.
2. Carney , Joe light and the WSJ are not even worth worrying about. Nobody reads the commics anymore and most shareholders left are owners not speculators.
3. Obama still seems to defy logic in punting this theft but what this proves is how a thug gets money and looses reality.
4. Mel Watt should quit he is so useless not sure he evens needs to come to work, you would have thought the idiot would have vetted the pay raises?
5. Steagman really should be sent to Syria to a camp.
6. Lewzer is such a moron I can not respect the idiot.
7. DOJ wow these morons dropping like flies and the Delaware response was copy past from the first case before we had AMICI evidence to pull over and abuse the jerkoffs.
8. Big yank and the rest of the moronic idiots here or on Ihub well not even worth arguing with the limited intelligence.
Tweeter has been fun we have a cool group! Bash the heck out of everyone and nobody stopping posts.
You get blocked then start a new ID and begin pounding again. We do not have paid morons to deal with everyday. I will be adding end of year and through first quarter.
I have not found many reasons to be concerned. The manipulation of the stock is sick but I just add.--------------------------------------------------------------------------------------------
NO OTHER STOCK IN HISTORY HAS EVER CREATED A FAMILY OUT OF SHAREHOLDERS
If you have been here 1 year or 8 like me we all are a new class of investor. We hold for a purpose greater than our own profits, we hold for a purpose to hold our government accountable for theft, lies and outright trying to hurt every household in the USA.
WE fight together in our own ways of free speach, free actions and linked by a common cause of purpose. Yes we will make money, yes it could be big but it could be zero. That is must different than buying walmart stock.
The return is only there if you hold, fight, verbalize and expose the truth actively.
When the conservatorship ends ( and it will ) we begin a new journey of friendships as stockholders with rights but with years of relationships built.
A FAMILY of sort I guess. Can you imagine not at least always own some tbe rest of you
your life? You helped free the two largest financial firms in the world from tareny.
WE fight together in our own ways of free speach, free actions and linked by a common cause of purpose. Yes we will make money, yes it could be big but it could be zero. That is must different than buying walmart stock.
The return is only there if you hold, fight, verbalize and expose the truth actively.
When the conservatorship ends ( and it will ) we begin a new journey of friendships as stockholders with rights but with years of relationships built.
A FAMILY of sort I guess. Can you imagine not at least always own some tbe rest of you
your life? You helped free the two largest financial firms in the world from tareny.
----
It will happen in the dark of the night when everyone least expects it....
And what Fosco forgot to say:
When fosco no longer posts here, and timhoward717 abandons his blog and when Sue no longer copy paste worthless iHub posts and when Sam died of excessive bumping and when Ackman's fund blew up and when Ackman died in prison and when Obama's grandchild is elected president and when.....
Blah blah blah
There are so many bag holders here. It is so sad.
Oh yes, I know, I know: You are all believers in the rule of law and the constitution of the United States. I believe in real POWER. I believe this is a fight that cannot be won in the next decade, if ever.
When fosco no longer posts here, and timhoward717 abandons his blog and when Sue no longer copy paste worthless iHub posts and when Sam died of excessive bumping and when Ackman's fund blew up and when Ackman died in prison and when Obama's grandchild is elected president and when.....
Blah blah blah
There are so many bag holders here. It is so sad.
Oh yes, I know, I know: You are all believers in the rule of law and the constitution of the United States. I believe in real POWER. I believe this is a fight that cannot be won in the next decade, if ever.
But hey, it's your money and you can invest it any way you want. I just feel sorry for you. The psychological damage this investment inflicts on the hopeless shareholders is truly cruel. Stay away from sharp objects-----------------------------------------
----------------------------------------------------
15 straight profitable quarters is not enough proof to stop the sweep and release Fannie? What a joke this government is.
Stock, 23-0 in bank lawsuits as well as you probably know. The Federal judge said the govt left lots of money on the table as well when they sued the banks for packaging up the fraudulent loans which were passed on to fannie and freddie. Do you realize not one penny was used to go towards the fake debt that was placed upon them, the govt kept every cent. The reason the govt could not prosecute the banksters is because all the CEO’S sit on the Fed Reserve Board. Eric Holder is a BLACKPOS too
HAPPY HOLIDAYS WASHINGTON, U ROTTEN NO GOOD FOKING CORRUPT SOB’S. PAULSON, LEW, BUFFETT, OBAMA, GEITHNER ALL OF U CAN ROT IN HELL.
YOU WILL PAY IN THE LONG RUN.
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THE GREAT MORTGAGE COVER-UP
The Great Mortgage Cover-Up
Whistleblowers ignored, punished by lenders, dozens of former employees say
Mortgage fraud involved many lenders, former employees say
By Michael Hudsonemail 6:00 am, November 22, 2011 Updated: 12:19 pm, May 19, 2014
A Wells Fargo branch in San Francisco. Paul Sakuma/AP file
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Underwriter uncovered three frauds in one loan, suit claims
By Michael Hudson November 22, 2011
The Great Mortgage Cover-Up
How corporate codes of silence and whistleblower abuse helped lenders flood the nation with toxic mortgages.
Stories in this series
Countrywide protected fraudsters by silencing whistleblowers, say former employees
By Michael Hudson September 22, 2011
Mortgage industry tanks, fraud continues at Countrywide
By Michael Hudson September 23, 2011
Wells Fargo hit with $3.1 million fine in mortgage servicing mess
By John Dunbar April 10, 2012
New whistleblower cases allege continued bank fraud
By Amy Biegelsen and Emma Schwartz March 9, 2012
Virginians protest General Electric over foreclosures
By Amy Biegelsen and Emma Schwartz March 6, 2012
Feds investigating possible fraud at GE’s former subprime unit
By Michael Hudson and E. Scott Reckard January 20, 2012
Fraud and folly: The untold story of General Electric’s subprime debacle
By Michael Hudson January 6, 2012
Woman says GE-owned subprime lender deceived, defrauded her
By Michael Hudson January 6, 2012
Ex-WaMu worker claims he was shunned for refusing to push toxic loans on borrowers
By Michael Hudson December 22, 2011
Bank of America to pay record settlement over Countrywide abuses
By John Dunbar December 21, 2011
Click here for more stories in this investigation
Mortgage industry workers: Tell us your story
Do you have experience working with the mortgage industry? Reporter Michael Hudson would like to hear from you. Click the "Insight" button below to share your insights.
Add Insight
Darcy Parmer ran into trouble soon after she started her job as a fraud analyst at Wells Fargo Bank. Her bosses, she later claimed, were upset that she was, well, finding fraud.
Company officials, she alleged in a lawsuit, berated her for reporting that sales staffers were pushing through mortgage deals based on made-up borrower incomes and other distortions, telling her that she didn’t “see the big picture” and that “it is not your job to fix Wells Fargo.” Management, she claimed, ordered her to stop contacting the company’s ethics hotline.
In the end, she said, Wells Fargo forced her out of her job.
Parmer isn’t alone in claiming she was punished for objecting to fraud in the midst of the nation’s home-loan boom. iWatch News has identified 63 former employees at 20 financial institutions who say they were fired or demoted for reporting fraud or refusing to commit fraud. Their stories were disclosed in whistleblower claims with the U.S. Department of Labor, court documents or interviews with iWatch News.
“We did our jobs. We had integrity,” said Ed Parker, former fraud investigations manager at now-defunct Ameriquest Mortgage Co., a leading subprime lender. “But we were not welcome because we affected the bottom line.”
These ex-employees’ accounts provide evidence that the muzzling of whistleblowers played an important role in allowing corruption to flourish as mortgage lenders and their patrons on Wall Street pumped up loan volume and profits. Codes of silence at many lenders, former employees claim, helped discourage media, regulators and policymakers from taking a hard look at illegal practices that ultimately harmed borrowers, investors and the economy.
Whistleblower advocates say weak federal and state laws also helped prevent finance industry workers from being heard. Congress passed tougher laws in the wake of the financial crisis, but whistleblowers and their advocates say labor-law enforcers, securities-law cops and banking regulators need to do more to ensure that banking workers can safely report fraud and other abuses.
