CORPWATCH: Bank of America to Pay $16.65 Billion to Settle Mortgage Fraud Charges

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Bank of America to Pay $16.65 Billion to Settle Mortgage Fraud Charges
Pratap Chatterjee
August 21st, 2014

Bank of America has agreed to pay the government $9.65 billion to settle charges of misleading investors over mortgage lending in the run up to the 2008 financial crisis. The bank will also pay out an additional $7 billion to help borrowers and communities affected by the loans.

See http://www.corpwatch.org/article.php?id=15965

Please feel free to write to me directly with story ideas, comments or
just to say hello. My address is "pratap@corpwatch.org"

Thanks for holding corporations accountable for their actions!

Pratap Chatterjee
Managing Editor

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This will never repair the damage caused by these scams!

(illustration: Occupy Our Homes)

Bank of America Found Guilty of Mortgage Fraud

By Reuters

24 October 13

• Bank found liable on one civil fraud charge


• Verdict seen as a major win for the U.S. govt


• Former Countrywide exec found liable on one fraud charge

ank of America Corp was found liable for fraud on Wednesday over defective mortgages sold by its Countrywide unit, a major win for the U.S. government in one of the few trials stemming from the financial crisis.

 

After a four-week trial, a federal jury in New York found the bank liable on one civil fraud charge. Countrywide originated shoddy home loans in a process called "Hustle" and sold them to government mortgage giants Fannie Mae and Freddie Mac, the government said.

 

The four men and six women on the jury also found former Countrywide executive Rebecca Mairone liable on the one fraud charge she faced.

 

The U.S. Justice Department has said it would seek up to $848.2 million, the gross loss it said Fannie and Freddie suffered on the loans. But it will be up to U.S. District Judge Jed Rakoff to decide on the penalty. Arguments on how the judge will assess penalties are set for Dec. 5.

 

Any penalty would add to the more than $40 billion Bank of America has spent on disputes stemming from the 2008 financial crisis.

 

"The jury's decision concerned a single Countrywide program that lasted several months and ended before Bank of America's acquisition of the company," Bank of America spokesman Lawrence Grayson said. "We will evaluate our options for appeal."

 

Marc Mukasey, a lawyer for Mairone, called his client a "woman of integrity, ethics and honesty," adding they would fight on. "She never engaged in fraud, because there was no fraud," he said.

Wednesday's verdict was a major victory for the Justice Department, which has been criticized for failing to hold banks and executives accountable for their roles in the events leading up to the financial crisis.

 

The government continues to investigate banks for conduct related to the financial crisis. The verdict comes as the government is negotiating a $13 billion settlement with JPMorgan Chase & Co to resolve a number of probes and claims arising from its mortgage business, including the sale of mortgage bonds.

 

Risky Loans

 

The lawsuit stemmed from a whistleblower case originally brought by Edward O'Donnell, a former Countrywide executive who stands to earn up to $1.6 million for his role.

 

The case centered on a program called the "High Speed Swim Lane" - also called "HSSL" or "Hustle" - that government lawyers said Countrywide started in 2007.

 

The Justice Department contended that fraud and other defects were rampant in HSSL loans because Countrywide eliminated loan-quality checkpoints and paid employees based on loan volume and speed.

 

The Justice Department said the process was overseen by Mairone, a former chief operating officer of Countrywide's Full Spectrum Lending division. Mairone is now a managing director at JPMorgan.

Amy Bonitatibus, a JPMorgan spokeswoman, said, "We are reviewing the decision."

 

About 43 percent of the loans sold to the mortgage giants were materially defective, the government said.

 

Bank of America bought Countrywide in July 2008. Two months later, the government took over Fannie and Freddie.

 

Bank of America and Mairone denied wrongdoing. Lawyers for the bank sought to show the jury that Countrywide had tried to ensure it was issuing quality loans and that no fraud occurred.

 

The lawsuit was the first financial crisis-related case against a bank by the Justice Department to go to trial under the Financial Institutions Reform, Recovery, and Enforcement Act (FIRREA).

