Arizona and Nevada Do What Treasury Won’t: Sue Banks for Mortgage Fraud

19 Dec

If there was any question in the minds of Americans that there is a serious problem in the Federal Government system, let the States of Arizona and Nevada make it plain: what the Federal Government won’t do, the States will.
Bravo to Arizona and Nevada for doing what needs to be done in spite of failed Federal leadership.

Arizona, Nevada Sue Bank of America Over Mortgage Fraud While Treasury Sits on Its Hands

from naked capitalism by Yves Smith

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The Administration’s po-faced insincerity on the mortgage crisis front is wearing thin now that other authorities are taking action against the worst abuses.

Yesterday, we had the sorry spectacle of Treasury Secretary Timothy Geithner, under questioning by Congressional Oversight Panel commissioner Damon Silvers, maintain that the Treasury really had very little power to require banks to engage in certain types of behavior under the Treasury mortgage modification program, HAMP (see the testimony starting at 101). Silvers made it quite clear that he did not buy Geithner’s claim. If you think I am reading more into Geithner’s response than is warranted, he had a longer form discussion with a small group of bloggers last August and made a similar argument when asked why Treasury had done nothing when servicers were clearly gaming HAMP. I pointed out that there was a big difference between narrow authority and broad authority, and pointed out that Treasury had lots of leverage over banks, starting with REMIC violations. He pointedly ignored the REMIC issue.

So we now have the spectacle of two state attorney generals who see mortgage modification abuses large and persistent enough to warrant filing lawsuits against Bank of America. And both their press releases and media reports on the lawsuits (sadly, the filings themselves do not yet appear to be online) make clear that some of the alleged violations took place in connection with HAMP.

So why is Treasury playing what amounts to “see almost no evil, hear almost no evil, see almost no evil” as far as HAMP in particular and banks in general are concerned?

Geithner does acknowledge problems, then either plays them down or says that they are the result of other factors. For instance, the latest argument from the officialdom is that the high level of foreclosures is to a significant degree due to high unemployment. While that is narrowly accurate, it’s also terribly convenient. It alleviates regulators like the Treasury of the obligation of looking how much servicer abuses such as erroneous application of payments and pyramiding junk fees are contributing to foreclosures. Similarly, high foreclosure rates also contribute to high unemployment. Foreclosures, particularly ones that could be avoided by doing a principal mod with a viable borrower, depress housing prices. Low and potentially falling housing prices impede housing sales generally, making it hard for homeowners to move if they get a job in another city. And a weak housing market has a general economy-depressing effect, which affects the job market. In other words, the causal link between unemployment and foreclosures is not one way.

Read the rest of the story at Naked Capitalism


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