For their part, banking industry representatives reject the idea that employees were punished for reporting problems.
In court documents, Wells Fargo denied Parmer’s charges that management interfered with in-house fraud watchdogs. The bank said Parmer was never prohibited from calling the ethics line and that its internal investigation showed that no one retaliated against her and that “no fraudulent activity occurred.”
A Wells Fargo spokeswoman told iWatch News that the bank has extensive protections for internal whistleblowers and that it is the responsibility of all employees to raise concerns about ethics breaches or law violations.
“We have a strict code of ethics and a no-retaliation policy,” Wells Fargo spokeswoman Vickee Adams said. “We take responsibility for our actions, and when there’s evidence of a mistake and there’s something that’s needs to be corrected, we take action.”
‘Zero tolerance’
iWatch News has reported on former employees of Countrywide Financial Corp. who claimed the company retaliated against them for objecting to falsified mortgage documents and other fraud. In September the Labor Department ruled that Bank of America Corp., which bought Countrywide in 2008, had fired Eileen Foster, the mortgage lender’s fraud investigations chief, as punishment for finding widespread fraud and for trying to protect other whistleblowers within the company.
Further investigation reveals that concerns about the abuse of whistleblowers weren’t limited to Countrywide.
Most of the workers who claimed they were punished for trying to fight fraud worked at giant firms such as Wells Fargo or Washington Mutual (WaMu). Others worked at smaller lenders that joined the rush to sell home loans during the boom years.
Wherever they worked, their accounts are similar. Many claim that commission-hungry workers falsified loan applicants’ incomes and bank statements, pushed appraisers to exaggerate property values and, in some instances, forged consumers’ signatures on documents.
In many cases, the former employees say, management encouraged the fraud and protected the fraudsters.
Parker, the former Ameriquest fraud investigations chief, claims that he had few problems when he did “ones” and “twos” — investigating cases that involved an employee or two who could cause only limited damage, he said. But things changed, he said, when he tried to fight systemic fraud by focusing on branches or regions where fraud was so prevalent, workers joked that bogus documents were being produced in the “art department.”
Management instructed his unit to limit its investigations by reducing the number of loan files it pulled when it went into a branch, Parker said. He was left out of meetings and key decisions and, eventually, squeezed out of his job, he claimed.
Ameriquest later agreed to pay $325 million to settle loan-fraud allegations by authorities in 49 states and the District of Columbia. It stopped making loans in 2007.
The company said previously in a written statement that Parker was a “disgruntled former employee” who lost his wrongful dismissal claim against the company before an arbitrator. In a 2007 opinion, the arbitrator ruled Parker hadn’t been able to prove that the company’s treatment of him was connected to his reports about fraud, adding that it “stretches the imagination” to think a company would retaliate against a fraud investigator for “doing his job.”
More generally, Ameriquest said it “had a policy of zero tolerance for fraud. When problems were discovered, the company addressed them, including immediately terminating the employee or vendor and pursuing civil and criminal action against them.”
‘Fraud is fraud’
At a White House press conference in October, ABC News correspondent Jake Tapper asked President Obama why his administration hadn’t pursued criminal cases more aggressively in the aftermath of disasters at Lehman Brothers and other banks.
“I don’t think any Wall Street executives have gone to jail, despite the rampant corruption and malfeasance that did take place,” Tapper said.
Obama replied that in many instances the government might have trouble making criminal charges stick, because “a lot of that stuff wasn’t necessarily illegal. It was just immoral or inappropriate or reckless.”
Obama isn’t alone in suggesting that criminal fraud by banks wasn’t the main cause of the nation’s financial disaster. Bankers have cited unpredictable market conditions, the federal government and borrowers as being among the chief culprits.
In congressional testimony, former Washington Mutual chief executive Kerry Killinger blamed borrowers for misleading WaMu about their incomes and other details in their loan applications.
“I’m certainly very disappointed to think about my customers lying to me, because that’s fraud and it shouldn’t happen,” Killinger said. “But I think an objective look at things is that there must have been situations where people did not tell the truth on their applications."
Many whistleblowers who worked inside major banks counter that it was fraud by lenders — not borrowers — that was the driving force in the growth of toxic loans that caused the mortgage meltdown.
“Fraud is fraud,” Parker said. “It’s fraud if someone changes information in a loan file without the borrower’s knowledge or does anything deceptive to get a loan approved and passed through. How can you say those are not criminal acts?”
Parker and other former mortgage workers say some borrowers did take part in the fraud, but they usually did so with coaching from sales representatives who knew how to work the system to get deals done. And in many cases, Parker and others say, borrowers weren’t aware of the deception and were fooled by bait-and-switch salesmanship and other tactics used by the mortgage professionals who controlled the process.
A two-year U.S. Senate investigation found that senior management at Washington Mutual ignored clear evidence that bank employees were engaging in fraud.
In a report released in April, Senate investigators noted that an internal WaMu review of a high-volume loan center in Southern California found that as many as 83 percent of the loans it booked contained fraud. Despite in-house gatekeepers’ warnings about fraud at that location and other loan centers, WaMu executives took “no discernable actions” to deal with problem, the Senate report said.
Top sales managers suspected of fraud, the report said, were allowed to continue to produce huge volumes of loans and win trips to Hawaii as members of WaMu’s “President’s Club.”
WaMu collapsed in September 2008, a $300 billion institution buried in bad loans. It was the largest bank failure in American history — and one of the biggest casualties of risky practices and missed warning signs stretching back to the start of the last decade.
Early warnings
In the spring and summer of 2001, Matthew Lee was a busy man.
A fair-lending activist and blogger on innercitypress.org, Lee was fielding a growing number of emails and phone messages from people who worked at Citigroup’s subprime lending unit, CitiFinancial. The lender, they told Lee, was using slippery methods to trap borrowers in cycles of overpriced debt.
The more he reported the whistleblowers’ information on his website, the more whistleblowers contacted him. “I can’t count the number of times people called me and said: ‘It’s actually worse than you described. Let me tell you about it,’” Lee recalled.
In all, Lee estimates, he talked with three dozen current and former CitiFinancial employees.
One continued helping Lee even after he lost his job at Citi, digging through trash bins outside CitiFinancial branches around Tennessee and rescuing internal memos and other documents that, in Lee’s view, provided evidence of the lender’s “pervasive lawlessness.” The documents would arrive via overnight mail, often damp and smelling of used coffee grounds.
One former CitiFinancial employee, Steve Toomey, agreed to go on the record, signing a statement that said managers pushed workers to mislead borrowers about the costs of their loans and to falsify information in borrowers’ files. Lee filed Toomey’s affidavit and other documents with banking regulators at the Federal Reserve.
CitiFinancial immediately denied the allegations against the company, asserting, for example, that Toomey had only raised questions after “he concluded that the company would not pay him monies that he demanded to resolve an employment dispute.”
With the pressure building, Citigroup went out of its way to warn other current and former employees to keep quiet about what went on at CitiFinancial, according to Reuters news service.
Citigroup, Reuters said, hired a famed litigator “to help fight allegations of illegal lending practices and prevent former employees from bad-mouthing the financial services giant.” Mitchell Ettinger, one of Bill Clinton’s lawyers in the Paula Jones case, met with at least 15 current or former employees, reminding the ex-employees that Citigroup would enforce the “non-disparagement clauses” in their severance agreements with the company, Reuters said.
Lee charged that this was an attempt to paper over evidence of misconduct inside CitiFinancial. Why, he argued, would Citigroup dispatch a partner from Skadden Arps, described by Forbes magazine as “Wall Street’s most powerful law firm,” to talk with low-level employees?
Citigroup told Reuters the bank had acted properly. It added that the standard non-disparagement clause in the bank’s severance agreements wouldn’t prevent ex-employees from reporting illegalities.
Ettinger did not respond to requests for comment from iWatch News. A Citigroup spokesman declined to answer specific questions from iWatch News about former employees’ complaints. He said “issues from that time period” were “investigated and responded to appropriately by the company.”
The Federal Reserve eventually fined CitiFinancial $70 million for regulatory violations. Lee said that the Fed focused mainly on technical issues, however, and did nothing to protect whistleblowers from intimidation by the bank.