 

The law, passed in the wake of the 1980s savings-and-loan scandals, covers fraud affecting federally insured financial institutions.

 

The Justice Department, and particularly lawyers in the office of U.S. Attorney Preet Bharara in the Southern District of New York, have sought to dust off the rarely used law and bring cases against banks accused of fraud.

 

Among its attractions, FIRREA provides a statute of limitations of 10 years and allows the government to bring civil cases for alleged criminal wrongdoing.

 

Virginia Gibson, a lawyer at the law firm Hogan Lovells, said the Bank of America verdict was a "big deal because it shows the scope of a tool the government has not used frequently since its inception."

 

Gibson and other lawyers say any appeal by Bank of America would likely focus on a ruling made by the judge before the trial that endorsed a government position that it can bring a FIRREA case against a bank when the bank itself was the financial institution affected by the fraud.

 

The case was one of three lawsuits in New York where judges had endorsed that interpretation. Banks have generally argued that the interpretation is contrary to the intent of Congress, which they said is more focused on others committing fraud on banks.

 

Bank of America's case was the first to go to trial, a rarity given that banks more typically choose to settle government claims instead of face a jury. But Bank of America had said that it "can't be expected to compensate every entity that claims losses that actually were caused by the economic downturn."

 

In a statement, Bharara said Bank of America "chose to defend Countrywide's conduct with all its might and money, claiming there was no case here."

 

"This office will never hesitate to go to trial to expose fraudulent corporate conduct and to hold companies accountable, particularly when it has caused such harm to the public," Bharara said.

In late afternoon trading, Bank of America shares were down 27 cents at $14.25 on the New York Stock Exchange.

 

The case is U.S. ex rel. O'Donnell v. Bank of America Corp et al, U.S. District Court, Southern District of New York, No. 12-01422.

Mitt Romney Advisor, Glenn Hubbard

Reflecting on the last election, it's significant to consider the 'experts' Romney chose to embrace.

Glenn Hubbard, Leading Academic and Mitt Romney Advisor, Took $1200 an Hour to Be Countrywide's Expert Witness

POSTED: December 20

Matt Taibbi

Glenn Hubbard

Mike Theiler/Getty Images

Karma is a bitch. Just ask Glenn Hubbard.

A few months ago, the Dean of Columbia's business school was a leading economic advisor to Mitt Romney and a rumored (perhaps even consensus) candidate for the Treasury Secretary job.

Now Romney's out of the presidential picture and Hubbard – well, he's just yet another grasping jobholder who's been exposed as a paid mouthpiece in a court proceeding.

Anyone who's seen the movie Inside Job will recall the stupendously angering scene in which Hubbard pissily snaps at his interviewer for asking about his outside relationships with the financial services industry.

Transcript: Glenn Hubbard's Deposition

In the movie, renowned filmmaker Charles Ferguson pointed out that, among other things, Hubbard had co-authored a paper with former Goldman chief economist William Dudley in which he praised credit derivatives as having improved the "allocation of risk" and helped produce "enhanced stability." It was fair to ask how much Goldman's "Global Markets Institute" had to pay one of the Ivy League's leading minds to endorse the giant daisy chains of credit default swaps and collateralized debt obligations that led to the crisis – it was quite a coup, after all, like getting the Dean of Harvard Medical School to pose in public smoking a pack of Kools.

Anyway, when asked if he did consulting work for big banks, Hubbard refused to answer. And when asked if he just didn't remember who was writing checks to him when he wasn't overseeing the education of American youth, he fumed.

"This isn't a deposition, sir," he hissed. "I was polite enough to give you time, foolishly I now see. Give it your best shot."

Again, there's just nothing like karma. If your answer to a perfectly sensible question is going to be, "Screw you, this isn't a deposition," exactly how long do you think it'll be before you end up actually getting deposed? And forced to answer, under oath, just how much your opinions cost?

A couple of years, as it turns out.

Hidden among the reams of material recently filed in connection with the lawsuit of monoline insurer MBIA against Bank of America and Countrywide is a deposition of none other than Columbia University's Glenn Hubbard. And boy, is it a wild deposition. It's like Inside Job, only Hubbard has to answer the questions he doesn't want to answer. Reading it is like watching a man try to avoid breathing in a gas chamber.

