Probably the biggest failure of the Obama administration was its unwillingness to hold the senior executives of the country’s major financial institutions to account for willfully creating the greatest financial crisis since the 1930s. That omission alone could arguably have cost Hillary Clinton the presidency in last year’s election, as close as it was. This failure is further compounded by the fact that the financial industry continued and continues to engage in widespread fraud and outright theft. What the Obama administration did extract from these firms were large fines, usually accompanied by the promise to cease engaging in the illegal behavior. That never happened.
One of those large fines was imposed on JPMorgan Chase (JPM) for signing foreclosure documents on thousands of homes without verifying the information in those documents, so-called “robo-signing”. Robo-signing became a common practice at many banks as they tried to get themselves out from under the bad debt they had accumulated through their purchases of mortgages. In 2012, the government forced a settlement with five major banks over the robo-signing abuses, a deal in which JPM agreed to pay a $1.1 billion in cash and provide $4. 2 billion in mortgage relief to its customers. A subsequent agreement in 2013 relating to mortgages JPM sold under false pretenses required JPM to provide a further $4 billion in mortgage relief. All tolled, JPM was required to provide $8.2 billion in mortgage relief to its customers for fraud it had committed during the financial crisis. And, incredibly, JPM went about this by engaging in even more fraud.
According to a report in the Nation, JPM sent out letters to homeowners telling them that, under the agreement, JPM was cancelling the debt they owed. The homeowners no longer owed anything more to JPM for their mortgages. JPM used those letters and documents to show the government the extent of the mortgage relief it was providing in order to “pay down” its $8.2 billion fine. The only problem was JPM no longer owned those mortgages. The letters to the homeowners were essentially worthless as the homeowners still owed money on the mortgage to whomever had bought the mortgage from JPM. Homeowners were scammed into thinking their mortgages were voided and the government was scammed into believing that JPM was providing actual mortgage relief. In fact, JPM was incurring no cost at all. In fact, it was monetarily benefiting from the debt relief.
As the Nation reports, “JPMorgan, it appears, was running an elaborate shell game. In the depths of the financial collapse, the bank had unloaded tens of thousands of toxic loans when they were worth next to nothing. Then, when it needed to provide customer relief under the settlements, the bank had paperwork created asserting that it still owned the properties”. It was helped by a company called Nationwide Title Clearing (NTC) in creating the false documents needed to show JPM still had ownership of these mortgages. NTC is associated with the church of Scientology, proving that fraudsters work together.
Even before the settlement in 2012, JPM was also defrauding other lenders who had purchased distressed mortgages from JPM. In 2009, one such lender paid just $200,000 for a $156 million mortgage portfolio. But the lender never received any documentation about those mortgages from JPM, no names, no addresses, no proof of ownership. Without that information, he had no way to work with the mortgagees on some kind of revised payment schedule, much less get paid anything at all. Even worse, JPM was still collecting payments on the portfolio it had sold to the lender and was pocketing that money instead of passing it on. JPM even hired a third party to go out and collect payments for the mortgages it had sold. JPM pocketed that money as well. This went on for years. According to the article, “JPMorgan jumped in and out of claiming mortgage ownership, Schneider [the lender] asserts, based on whatever was best for the bank. ‘If a payment comes in, it’s theirs,’ he [the lender] says; ‘if there’s a code-enforcement issue, it’s mine.’”
When the 2012 agreement for mortgage relief was finally reached, JPM used NTC to document over 33,000 mortgage cancellations that it sent out in late 2012. Incredibly, it appears that those documents were also robo-signed because that pool included mortgages that had been bought from JPM years earlier. The lender above claims that over 600 mortgages that JPM included in those cancellations were ones that he had bought from JPM years earlier. JPM went even farther in its fraud, eventually forgiving mortgage debt but never even notifying the homeowner. A subsequent review indicated that at least 20% of all these mortgages forgiven were no longer owned by JPM. But all of them counted toward its $8.2 billion loan forgiveness requirement.
By this time, however, loan forgiveness actually benefited the bank. Many of the properties had been abandoned and it was clear the homeowners were never going to pay anything more on the mortgage. But, by forgiving the loan, the legal liability for back taxes and mandated local building code repairs reverted back to the homeowner. JPM would be off the hook for those costs. As the Nation notes, “It was like a recurring horror story in which ‘zombie foreclosures’ were resurrected from the dead to wreak havoc on people’s financial lives”.
The Nation spends part of the article outlining the evidence that JPM CEO Jamie Dimon may have been aware of the fraud being perpetrated at the bank. Based on my own experience, the idea that these banks engage in business activity that senior executives have no knowledge of is just total BS. Top management does not want a paper trail, but they surely know what is going on. The ridiculous part of this kind of speculation is that Sarbanes-Oxley (SOX), which was implemented in the wake of Enron’s massive accounting fraud, requires the CEO to annually sign off on the bank’s activities. The signers certify that they are “responsible for establishing and maintaining internal controls”. Clearly, those controls had failed at JPM, as they have in so many other companies. But the key weakness in SOX is that the penalties only kick in if the signer knowingly made a false certification, effectively rendering the law toothless. In fact, the only thing SOX has enabled is the clawback of pay and bonuses garnered by the fraud. If, however, as the Nation suggests, Dimon can be shown to know about this mortgage fraud, we may finally see a serious SOX case. But don’t count on it with this current administration.
The article summarizes, “JPMorgan’s litany of acknowledged criminal abuses over the past decade reads like a rap sheet, extending well beyond mortgage fraud to encompass practically every part of the bank’s business. But instead of holding JPMorgan’s executives responsible for what looks like a criminal racket, Obama’s Justice Department negotiated weak settlement after weak settlement. Adding insult to injury, JPMorgan then wriggled out of paying its full penalties by using other people’s money.”
We see it again and again. Wells Fargo looks more like a mafia enterprise than a bank. Adidas engages in a bribery scandal involving essentially children. I could go on and on. Nothing will change until senior executives, even those and the second and third level, start seeing some serious jail time. And that will require the laws to be changed from having to prove knowledge of the illegal activity to being held responsible for the lax oversight that allowed the activity to happen.
Originally published at tidalsoundings.blogspot.com on October 6, 2017.