That, Lee said, made it less likely that more employees would come forward in the future with information about misconduct at Citi — or at other financial institutions that wanted to keep misbehavior secret.
“When people do step forward and put themselves at risk, you need to aggressively say to them, ‘If you’ve received any threats from the company, let us know,’” Lee said.
A spokeswoman said the Federal Reserve couldn’t comment on issues involving individual banks.
‘Their integrity … failed’
As whistleblowers were drawing scrutiny to Citigroup, then the nation’s largest commercial bank, others were raising questions about Washington Mutual, the nation’s largest savings and loan.
One of them was Theresa Hagman, a vice president in WaMu’s custom home-construction lending division. In 2003, Hagman spotted an increase in the number of construction loans going into default. She believed this was happening because loans were being pushed through without proper documentation, in violation of federal lending laws.
But when she pressed the issue with a high-level sales manager, Hagman later testified in a Labor Department hearing, he jumped out of his chair and charged her, screaming at her as his face purpled and veins popped in his neck. (In his testimony, the manager conceded he’d had disagreements with Hagman but denied they’d had heated confrontations.)
As an internal investigation proceeded, a senior vice president wrote: “If this wasn’t a good example of a need for a Fraud team, then I can’t find one. This poor individual is feeling like she is getting no support from her management.”
The senior executive’s concerns weren’t enough to protect her from more retaliation, Hagman said.
“I was being brutalized, and they knew it,” Hagman testified. “I was sharing the emails with everybody, pleading for protection. … We had borrowers that were being damaged and employees that were scared and crying.”
In March 2004, WaMu fired her.
Hagman filed a claim for federal whistleblower protection under the Sarbanes-Oxley Act, the corporate reform law passed in response to accounting frauds at Enron Corp. and other big companies.
Hagman told an administrative law judge that there were “senior-level people in this organization who are still there today who did not tell the truth. Their integrity and their honor … without question failed.”
WaMu maintained that there was no retaliation, only miscommunication between Hagman and her bosses. It said she hadn’t been fired, she’d simply been let go as part of a restructuring.
The judge sided with Hagman. He ordered that WaMu pay her more than $1 million.
‘Silent treatment’
The whistleblower affairs at Citigroup and WaMu came as the mortgage market was beginning to gain steam, recovering from a late 1990s credit crisis that had put dozens of subprime lenders out of business.
By 2004, mortgage industry production and profits were exploding. As the push to book loans grew to a near frenzy, industry insiders recall, the atmosphere at many mortgage-sales operations devolved into a cross between a “boiler room” operation and a frat-house blowout.
At Citizens Financial Mortgage Inc., a small Pennsylvania-headquartered lender, the out-of-control behavior included an ugly mix of sexual harassment and fraud, a lawsuit filed by a former loan processor at the company charged.
Gina La Vitola claimed one manager at her branch in Essex County, N.J., ranted and cursed and gambled on sports during office hours, even getting a visit from a bookie delivering a wad of cash. On several occasions, she said in her lawsuit, the manager picked her up, threw her over his shoulder and then used her “as a weight bar to see how many squats he could do.”
Supervisors’ behavior degenerated from vulgar to threatening, she claimed, when she started complaining about inflated property appraisals and other misconduct. Managers often forged borrowers’ signatures on loan documents and made up fake verification of employment forms, her lawsuit said. One manager, the suit said, had an arrangement with a friendly business owner who was willing to falsely claim that the manager’s loan customers were on his payroll.
After she reported the problems to Citizens’ president, she claimed, she got “the silent treatment” from coworkers and her bosses drastically changed her work hours and duties.
Finally, she said, a manager telephoned her and explained that, since her complaint, the “vibe is not there” in the office. That was a problem, he said, because he was “big about vibe, energy.”
He told her the company was letting her go, she claimed.
The company strongly denied her allegations. The case was settled on undisclosed terms. A former company official confirmed to iWatch News that Citizens was no longer in business, but said he couldn’t comment on the lawsuit.
Fraud sleuths
As mortgage salespeople embraced creative methods for pushing mortgages through the system, they were being stalked by a band of internal watchdogs.
Financial institutions keep fraud investigators and other gatekeepers on staff in part because they need to show regulators and investors that they have solid controls in place.
Many of these watchdogs took their jobs seriously.
In the spring of 2005, Darcy Parmer joined a team at Wells Fargo that was working on a plan to create a fraud detection report.
By doing queries within the bank’s computerized mortgage-application system, Parmer said, she and other fraud sleuths found a large number of duplicate credit applications submitted to various branch offices and divisions within Wells Fargo. It appeared to Parmer that loan officers were helping borrowers who’d been turned down for loans resubmit their applications elsewhere within the bank, inflating their incomes from one application to the next by as much as 100 percent.
The report, Parmer believed, was a great tool for sniffing out fraud. In 2006, however, management terminated use of the fraud detection report, Parmer said.Nothing was put in place to replace it, she said.
It wasn’t the only time that higher ups interfered with internal watchdogs’ ability to do their jobs, according to Parmer’s lawsuit in federal court in Colorado. Her court filings described many instances in which she claimed sales people and executives circumvented fraud controls or turned a blind eye to “acts of criminal fraud.”
One case involved a borrower Parmer referred to in court papers as Ms. A. According to Parmer, a loan officer had claimed in the loan-underwriting system that Ms. A earned roughly $140,000 per year, but federal tax records indicated she earned less than half that much — barely $60,000 a year.
When she tried to stop the loan from going through, Parmer said, a manager chastised her: “This is what you do every time.” He ordered her to close her investigation, she said.
After months of harassment, she said in an affidavit, she was “mentally and emotionally unable to continue working” and had to take disability leave to get treatment for distress and depression. After a time, she said, the bank informed her that her job had been filled.
Wells Fargo said in court documents that it had never fired her and that she was simply “on an unapproved leave of absence.”
The bank’s attorneys also said that Wells Fargo had refused to fund “nearly ever loan” that Parmer had complained about, and those that had funded had been handled “consistent with Wells Fargo protocol.”
Parmer and the bank settled the case in 2009. The terms were confidential.
‘In the dark’
When Congress passed Sarbanes-Oxley in 2002, it raised hopes that more workers would be emboldened to come forward with information that would help prevent future corporate scandals. One legal scholar hailed the act — which gave federal labor officials the power to order companies to swiftly reinstate whistleblowers with back pay — as “the most important whistleblower protection law in the world.”
Things haven’t worked out as whistleblower advocates had hoped. Critics claim the Labor Department hasn’t done enough to protect financial whistleblowers.
In roughly the first nine years of the law — from 2002 through May 20 of this year — the agency issued merit findings in 21 whistleblower complaints and dismissed 1,211 others.
That record is just one example, whistleblower advocates say, of the trials that corporate whistleblowers go through when they try to do the right thing.
When whistleblowers seek help from government agencies or state and federal courts, they often face long delays and find themselves outgunned by their employers’ legal teams.
At the same time, employers are often successful at preventing whistleblowers from getting the word out to the wider world. When companies and employees negotiate severance contracts and legal settlements, confidentiality clauses often permanently silence whistleblowers. Companies also frequently force ex-employees with whistleblower claims into private arbitration, ensuring that many details of their cases will remain secret.
Judges in Los Angeles, for example, have booted three former WaMu employees out of court and ordered them to go before arbitrators to press their claims that the company pushed them out of their jobs in early 2008 because they refused to participate in fraud.
Some former mortgage-industry workers contacted by iWatch News declined to talk in more detail about their legal claims because they’re gagged by secrecy agreements. Others said they couldn’t talk on the record because they still work in banking and don’t want to get in trouble with their current employers, or because they’re looking for jobs and don’t want to be blacklisted.
“Hell, we want to work,” one mortgage fraud investigator said, explaining why he and many of his colleagues haven’t gone public with what they know.
Matthew Lee, the fair lending activist who clashed with Citigroup a decade ago, believes getting whistleblowers to come forward is crucial to preventing the next financial meltdown.