At issue here is the fact that Hubbard testified on behalf of Countrywide in the MBIA suit. He conducted an "analysis" that essentially concluded that Countrywide's loans weren't any worse than the loans produced by other mortgage originators, and that therefore the monstrous losses that investors in those loans suffered were due to other factors related to the economic crisis – and not caused by the serial misrepresentations and fraud in Countrywide's underwriting.

In other words, the Dean of the Columbia University business school testified that the fact that Countrywide claimed to have conducted thorough due diligence when in fact it was pressuring underwriters to approve 60 to 70 mortgage applications a day and failing to verify any income levels or other key information (to say nothing of the outright falsification of such data, which also went on on a mass scale) – he testified that these issues were irrelevant.

Investors in Countrywide loans, he reported, in specifically rebutting MBIA's claims of fraud, were probably victims of macroeconomic factors, among other things the expansion of lending guidelines by "the government-sponsored entities," i.e. Fannie and Freddie. You know, that old saw.

So how much does it cost to get the Dean of Columbia Business School to say that Countrywide customers weren't injured by fraud? Well, MBIA's lawyer, Phillipe Selendy of Quinn Emmanuel, asked Hubbard that very question:

Q. How are you being compensated?
A. I'm being compensated at an hourly rate for my work.
Q. Do you know your hourly rate?
A. Yes, it's $1200 an hour.

For comparison's sake, $1200 an hour is about what Natalia, the woman New York Magazine called "America's #1 escort" in a famous profile many years ago, made early on in her career working for Jason Itzler, the self-described "King of All Pimps." It's not the top-end rate for the kind of Mercedes-class prostitute you'd romp with from an outfit like the Emperors Club, but according to the L.A. Times, it's still more than you'd have to pay for the usual "vanilla sex" or "Republican sex." Twelve hundred dollars an hour in America buys high-end companionship that can run a little bit kinky, if that's where your needs lay. And that's exactly what MBIA got with Hubbard's research.

So how did Hubbard manage to analyze Countrywide and conclude that mass fraud in its underwriting procedures wasn't problematic? Easy: He didn't look at the underwriting! All Hubbard did was take a group of Countrywide loans and compare them to a group of other loans from the same time period.

When that comparison revealed that Countrywide's loans failed at about the same rate as the non-Countrywide loans, he smartly concluded that fraud wasn't the problem and that macroeconomic factors must have been the cause.

Except for one thing: He left out the fact that about half of the loans in the "non-Countrywide" pool he selected for his analysis were originated by companies that were also being sued for underwriting fraud and other irregularities. What Hubbard did is compare a bunch of bad loans to a bunch of bad loans.

What's fascinating in the deposition is the way Hubbard repeatedly tries to avoid answering the question about what kind of research he did, or didn't do, in his Countrywide analysis. His sneering annoyance shines through as brightly as it did in Inside Job, but this time he couldn't just say, "You've got three more minutes." Here, for instance, he actually tries to play dumb when asked if he looked into Countrywide's origination practices:

Q. Did you make any inquiry into how Countrywide actually originated its loans?
A. I'm not sure exactly what you mean by that.

Hubbard here is just being intentionally obtuse: he's trying to see how much of an appetite MBIA's lawyers have for fighting through his dickishness. They press on:

Q. You understand there was a process by which Countrywide originated the loans that it included in the securitizations?
A. Yes.
Q. And there was also a process by which Countrywide examined the loans that it purchased from other originators inclusion in securitizations?
A. Correct.
Q. Did you make any factual inquiry into the nature of either the process of origination or the process of due diligence by Countrywide?
A. I'm not an underwriter in this proceeding, so neither of the assignments that I told you would require such.

He knows it's a yes or no question, but he's letting them know they're going to have to beat it out of him:

Q. And it's fair to say that you gave your opinions without any inquiry into how Countrywide actually originated its loans or how Countrywide examined the characteristics of the loans that it purchased from other originators, correct?
A. I'm not an underwriter. As an economist, what I can do is look at the implications of the claims made by MBIA and its experts.
Q. So is that a yes in response to my question?
A. You have to tell me the question again.

