In the many years now I have spent following the foreclosure fraud issue, I have often wondered how a law enforcement apparatus that respected the rights of its citizens as much as it respected the profits of the banks would respond. How exactly would you go after foreclosure fraud in September of 2010, armed with depositions with employees of the major banks admitting they signed documents without any actual knowledge of the underlying loans? Where would you start? What does the road map to that prosecution look like?
Do you go all the way back to the originations, and look at the fraudulent loan data and how it was represented to investors when packaged into securities?
Do you look at the tax treatment provided in these securitization trusts, set up as REMICs (real estate mortgage investment conduits), and fine those who profited from that tax treatment with REMICs that were illegally designed, which you can actually fine at 100%?
Do you look at the misrepresentation of the loans in the securities by the trustees?
Do you look at the possible violations of Sarbanes-Oxley requirements that CEOs certify information, including information on their issued securities, in reports filed with the Securities and Exchange Commission?
Do you look at the now-widespread reports of servicer abuse, including the ways in which servicers drove borrowers into default with illegal fees? Do you look at the tax evasion inherent in MERS, the electronic registry designed to avoid fees incurred on mortgage transfers? Do you look at the same “MERS officers” signing documents for multiple different banks and servicers in multiple different context, or any of the 20,000 MERS Vice Presidents, despite the fact that the company has only 70 employees?
Do you look at the garden-variety forgery and false documents delivered in courts and at county recorder’s offices, the back-dated assignments, the assignments only created after the foreclosure date?
Let’s just say that the mortgage industry offers a target-rich environment for willing prosecutors and regulators.
But will has been precisely what’s been missing. In the aftermath of the savings and loan scandal in the 1980s, over 1,000 financial executives went to prison for violations of law. During the current crisis, orders of magnitude larger in scope, nobody of any consequence has faced prison time. This is as corrosive to our economy as it is to our society, and it invites further fraud and abuse from the powerful forces on Wall Street, who are getting away with the crime of the century in slow motion.
In the aftermath of the foreclosure fraud settlement, and as we look ahead to the working group on securities fraud co-chaired by Eric Schneiderman, one of the best people to look to for answers on how this whole thing could have gone – how it could still go – is William K. Black. The author of The Best Way to Rob a Bank is to Own One, and a central figure in exposing fraud among both financial executives and members of Congress during the S&L scandal, Black has been relentless on exposing the lax nature of regulation and prosecution during the past decade and more. His latest scoffed at the new task force on securitization fraud:
Bank CEOs leading “accounting control frauds” now do so with impunity from the criminal laws. They become wealthy through fraud and even if they are sued civilly they almost invariably walk away wealthy with the proceeds of their frauds.
Elite financial institutions officers engaged in fraud face a dramatically reduced risk of prosecution compared to 20 years ago when financial fraud was far less common. TRAC reports that the number of financial institution fraud prosecutions under Obama is less than one-half the number 20 years ago. Bush (II) was slightly better than Obama in prosecuting non-elite financial institution frauds, but both were pathetically bad.
Black wrote that before the foreclosure fraud settlement was announced, but while the negotiations were happening in earnest. I’m sure he has plenty of thoughts on the settlement, how it came about, and what could be done, with the proper amount of will and resources, to truly restore accountability and justice for the fraud committed by the financial oligarchy.
Please welcome Bill Black to Firedoglake.