Fraud thrives in secret. If regulators are serious about holding banks accountable, Lee said, they should cultivate and protect whistleblowers and serve as a counterweight to the power of big banks and their armies of lawyers.
“They need to think through how they’re going to protect people in the industry who come forward with information,” Lee said. “If you don’t, you’re going to be in the dark.”
Whistleblowers ignored, punished by lenders, dozens of former employees say
Mortgage fraud involved many lenders, former employees say
By Michael Hudsonemail 6:00 am, November 22, 2011 Updated: 12:19 pm, May 19, 2014
A Wells Fargo branch in San Francisco. Paul Sakuma/AP file
9
likes
167
tweets
7 commentsE-mailPrint
Underwriter uncovered three frauds in one loan, suit claims
By Michael Hudson November 22, 2011
The Great Mortgage Cover-Up
How corporate codes of silence and whistleblower abuse helped lenders flood the nation with toxic mortgages.
Stories in this series
Countrywide protected fraudsters by silencing whistleblowers, say former employees
By Michael Hudson September 22, 2011
Mortgage industry tanks, fraud continues at Countrywide
By Michael Hudson September 23, 2011
Wells Fargo hit with $3.1 million fine in mortgage servicing mess
By John Dunbar April 10, 2012
New whistleblower cases allege continued bank fraud
By Amy Biegelsen and Emma Schwartz March 9, 2012
Virginians protest General Electric over foreclosures
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Fraud and folly: The untold story of General Electric’s subprime debacle
By Michael Hudson January 6, 2012
Woman says GE-owned subprime lender deceived, defrauded her
By Michael Hudson January 6, 2012
Ex-WaMu worker claims he was shunned for refusing to push toxic loans on borrowers
By Michael Hudson December 22, 2011
Bank of America to pay record settlement over Countrywide abuses
By John Dunbar December 21, 2011
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Darcy Parmer ran into trouble soon after she started her job as a fraud analyst at Wells Fargo Bank. Her bosses, she later claimed, were upset that she was, well, finding fraud.
Company officials, she alleged in a lawsuit, berated her for reporting that sales staffers were pushing through mortgage deals based on made-up borrower incomes and other distortions, telling her that she didn’t “see the big picture” and that “it is not your job to fix Wells Fargo.” Management, she claimed, ordered her to stop contacting the company’s ethics hotline.
In the end, she said, Wells Fargo forced her out of her job.
Parmer isn’t alone in claiming she was punished for objecting to fraud in the midst of the nation’s home-loan boom. iWatch News has identified 63 former employees at 20 financial institutions who say they were fired or demoted for reporting fraud or refusing to commit fraud. Their stories were disclosed in whistleblower claims with the U.S. Department of Labor, court documents or interviews with iWatch News.
“We did our jobs. We had integrity,” said Ed Parker, former fraud investigations manager at now-defunct Ameriquest Mortgage Co., a leading subprime lender. “But we were not welcome because we affected the bottom line.”
These ex-employees’ accounts provide evidence that the muzzling of whistleblowers played an important role in allowing corruption to flourish as mortgage lenders and their patrons on Wall Street pumped up loan volume and profits. Codes of silence at many lenders, former employees claim, helped discourage media, regulators and policymakers from taking a hard look at illegal practices that ultimately harmed borrowers, investors and the economy.
Whistleblower advocates say weak federal and state laws also helped prevent finance industry workers from being heard. Congress passed tougher laws in the wake of the financial crisis, but whistleblowers and their advocates say labor-law enforcers, securities-law cops and banking regulators need to do more to ensure that banking workers can safely report fraud and other abuses.
For their part, banking industry representatives reject the idea that employees were punished for reporting problems.
In court documents, Wells Fargo denied Parmer’s charges that management interfered with in-house fraud watchdogs. The bank said Parmer was never prohibited from calling the ethics line and that its internal investigation showed that no one retaliated against her and that “no fraudulent activity occurred.”
A Wells Fargo spokeswoman told iWatch News that the bank has extensive protections for internal whistleblowers and that it is the responsibility of all employees to raise concerns about ethics breaches or law violations.
“We have a strict code of ethics and a no-retaliation policy,” Wells Fargo spokeswoman Vickee Adams said. “We take responsibility for our actions, and when there’s evidence of a mistake and there’s something that’s needs to be corrected, we take action.”
‘Zero tolerance’
iWatch News has reported on former employees of Countrywide Financial Corp. who claimed the company retaliated against them for objecting to falsified mortgage documents and other fraud. In September the Labor Department ruled that Bank of America Corp., which bought Countrywide in 2008, had fired Eileen Foster, the mortgage lender’s fraud investigations chief, as punishment for finding widespread fraud and for trying to protect other whistleblowers within the company.
Further investigation reveals that concerns about the abuse of whistleblowers weren’t limited to Countrywide.
Most of the workers who claimed they were punished for trying to fight fraud worked at giant firms such as Wells Fargo or Washington Mutual (WaMu). Others worked at smaller lenders that joined the rush to sell home loans during the boom years.
Wherever they worked, their accounts are similar. Many claim that commission-hungry workers falsified loan applicants’ incomes and bank statements, pushed appraisers to exaggerate property values and, in some instances, forged consumers’ signatures on documents.
In many cases, the former employees say, management encouraged the fraud and protected the fraudsters.
Parker, the former Ameriquest fraud investigations chief, claims that he had few problems when he did “ones” and “twos” — investigating cases that involved an employee or two who could cause only limited damage, he said. But things changed, he said, when he tried to fight systemic fraud by focusing on branches or regions where fraud was so prevalent, workers joked that bogus documents were being produced in the “art department.”
Management instructed his unit to limit its investigations by reducing the number of loan files it pulled when it went into a branch, Parker said. He was left out of meetings and key decisions and, eventually, squeezed out of his job, he claimed.
Ameriquest later agreed to pay $325 million to settle loan-fraud allegations by authorities in 49 states and the District of Columbia. It stopped making loans in 2007.
The company said previously in a written statement that Parker was a “disgruntled former employee” who lost his wrongful dismissal claim against the company before an arbitrator. In a 2007 opinion, the arbitrator ruled Parker hadn’t been able to prove that the company’s treatment of him was connected to his reports about fraud, adding that it “stretches the imagination” to think a company would retaliate against a fraud investigator for “doing his job.”
More generally, Ameriquest said it “had a policy of zero tolerance for fraud. When problems were discovered, the company addressed them, including immediately terminating the employee or vendor and pursuing civil and criminal action against them.”
‘Fraud is fraud’
At a White House press conference in October, ABC News correspondent Jake Tapper asked President Obama why his administration hadn’t pursued criminal cases more aggressively in the aftermath of disasters at Lehman Brothers and other banks.
“I don’t think any Wall Street executives have gone to jail, despite the rampant corruption and malfeasance that did take place,” Tapper said.
Obama replied that in many instances the government might have trouble making criminal charges stick, because “a lot of that stuff wasn’t necessarily illegal. It was just immoral or inappropriate or reckless.”
Obama isn’t alone in suggesting that criminal fraud by banks wasn’t the main cause of the nation’s financial disaster. Bankers have cited unpredictable market conditions, the federal government and borrowers as being among the chief culprits.
In congressional testimony, former Washington Mutual chief executive Kerry Killinger blamed borrowers for misleading WaMu about their incomes and other details in their loan applications.
“I’m certainly very disappointed to think about my customers lying to me, because that’s fraud and it shouldn’t happen,” Killinger said. “But I think an objective look at things is that there must have been situations where people did not tell the truth on their applications."
Many whistleblowers who worked inside major banks counter that it was fraud by lenders — not borrowers — that was the driving force in the growth of toxic loans that caused the mortgage meltdown.
“Fraud is fraud,” Parker said. “It’s fraud if someone changes information in a loan file without the borrower’s knowledge or does anything deceptive to get a loan approved and passed through. How can you say those are not criminal acts?”
Parker and other former mortgage workers say some borrowers did take part in the fraud, but they usually did so with coaching from sales representatives who knew how to work the system to get deals done. And in many cases, Parker and others say, borrowers weren’t aware of the deception and were fooled by bait-and-switch salesmanship and other tactics used by the mortgage professionals who controlled the process.