Yikes! If I was Selendy I would have pulled out the sponge and the car battery at this point. Fortunately, the MBIA lawyer is more mature, and went on calmly:

Q. It's a fairly simple question. You gave your opinions without any inquiry into how Countrywide actually originated its loans, correct?
A: I did not underwrite.

That's as close as they got to getting Hubbard to admit that for $1200 an hour, he swore that Countrywide's underwriting practices were irrelevant – without investigating Countrywide's underwriting practices.

As for the question of how Hubbard managed to omit the fact that the loans he compared Countrywide loans to also had underwriting problems, there was this exchange:

Q. So in the aggregate, more than half of your entire population in the control group was affected by litigation?
A. I think, well, yes, by number of pools, yes.
Q. And in neither your initial report nor your rebuttal report did you disclose that fact for the benefit of the court?
A. Well I've already told you I didn't think it was relevant from my –
Q. I'm aware that's what you said today. But the fact is in neither your initial report nor your rebuttal report did you disclose that more than half of all the securitizations in your so-called control group were affected by litigation?
A. If I don't think something is a relevant fact, why would I have disclosed that?
Q. You're agreeing with me, you didn't disclose it, right?
A. That's a factual question. You had innuendo attached to it.
Q. Well, sir, I do think it's significant that you didn't disclose that fact, that's why it's in my question. I just wanted to confirm you did not disclose that fact, right?
A. I didn't disclose the fact.

Hubbard must be a very inquisitive thinker. He took $1200 an hour specifically to not learn how subprime loans were created. Moreover, he did this non-learning for Countrywide years after the financial collapse, long after the truth about that company had already become common knowledge pretty much everywhere in the world outside Hubbard's office, long after Countrywide CEO Angelo Mozilo had been charged by the SEC with deliberately misleading investors (and insider trading, to boot), and long after the Attorney General of California had concluded that Countrywide was essentially a giant scheme to use mass fraud to dump pools of bad loans on unsuspecting marks on the secondary market.

Given the great masses of information that was out there about Countrywide, Hubbard in other words had to perform a labor of Hercules to avoid letting the truth about the company slip through a crack in his skull. Naturally, this awesome ability to non-absorb information makes him qualified to be one of America's leading academics. Way to go, American learning!

On a personal note, I'm bummed by this Hubbard news, because it ruins one of my favorite quotes of all time – Henry Kissinger saying that "University politics are so vicious precisely because the stakes are so small."

That was always a fantastic joke, but now that Wall Street is subsidizing the imperious academic administrators whose only reward used to be blocking the careers of the more brilliant teachers and professors they secretly envied, it doesn't work anymore.

Editor's note: The name of the lawyer taking the deposition was Phillipe Selendy of Quinn Emmanuel, not David Freeburg. Rolling Stone apologizes for the error.


Read more: http://www.rollingstone.com/politics/blogs/taibblog/glenn-hubbard-leading-academic-and-mitt-romney-advisor-took-1200-an-hour-to-be-countrywides-expert-witness-20121220#ixzz2G5xRtKRf
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Matt Taibbi. (photo: Current TV)

B of A CEO Apparently Can't Remember Anything

By Matt Taibbi, Rolling Stone

28 November 12

 

Bank of America CEO Brian Moynihan meets with the editorial board of the Boston Globe.

David L Ryan/The Boston Globe via Getty Images

Read more: http://www.rollingstone.com/politics/blogs/taibblog/no-evidence-he-was-stoned-but-bank-of-america-ceo-brian-moynihan-apparently-doesn-t-remember-much-of-the-last-four-years-20121127#ixzz2DcW1PAux
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hank God for Bank of America CEO Brian Moynihan. If you're a court junkie, or have the misfortune (as some of us poor reporters do) of being forced professionally to spend a lot of time reading legal documents, the just-released Moynihan deposition in MBIA v. Bank of America, Countrywide, and a Buttload of Other Shameless Mortgage Fraudsters will go down as one of the great Nixonian-stonewalling efforts ever, and one of the more entertaining reads of the year.

 

In this long-awaited interrogation - Bank of America has been fighting to keep Moynihan from being deposed in this case for some time - Moynihan does a full Star Trek special, boldly going where no deponent has ever gone before, breaking out the "I don't recall" line more often and perhaps more ridiculously than was previously thought possible. Moynihan seems to remember his own name, and perhaps his current job title, but beyond that, he'll have to get back to you.

 

The MBIA v. Bank of America case is one of the bigger and weightier lawsuits hovering over the financial world. Prior to the crash, MBIA was, along with a company called Ambac, one of the two largest and most reputable names in what's called the "monoline" insurance business.

 

The monolines sell a kind of investment insurance - if you invest in a municipal bond or in mortgage-backed securities backed or "wrapped" by a monoline, you have backing in case the investment goes south. If a municipality defaults on its bond payments, or homeowners in a mortgage-backed security default on their mortgage payments, the investors in those instruments can collect from the monoline insurer.

 

When companies like Countrywide issued their giant piles of crappy subprime mortgages and then chopped them up and turned them into AAA-rated securities to sell to suckers around the world, they often had these mortgage-backed securities insured by companies like MBIA or Ambac, to make their customers feel doubly safe about investing in their product.

 

The pitch firms like Countrywide made went like this: not only are these mortgages triple-A rated by reputable ratings agencies like Moody's, they're fully insured by similarly reputable insurance companies like MBIA. You can't lose!

 

With protection like that, why shouldn't your state pension fund or foreign trade union buy billions' worth of these mortgage-backed products? It's not like it would ever turn out that Countrywide made those products by trolling the cities of America stuffing mortgages in the pockets of anything with a pulse.

 

After 2007-8, when all of those mortgage-backed securities started blowing up, suddenly all of those insurance companies started having to pay out billions in claims. Ambac went bankrupt and MBIA was downgraded from AAA to near-junk status. The entire monoline industry was shattered.

 

The analogy one could make is that Countrywide sold a million flood-insured houses in New Orleans and Biloxi even though they could already see Katrina gathering in the Caribbean. Then, after the storm, the insurers decided to sue.

 

MBIA sued Bank of America (which acquired Countrywide in 2008), claiming that Countrywide lied to MBIA about its supposedly strict underwriting standards, when in fact the firm was cranking out mortgages hand over fist, without doing any real due diligence at all. (Whether the monolines should have known better, or its agents perhaps did know better and sold the mountains of insurance anyway, is another matter). In its suit, MBIA claimed that Countrywide turned itself into a veritable machine of mortgage approvals:

Countrywide Home Loans' senior management imposed intense pressure on underwriters to approve mortgage loans, in some instances requiring underwriters to process 60 to 70 mortgage loan applications in a single day and to justify any rejections...

As a result of all of this, MBIA got stuck insuring a Himalayan mountain range of dicey mortgages.

 

When the securities those mortgages backed started to fail, MBIA ended up paying out $2.2 billion in claims, helping crack the hull of the formerly staid, solid, AAA-rated firm.

 

Suits like this have the whole financial world on edge. The possibility that the banks might still have to pay gigantic claims to companies like MBIA (among a wide range of other claimants) has left Wall Street in a state of uncertainty about the future of some of the better-known, Too-Big-To-Fail companies, whose already-strained balance sheets might eventually be rocked by massive litigation payouts.

 

In the case of Bank of America, MBIA has long wanted to depose Moynihan because it was precisely Moynihan who went public with comments about how B of A was going to make good on the errors made by its bad-seed acquisition, Countrywide. "At the end of the day, we'll pay for the things Countrywide did," was one such comment Moynihan made, in November of 2010.

 

As it turns out, Moynihan was deposed last May 2. But the deposition was only made public this week, when it was filed as an exhibit in a motion for summary judgment. In the deposition, attorney Peter Calamari of Quinn Emmanuel, representing MBIA, attempts to ask Moynihan a series of questions about what exactly Bank of America knew about Countrywide's operations at various points in time.