A two-year U.S. Senate investigation found that senior management at Washington Mutual ignored clear evidence that bank employees were engaging in fraud.
In a report released in April, Senate investigators noted that an internal WaMu review of a high-volume loan center in Southern California found that as many as 83 percent of the loans it booked contained fraud. Despite in-house gatekeepers’ warnings about fraud at that location and other loan centers, WaMu executives took “no discernable actions” to deal with problem, the Senate report said.
Top sales managers suspected of fraud, the report said, were allowed to continue to produce huge volumes of loans and win trips to Hawaii as members of WaMu’s “President’s Club.”
WaMu collapsed in September 2008, a $300 billion institution buried in bad loans. It was the largest bank failure in American history — and one of the biggest casualties of risky practices and missed warning signs stretching back to the start of the last decade.
Early warnings
In the spring and summer of 2001, Matthew Lee was a busy man.
A fair-lending activist and blogger on innercitypress.org, Lee was fielding a growing number of emails and phone messages from people who worked at Citigroup’s subprime lending unit, CitiFinancial. The lender, they told Lee, was using slippery methods to trap borrowers in cycles of overpriced debt.
The more he reported the whistleblowers’ information on his website, the more whistleblowers contacted him. “I can’t count the number of times people called me and said: ‘It’s actually worse than you described. Let me tell you about it,’” Lee recalled.
In all, Lee estimates, he talked with three dozen current and former CitiFinancial employees.
One continued helping Lee even after he lost his job at Citi, digging through trash bins outside CitiFinancial branches around Tennessee and rescuing internal memos and other documents that, in Lee’s view, provided evidence of the lender’s “pervasive lawlessness.” The documents would arrive via overnight mail, often damp and smelling of used coffee grounds.
One former CitiFinancial employee, Steve Toomey, agreed to go on the record, signing a statement that said managers pushed workers to mislead borrowers about the costs of their loans and to falsify information in borrowers’ files. Lee filed Toomey’s affidavit and other documents with banking regulators at the Federal Reserve.
CitiFinancial immediately denied the allegations against the company, asserting, for example, that Toomey had only raised questions after “he concluded that the company would not pay him monies that he demanded to resolve an employment dispute.”
With the pressure building, Citigroup went out of its way to warn other current and former employees to keep quiet about what went on at CitiFinancial, according to Reuters news service.
Citigroup, Reuters said, hired a famed litigator “to help fight allegations of illegal lending practices and prevent former employees from bad-mouthing the financial services giant.” Mitchell Ettinger, one of Bill Clinton’s lawyers in the Paula Jones case, met with at least 15 current or former employees, reminding the ex-employees that Citigroup would enforce the “non-disparagement clauses” in their severance agreements with the company, Reuters said.
Lee charged that this was an attempt to paper over evidence of misconduct inside CitiFinancial. Why, he argued, would Citigroup dispatch a partner from Skadden Arps, described by Forbes magazine as “Wall Street’s most powerful law firm,” to talk with low-level employees?
Citigroup told Reuters the bank had acted properly. It added that the standard non-disparagement clause in the bank’s severance agreements wouldn’t prevent ex-employees from reporting illegalities.
Ettinger did not respond to requests for comment from iWatch News. A Citigroup spokesman declined to answer specific questions from iWatch News about former employees’ complaints. He said “issues from that time period” were “investigated and responded to appropriately by the company.”
The Federal Reserve eventually fined CitiFinancial $70 million for regulatory violations. Lee said that the Fed focused mainly on technical issues, however, and did nothing to protect whistleblowers from intimidation by the bank.
That, Lee said, made it less likely that more employees would come forward in the future with information about misconduct at Citi — or at other financial institutions that wanted to keep misbehavior secret.
“When people do step forward and put themselves at risk, you need to aggressively say to them, ‘If you’ve received any threats from the company, let us know,’” Lee said.
A spokeswoman said the Federal Reserve couldn’t comment on issues involving individual banks.
‘Their integrity … failed’
As whistleblowers were drawing scrutiny to Citigroup, then the nation’s largest commercial bank, others were raising questions about Washington Mutual, the nation’s largest savings and loan.
One of them was Theresa Hagman, a vice president in WaMu’s custom home-construction lending division. In 2003, Hagman spotted an increase in the number of construction loans going into default. She believed this was happening because loans were being pushed through without proper documentation, in violation of federal lending laws.
But when she pressed the issue with a high-level sales manager, Hagman later testified in a Labor Department hearing, he jumped out of his chair and charged her, screaming at her as his face purpled and veins popped in his neck. (In his testimony, the manager conceded he’d had disagreements with Hagman but denied they’d had heated confrontations.)
As an internal investigation proceeded, a senior vice president wrote: “If this wasn’t a good example of a need for a Fraud team, then I can’t find one. This poor individual is feeling like she is getting no support from her management.”
The senior executive’s concerns weren’t enough to protect her from more retaliation, Hagman said.
“I was being brutalized, and they knew it,” Hagman testified. “I was sharing the emails with everybody, pleading for protection. … We had borrowers that were being damaged and employees that were scared and crying.”
In March 2004, WaMu fired her.
Hagman filed a claim for federal whistleblower protection under the Sarbanes-Oxley Act, the corporate reform law passed in response to accounting frauds at Enron Corp. and other big companies.
Hagman told an administrative law judge that there were “senior-level people in this organization who are still there today who did not tell the truth. Their integrity and their honor … without question failed.”
WaMu maintained that there was no retaliation, only miscommunication between Hagman and her bosses. It said she hadn’t been fired, she’d simply been let go as part of a restructuring.
The judge sided with Hagman. He ordered that WaMu pay her more than $1 million.
‘Silent treatment’
The whistleblower affairs at Citigroup and WaMu came as the mortgage market was beginning to gain steam, recovering from a late 1990s credit crisis that had put dozens of subprime lenders out of business.
By 2004, mortgage industry production and profits were exploding. As the push to book loans grew to a near frenzy, industry insiders recall, the atmosphere at many mortgage-sales operations devolved into a cross between a “boiler room” operation and a frat-house blowout.
At Citizens Financial Mortgage Inc., a small Pennsylvania-headquartered lender, the out-of-control behavior included an ugly mix of sexual harassment and fraud, a lawsuit filed by a former loan processor at the company charged.
Gina La Vitola claimed one manager at her branch in Essex County, N.J., ranted and cursed and gambled on sports during office hours, even getting a visit from a bookie delivering a wad of cash. On several occasions, she said in her lawsuit, the manager picked her up, threw her over his shoulder and then used her “as a weight bar to see how many squats he could do.”
Supervisors’ behavior degenerated from vulgar to threatening, she claimed, when she started complaining about inflated property appraisals and other misconduct. Managers often forged borrowers’ signatures on loan documents and made up fake verification of employment forms, her lawsuit said. One manager, the suit said, had an arrangement with a friendly business owner who was willing to falsely claim that the manager’s loan customers were on his payroll.
After she reported the problems to Citizens’ president, she claimed, she got “the silent treatment” from coworkers and her bosses drastically changed her work hours and duties.
Finally, she said, a manager telephoned her and explained that, since her complaint, the “vibe is not there” in the office. That was a problem, he said, because he was “big about vibe, energy.”
He told her the company was letting her go, she claimed.
The company strongly denied her allegations. The case was settled on undisclosed terms. A former company official confirmed to iWatch News that Citizens was no longer in business, but said he couldn’t comment on the lawsuit.
Fraud sleuths
As mortgage salespeople embraced creative methods for pushing mortgages through the system, they were being stalked by a band of internal watchdogs.
Financial institutions keep fraud investigators and other gatekeepers on staff in part because they need to show regulators and investors that they have solid controls in place.
Many of these watchdogs took their jobs seriously.
In the spring of 2005, Darcy Parmer joined a team at Wells Fargo that was working on a plan to create a fraud detection report.