 

Early on, he asks Moynihan if he remembers the B of A audit committee discussing Countrywide. Moynihan says he "doesn't recall any specific discussion of it."

 

He's asked again: In the broadest conceivable sense, do you recall ever attending an audit committee meeting where the word Countrywide or any aspect of the Countrywide transaction was ever discussed? Moynihan: I don't recall.

 

Calamari counters: It's a multi-billion dollar acquisition, was it not?

 

Moynihan: Yes, it was. Well, isn't that the kind of thing you would talk about?

 

Moynihan: not necessarily . . .

 

This goes on and on for a while, with the Bank of America CEO continually insisting he doesn't remember ever talking about Countrywide at these meetings, that you'd have to "get the minutes."

 

Incredulous, Calamari, a little sarcastically, finally asks Moynihan if he would say he has a good memory.

 

"I would - I could remember things, yes," Moynihan deadpans. "I have a good memory."

Calamari presses on, eventually asking him about the state of Countrywide when Moynihan became the CEO, leading to the following remarkable exchange, in which the CEO of one of the biggest companies in the world claims not to know anything about the most significant acquisition in the bank's history (emphasis mine):

Q: By January 1st, 2010, when you became the CEO of Bank Of America, CFC - and I'm using the initials CFC, Countrywide Financial Corporation - itself was no longer engaged in any revenue-producing activities; is that right?

Moynihan: I wouldn't be the best person to ask about that because I don't know.

There are no sound effects in the transcript, but you can almost hear an audible gasp at this response. Calamari presses Moynihan on his answer.

"Sir," he says, "you were CEO of Bank Of America in January, 2010, but you don't know what Countrywide Financial Corporation was doing at that time?"

In an impressive display of balls, Moynihan essentially replies that Bank of America is a big company, and it's unrealistic to ask the CEO to know about all of its parts, even the ones that are multi-billion-dollar suckholes about which the firm has been engaged in nearly constant litigation from the moment it acquired the company.

 

"We have several thousand legal entities," is how Moynihan puts it. "Exactly what subsidiary took place [sic] is not what you do as the CEO. That is [sic] other people's jobs to make sure."

 

The exasperated MBIA lawyer tries again: If it's true that Moynihan somehow managed to not know anything about the bank's most important and most problematic subsidiary when he became CEO, well, did he ever make an effort to correct that ignorance? "Do you ever come to learn what CFC was doing?" is how the question is posed.

 

"I'm not sure that I recall exactly what CFC was doing versus other parts," Moynihan sagely concludes.

 

The deposition rolls on like this for 223 agonizing pages. The entire time, the Bank of America CEO presents himself as a Being There-esque cipher who was placed in charge of a Too-Big-To-Fail global banking giant by some kind of historical accident beyond his control, and appears to know little to nothing at all about the business he is running.

 

In the end, Moynihan even doubles back on his "we'll pay for the things Countrywide did" quote.

 

Asked if he said that to a Bloomberg reporter, Moynihan says he doesn't remember that either, though he guesses the reporter got it right.

 

Well, he's asked, assuming he did say it, does the quote accurately reflect Moynihan's opinion?

 

"It is what it is," Moynihan says philosophically.

 

There's nothing surprising about any of this - it's natural that a Bank of America executive would do everything he could to deny responsibility for Countrywide's messes. But that doesn't mean it's not funny. By about the thirtieth "I don't recall," I was laughing out loud.

 

It's also more than a little infuriating. In the pre-crash years, Countrywide was the biggest, loudest, most obvious fraud in a marketplace full of them, and the legion of complainants who've since sued (ranging from the U.S. government to Norway's Sovereign Wealth Fund to state pension funds in Iowa and Oregon, among others) have found it painstaking work trying to get Bank of America to do the right thing and pay back the money its subsidiary took in its various ripoffs. And with executives boasting such poor memories, this story is going to drag on and on even longer.

http://www.rollingstone.com/politics/blogs/taibblog/no-evidence-he-was-stoned-but-bank-of-america-ceo-brian-moynihan-apparently-doesn-t-remember-much-of-the-last-four-years-20121127