By doing queries within the bank’s computerized mortgage-application system, Parmer said, she and other fraud sleuths found a large number of duplicate credit applications submitted to various branch offices and divisions within Wells Fargo. It appeared to Parmer that loan officers were helping borrowers who’d been turned down for loans resubmit their applications elsewhere within the bank, inflating their incomes from one application to the next by as much as 100 percent.
The report, Parmer believed, was a great tool for sniffing out fraud. In 2006, however, management terminated use of the fraud detection report, Parmer said.Nothing was put in place to replace it, she said.
It wasn’t the only time that higher ups interfered with internal watchdogs’ ability to do their jobs, according to Parmer’s lawsuit in federal court in Colorado. Her court filings described many instances in which she claimed sales people and executives circumvented fraud controls or turned a blind eye to “acts of criminal fraud.”
One case involved a borrower Parmer referred to in court papers as Ms. A. According to Parmer, a loan officer had claimed in the loan-underwriting system that Ms. A earned roughly $140,000 per year, but federal tax records indicated she earned less than half that much — barely $60,000 a year.
When she tried to stop the loan from going through, Parmer said, a manager chastised her: “This is what you do every time.” He ordered her to close her investigation, she said.
After months of harassment, she said in an affidavit, she was “mentally and emotionally unable to continue working” and had to take disability leave to get treatment for distress and depression. After a time, she said, the bank informed her that her job had been filled.
Wells Fargo said in court documents that it had never fired her and that she was simply “on an unapproved leave of absence.”
The bank’s attorneys also said that Wells Fargo had refused to fund “nearly ever loan” that Parmer had complained about, and those that had funded had been handled “consistent with Wells Fargo protocol.”
Parmer and the bank settled the case in 2009. The terms were confidential.
‘In the dark’
When Congress passed Sarbanes-Oxley in 2002, it raised hopes that more workers would be emboldened to come forward with information that would help prevent future corporate scandals. One legal scholar hailed the act — which gave federal labor officials the power to order companies to swiftly reinstate whistleblowers with back pay — as “the most important whistleblower protection law in the world.”
Things haven’t worked out as whistleblower advocates had hoped. Critics claim the Labor Department hasn’t done enough to protect financial whistleblowers.
In roughly the first nine years of the law — from 2002 through May 20 of this year — the agency issued merit findings in 21 whistleblower complaints and dismissed 1,211 others.
That record is just one example, whistleblower advocates say, of the trials that corporate whistleblowers go through when they try to do the right thing.
When whistleblowers seek help from government agencies or state and federal courts, they often face long delays and find themselves outgunned by their employers’ legal teams.
At the same time, employers are often successful at preventing whistleblowers from getting the word out to the wider world. When companies and employees negotiate severance contracts and legal settlements, confidentiality clauses often permanently silence whistleblowers. Companies also frequently force ex-employees with whistleblower claims into private arbitration, ensuring that many details of their cases will remain secret.
Judges in Los Angeles, for example, have booted three former WaMu employees out of court and ordered them to go before arbitrators to press their claims that the company pushed them out of their jobs in early 2008 because they refused to participate in fraud.
Some former mortgage-industry workers contacted by iWatch News declined to talk in more detail about their legal claims because they’re gagged by secrecy agreements. Others said they couldn’t talk on the record because they still work in banking and don’t want to get in trouble with their current employers, or because they’re looking for jobs and don’t want to be blacklisted.
“Hell, we want to work,” one mortgage fraud investigator said, explaining why he and many of his colleagues haven’t gone public with what they know.
Matthew Lee, the fair lending activist who clashed with Citigroup a decade ago, believes getting whistleblowers to come forward is crucial to preventing the next financial meltdown.
Fraud thrives in secret. If regulators are serious about holding banks accountable, Lee said, they should cultivate and protect whistleblowers and serve as a counterweight to the power of big banks and their armies of lawyers.
“They need to think through how they’re going to protect people in the industry who come forward with information,” Lee said. “If you don’t, you’re going to be in the dark.”
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Restricting CEO pay is designed to COVER up the MEGA LOOT.
The idea of restricting CEO pay is that the leaders want to conserve equity of FF to care for mortgage borrowers.
But the leaders had agreed to have FF equity completely looted by the private banks in 2008 due to forcing FF to buy worthless mortgage assets of private banks for cash from FF and taxpayers transferred to these banks.
The mortgage fraud penalty collected by the government later is just a part of the loot of FF equity.
The govt should at least return the mortgage fraud collected penalty collected from private banks and reverse the excess profit sweep to FF before getting into a farce of restricting CEO pay. Are the leaders assuming that people are stupid? JMHO
But the leaders had agreed to have FF equity completely looted by the private banks in 2008 due to forcing FF to buy worthless mortgage assets of private banks for cash from FF and taxpayers transferred to these banks.
The mortgage fraud penalty collected by the government later is just a part of the loot of FF equity.
The govt should at least return the mortgage fraud collected penalty collected from private banks and reverse the excess profit sweep to FF before getting into a farce of restricting CEO pay. Are the leaders assuming that people are stupid? JMHO
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Barry Zigas, Zigas has served as Director of Housing Policy at Consumer Federation of America since 2008
Recap and Release: Not the right path to affordable mortgages
The government's role in all this
November 16, 2015Barry Zigas4 Comments
Fannie MaeFreddie MacGSE reform
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It’s easy to understand why hedge funds and other speculators in Fannie Mae and Freddie Mac stock are pushing anew to “recap and release” the companies from conservatorship. But it’s a lot harder to understand why affordable housing groups are joining this chorus when it will neither expand affordable housing nor necessarily support broad credit access.
The fundamental problem with the recap and release approach is that starting any discussion about a future mortgage finance system with Fannie and Freddie is like looking through the wrong end of a telescope: the field of vision is very restricted and the details are hard to make out.
The right place to start is to ask “what are the goals of government engagement in mortgage finance, how should it be structured, and, once that’s settled, what role do Fannie Mae and Freddie Mac have to play?”
The government’s role should be to ensure a set of critical outcomes:
The broadest possible access to sustainable mortgage credit by the greatest range of credit worthy borrowers, everywhere in the country
A deep and liquid market for mortgage backed securities to ensure reliable investment at all times from the broadest possible range of investors at the lowest possible cost, enabling rate locks for consumers
The choice to have a long term fixed rate mortgages at a reasonable price for consumers who prefer them
The newest affordable housing recap and release champions say that these goals are what drive their recommendations. They point to the companies’ shrinking capital base and argue that recapitalizing them and ending conservatorship – turning back the clock to the years before the GSE model’s fault lines became so clear – is the best way to assure access to affordable housing finance.
But the facts don’t support these calls for action.
Access to affordable mortgage credit
As Hector Sanchez from Labor Council for Latin American Advancement said on a Nov. 11 press call about their recommendations for recap and release, “We must encourage wealth building for Latinos because they will continue to play a key economic role in the future.” These groups decry the GSEs’ current track record on affordable lending, and particularly their low levels of lending to African-Americans and Hispanics. Many of us agree with both sentiments. Yet some of these advocates seem to believe that this will improve rather than worsen under recap and release, without offering any explanation why this would be so. They further argue that maintenance of the companies’ charter requirements including housing goals can be protected only through recap and release.
But Fannie and Freddie’s governing charters are the same in conservatorship as they would be under recap and release. Out of conservatorship, the companies will once again be forced to balance their public purposes against their shareholders’ interests. This is not a conflict they have to contend with now. Recent history suggests that it is one that can end badly. Ending conservatorship will not increase their affordable housing obligations from what they are now. But it could place much greater pressure on the companies to build profits instead.
Capital punishment
Some recap and release promoters argue recapitalization is critically important because the companies have a thin and shrinking capital cushion. Freddie Mac’s recent quarterly loss, for instance, has encouraged speculation that the GSEs will have to seek support from the Treasury again sooner or later.
But the companies’ swings in capital levels are being driven entirely by accounting treatment of the derivatives they hold against their assets. The companies’ exposure to actual credit losses is minimal today, given the very high quality of their books. Both companies are carrying significant amounts of credit insurance from mortgage insurers for lower down payment loans. Freddie Mac reported loan loss reserves to back up their credit guarantees of $15.8 billion and Fannie $29.7 billion in their third quarter SEC reports.
Most importantly, there is no economic consequence under conservatorship even if one or both falls below its required capital because of these accounting effects. They would draw on the Treasury line of credit and issue more senior preferred stock. Yes, there would be some political fallout and some in the press, punditocracy and Congress who would rant and rave about it. But in the end there is no chance of swift congressional action or Presidential concurrence as a result.
On the other hand, recapping and releasing the GSEs would create two new systemically important financial institutions. Investors and management could not operate the companies as they did before, with very thin capital levels and reliance on an implicit guarantee. The result – potentially still higher mortgage costs and less product flexibility.
A broad, liquid and stable market for long term fixed rate mortgage funding
Investors today see the Treasury capital pledge and take comfort from this “don’t ask, don’t tell” form of explicit guarantee.
Under recap and release, investors might go back to assuming the “implicit guarantee” applies again and treat GSE MBS as they did before. But they might not do so with the same appetite or same requirements, especially if Treasury withdraws its current credit line. It’s possible the market for these bonds would shrink, raising costs further. Lower volumes mean less liquidity and higher prices. Without a blanket guarantee on the securities, investors might demand higher credit standards to further insulate themselves from credit losses. This would restrict the range of borrowers the system could serve. Bonds might be less liquid because they would no longer be a homogenous commodity. Smaller volumes would further affect pricing, raising consumer costs.
The TBA market that enables borrowers to choose long term fixed rate loans and to get rate locks well in advance of their loan closing depends on the homogeneity of guaranteed bonds. Under recap and release this market could shrink or operate with much less efficiency if the bonds carry no explicit guarantee and investors seek more granular information on the mortgage assets themselves to hedge a perceived risk with an implicit guarantee.
Some recap and release advocates argue that investors will come back and nothing will change. They might be right. But they haven’t made a persuasive case that service to low and moderate income borrowers would be enhanced by recap and release. The rules for investors are pretty clear today and the market is functioning to attract and distribute housing capital.
An explicit federal guarantee that Fannie and Freddie would pay for, another option some recap and release advocates mention, is only possible if Congress authorizes it. Of course the chances of Congress doing so and the Obama Administration concurring without enacting further more radical changes to the pre-crisis structure are zero.
Comprehensive Reform
The burden of proving that recap and release will not raise costs to consumers and jeopardize the mortgage finance system’s current benefits is on those calling for it. They haven’t yet. For example, the National Community Reinvestment Coalition (NCRC) this week posted a white paper laying out their case for recap and release. It is long on defending the importance of home ownership and the need for affordable mortgage credit, sentiments many of us share. But it doesn’t explain how recap and release would actually work. It does give a nod to the need for more comprehensive reform – under the heading “Continuing GSE Reform” it notes,
“Congress should also reform the government guarantee so as to ensure that the secondary market remains liquid and deep, credit remains affordable for low- and moderate-income borrowers and investment remains robust for their MBS.” (Emphasis added)
At the Nov. 11 press call, Center for Responsible Lending (CRL) President Mike Calhoun noted the need to
“…support the housing market and the entire economy, by strengthening broad access to all sustainable homebuyers and all responsible lenders, improving fair lending, and properly structuring and incentivizing the GSEs.” (Emphasis added)
Recap and release advances neither of these important goals. How doing so will be easier after Fannie and Freddie are back on their feet is isn’t explained. Why it is even necessary, after making the case for recap and release, is not either.
As it happens, there already is a remarkable consensus on how to sustain the market outcomes that matter and fix the system’s pre-crisis aspects that have long been a challenge. Financial services trade groups, consumer advocates, academics and the Bipartisan Policy Center’s housing commission all have recommended a system where the US government provides an explicit worst case guarantee on mortgage backed securities that meet its standards and that is paid for by a fee on the securities. Private entities would provide the primary credit insurance ahead of this catastrophic government guarantee, and they would be required to meet government requirements for capital and other critical features. The government guarantee would not protect their shareholders or creditors. Critically, most of these plans agree on the need for an obligation to serve the full range of credit worthy borrowers or lose access to the government’s support for their bonds.
While all of these plans envision Fannie Mae and Freddie Mac ceasing to exist as they are currently chartered, most of them also see a likely role for them as restructured companies participating with other competitors to provide the first layer of credit insurance and issue securities backed by the US guarantee. These plans would make only a few, but critical, changes to the system that existed pre-conservatorship, including converting the implicit guarantee of the companies to an explicit guarantee of the securities alone.
Some critics keep insisting that all reform plans promote the winding down of Fannie and Freddie without any adequate replacement. But this is just not true for the consensus proposals, including the Johnson-Crapo legislation from 2014. Instead they seek to keep what works and reform what should be fixed.
On the other hand, recap and release might well undermine the very system some of its advocates promote. And once that happens, rebuilding becomes immeasurably harder.
Strange bedfellows
Hedge fund investors and speculators in the companies’ outstanding stock have an obvious interest in seeing recap and release. They have no long-term stake in whether the system serves American households. They made a bet buying cheap and they want a chance to sell dear as share prices spike through re-privatization. It’s legal and they have a right to promote their own interests.
It’s less clear why some affordable housing advocates are embracing their arguments. For better or worse, conservatorship assures clear government sponsorship; a very large standby line of credit from the Treasury that reassures investors; the 2008 affordable housing provisions with housing goals and new “duty to serve” requirements; a robust TBA market that continues to deliver liquidity and funding for long term fixed rate mortgages; and the time to develop workable, durable solutions that will reset the mortgage finance system in a robust way when the stars align to do so.
The frustration with the stalemate around comprehensive reform that underlies these calls is widely shared. But foregoing real reform that addresses affordable housing needs as well as the structural shortcomings of the pre-crisis GSE structure isn’t the answer. It’s time for everyone in the affordable housing community to reground their advocacy in the things that matter in this debate – preservation of long term fixed rate financing; a deep and liquid mortgage finance market; and broad access to sustainable credit. Recap and release would be very good for Wall Street, but not for Main Street.
Barry Zigas
Barry Zigas has served as Director of Housing Policy at Consumer Federation of America since 2008. He previously served as Senior Vice President for Community Lending at Fannie Mae, and President of the National Low Income Housing Coalition from 1984-1993.
The government's role in all this
November 16, 2015Barry Zigas4 Comments
Fannie MaeFreddie MacGSE reform
Reprints
Share on facebookShare on twitterShare on linkedin More
AAA
Blog Topics
Fed watching
Big finance
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Calculated Risk
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RealtyCheck
trulia trends blog
Zero Hedge
It’s easy to understand why hedge funds and other speculators in Fannie Mae and Freddie Mac stock are pushing anew to “recap and release” the companies from conservatorship. But it’s a lot harder to understand why affordable housing groups are joining this chorus when it will neither expand affordable housing nor necessarily support broad credit access.
The fundamental problem with the recap and release approach is that starting any discussion about a future mortgage finance system with Fannie and Freddie is like looking through the wrong end of a telescope: the field of vision is very restricted and the details are hard to make out.
The right place to start is to ask “what are the goals of government engagement in mortgage finance, how should it be structured, and, once that’s settled, what role do Fannie Mae and Freddie Mac have to play?”
The government’s role should be to ensure a set of critical outcomes:
The broadest possible access to sustainable mortgage credit by the greatest range of credit worthy borrowers, everywhere in the country
A deep and liquid market for mortgage backed securities to ensure reliable investment at all times from the broadest possible range of investors at the lowest possible cost, enabling rate locks for consumers
The choice to have a long term fixed rate mortgages at a reasonable price for consumers who prefer them
The newest affordable housing recap and release champions say that these goals are what drive their recommendations. They point to the companies’ shrinking capital base and argue that recapitalizing them and ending conservatorship – turning back the clock to the years before the GSE model’s fault lines became so clear – is the best way to assure access to affordable housing finance.
But the facts don’t support these calls for action.
Access to affordable mortgage credit
As Hector Sanchez from Labor Council for Latin American Advancement said on a Nov. 11 press call about their recommendations for recap and release, “We must encourage wealth building for Latinos because they will continue to play a key economic role in the future.” These groups decry the GSEs’ current track record on affordable lending, and particularly their low levels of lending to African-Americans and Hispanics. Many of us agree with both sentiments. Yet some of these advocates seem to believe that this will improve rather than worsen under recap and release, without offering any explanation why this would be so. They further argue that maintenance of the companies’ charter requirements including housing goals can be protected only through recap and release.
But Fannie and Freddie’s governing charters are the same in conservatorship as they would be under recap and release. Out of conservatorship, the companies will once again be forced to balance their public purposes against their shareholders’ interests. This is not a conflict they have to contend with now. Recent history suggests that it is one that can end badly. Ending conservatorship will not increase their affordable housing obligations from what they are now. But it could place much greater pressure on the companies to build profits instead.
Capital punishment
Some recap and release promoters argue recapitalization is critically important because the companies have a thin and shrinking capital cushion. Freddie Mac’s recent quarterly loss, for instance, has encouraged speculation that the GSEs will have to seek support from the Treasury again sooner or later.
But the companies’ swings in capital levels are being driven entirely by accounting treatment of the derivatives they hold against their assets. The companies’ exposure to actual credit losses is minimal today, given the very high quality of their books. Both companies are carrying significant amounts of credit insurance from mortgage insurers for lower down payment loans. Freddie Mac reported loan loss reserves to back up their credit guarantees of $15.8 billion and Fannie $29.7 billion in their third quarter SEC reports.
Most importantly, there is no economic consequence under conservatorship even if one or both falls below its required capital because of these accounting effects. They would draw on the Treasury line of credit and issue more senior preferred stock. Yes, there would be some political fallout and some in the press, punditocracy and Congress who would rant and rave about it. But in the end there is no chance of swift congressional action or Presidential concurrence as a result.
On the other hand, recapping and releasing the GSEs would create two new systemically important financial institutions. Investors and management could not operate the companies as they did before, with very thin capital levels and reliance on an implicit guarantee. The result – potentially still higher mortgage costs and less product flexibility.
A broad, liquid and stable market for long term fixed rate mortgage funding
Investors today see the Treasury capital pledge and take comfort from this “don’t ask, don’t tell” form of explicit guarantee.
Under recap and release, investors might go back to assuming the “implicit guarantee” applies again and treat GSE MBS as they did before. But they might not do so with the same appetite or same requirements, especially if Treasury withdraws its current credit line. It’s possible the market for these bonds would shrink, raising costs further. Lower volumes mean less liquidity and higher prices. Without a blanket guarantee on the securities, investors might demand higher credit standards to further insulate themselves from credit losses. This would restrict the range of borrowers the system could serve. Bonds might be less liquid because they would no longer be a homogenous commodity. Smaller volumes would further affect pricing, raising consumer costs.
The TBA market that enables borrowers to choose long term fixed rate loans and to get rate locks well in advance of their loan closing depends on the homogeneity of guaranteed bonds. Under recap and release this market could shrink or operate with much less efficiency if the bonds carry no explicit guarantee and investors seek more granular information on the mortgage assets themselves to hedge a perceived risk with an implicit guarantee.
Some recap and release advocates argue that investors will come back and nothing will change. They might be right. But they haven’t made a persuasive case that service to low and moderate income borrowers would be enhanced by recap and release. The rules for investors are pretty clear today and the market is functioning to attract and distribute housing capital.
An explicit federal guarantee that Fannie and Freddie would pay for, another option some recap and release advocates mention, is only possible if Congress authorizes it. Of course the chances of Congress doing so and the Obama Administration concurring without enacting further more radical changes to the pre-crisis structure are zero.
Comprehensive Reform
The burden of proving that recap and release will not raise costs to consumers and jeopardize the mortgage finance system’s current benefits is on those calling for it. They haven’t yet. For example, the National Community Reinvestment Coalition (NCRC) this week posted a white paper laying out their case for recap and release. It is long on defending the importance of home ownership and the need for affordable mortgage credit, sentiments many of us share. But it doesn’t explain how recap and release would actually work. It does give a nod to the need for more comprehensive reform – under the heading “Continuing GSE Reform” it notes,
“Congress should also reform the government guarantee so as to ensure that the secondary market remains liquid and deep, credit remains affordable for low- and moderate-income borrowers and investment remains robust for their MBS.” (Emphasis added)
At the Nov. 11 press call, Center for Responsible Lending (CRL) President Mike Calhoun noted the need to
“…support the housing market and the entire economy, by strengthening broad access to all sustainable homebuyers and all responsible lenders, improving fair lending, and properly structuring and incentivizing the GSEs.” (Emphasis added)
Recap and release advances neither of these important goals. How doing so will be easier after Fannie and Freddie are back on their feet is isn’t explained. Why it is even necessary, after making the case for recap and release, is not either.
As it happens, there already is a remarkable consensus on how to sustain the market outcomes that matter and fix the system’s pre-crisis aspects that have long been a challenge. Financial services trade groups, consumer advocates, academics and the Bipartisan Policy Center’s housing commission all have recommended a system where the US government provides an explicit worst case guarantee on mortgage backed securities that meet its standards and that is paid for by a fee on the securities. Private entities would provide the primary credit insurance ahead of this catastrophic government guarantee, and they would be required to meet government requirements for capital and other critical features. The government guarantee would not protect their shareholders or creditors. Critically, most of these plans agree on the need for an obligation to serve the full range of credit worthy borrowers or lose access to the government’s support for their bonds.
While all of these plans envision Fannie Mae and Freddie Mac ceasing to exist as they are currently chartered, most of them also see a likely role for them as restructured companies participating with other competitors to provide the first layer of credit insurance and issue securities backed by the US guarantee. These plans would make only a few, but critical, changes to the system that existed pre-conservatorship, including converting the implicit guarantee of the companies to an explicit guarantee of the securities alone.
Some critics keep insisting that all reform plans promote the winding down of Fannie and Freddie without any adequate replacement. But this is just not true for the consensus proposals, including the Johnson-Crapo legislation from 2014. Instead they seek to keep what works and reform what should be fixed.
On the other hand, recap and release might well undermine the very system some of its advocates promote. And once that happens, rebuilding becomes immeasurably harder.
Strange bedfellows
Hedge fund investors and speculators in the companies’ outstanding stock have an obvious interest in seeing recap and release. They have no long-term stake in whether the system serves American households. They made a bet buying cheap and they want a chance to sell dear as share prices spike through re-privatization. It’s legal and they have a right to promote their own interests.
It’s less clear why some affordable housing advocates are embracing their arguments. For better or worse, conservatorship assures clear government sponsorship; a very large standby line of credit from the Treasury that reassures investors; the 2008 affordable housing provisions with housing goals and new “duty to serve” requirements; a robust TBA market that continues to deliver liquidity and funding for long term fixed rate mortgages; and the time to develop workable, durable solutions that will reset the mortgage finance system in a robust way when the stars align to do so.
The frustration with the stalemate around comprehensive reform that underlies these calls is widely shared. But foregoing real reform that addresses affordable housing needs as well as the structural shortcomings of the pre-crisis GSE structure isn’t the answer. It’s time for everyone in the affordable housing community to reground their advocacy in the things that matter in this debate – preservation of long term fixed rate financing; a deep and liquid mortgage finance market; and broad access to sustainable credit. Recap and release would be very good for Wall Street, but not for Main Street.
Barry Zigas
Barry Zigas has served as Director of Housing Policy at Consumer Federation of America since 2008. He previously served as Senior Vice President for Community Lending at Fannie Mae, and President of the National Low Income Housing Coalition from 1984-1993.
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Government Activated in 2008 New JIM CROW Prohibition Against Voting Rights for FnF Shareholders
FnF Shareholders are denied the right to vote by grandfather clauses (laws that restricted the right to vote to the Government Only), similar to white primaries (only Democrats could vote, only whites could be Democrats), and literacy tests ("Name all the Federal Housing Directors, Vice Presidents and Supreme Court Justices throughout America's history"). Government sent this message to all states: Discrimination against Shareholders is acceptable. Mr. Watt has abandoned moral leadership to run with the big dogs.
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