Monday, June 06, 2016

Countrywide Skates Again

Exactly what are laws for? What are juries for? America supposedly brings people who have broken laws to court to face justice. Juries determine if a defendant is innocent or guilty, and then sentencing occurs. This applies to everyone. Enron millionaires who dated to President Bush found this out. In 2016, these rules do not apply to Bank of America.

Years ago, a jury found Bank of America, which had acquired Countrywide Financial, liable for mortgage fraud and fined them $1.27 billion. That pently is now thrown out, poof, gone, voided into the abyss. Here are some interesting details.
The 2nd U.S. Circuit Court of Appeals in New York found insufficient proof under federal fraud statutes to establish Bank of America's liability over a mortgage program called "Hustle" run by the former Countrywide Financial Corp.The Justice Department claimed Countrywide, which Bank of America bought in July 2008, defrauded government-sponsored mortgage financiers Fannie Mae and Freddie Mac by selling them thousands of toxic loans.But in a 3-0 decision, U.S. Circuit Judge Richard Wesley said the evidence at most showed that Countrywide breached contracts to sell investment-quality loans, and that there was no proof it intended any deception."The trial evidence fails to demonstrate the contemporaneous fraudulent intent necessary to prove a scheme to defraud through contractual promises," Wesley wrote.

This is all strange since to anyone who has watched prosecutors throw out the idea of intent mattering when they choose to prosecute. How many arrest and prosecution outrage stories have you seen libertarian and law reform bloggers share that show the judicial system going after people who are not powerful enough to use the "I didn't mean to" defense successfully.
This all sounds worse when one realizes it was Countrywide's "Hustle" program, the high speed swim lane, for originating loans. The high speed swim lane was a disgusting shirking of underwriting responsibility. From the link: 
But while things were going bad though 2007, and Fannie and Freddie began to reconsider their loan buying requirements, Mr. Bharara alleges that Countrywide invented the hustle to push the process along faster.
As Fannie and Freddie tried to stomp out risk, “Countrywide eliminated every significant checkpoint on loan quality...” and, according to internal Countrywide documents the DA obtained, took away “toll gates” that were slowing things down in order to assure loan quality.
Who were the underwriters assigned this work? According to the complaint they were “loan processors who were previously considered unqualified to answer borrower questions.” Countrywide also took away their instructional “job aids” or check lists – anything to speed up the swim lane, it is alleged.
Now the convenient thing missed in all of this is of course reality. Who were receiving loans in 2007? Who were the unqualified originators? The below chart shows, by race, the home value appreciation that peaked right before and crashed through the HSSL era.

What no one can talk about is how the banks and mortgage firms made a killing as middle men and fee collectors handing out easy money mortgages to people who had no hopes of paying them back and were fresh into the country. The movie The Big Short's famous angry line from Steve Carell is absolutely wrong, and Hollywood knows it. In any bubble, the late receivers are the Ponzi borrowers. Who were the late receivers? The worst quality borrowers and immigrants that middlemen could swindle. Those late receivers helped raise the real estate wealth of the earliest receivers, which only made economic inequality worse in America.
A proper chase of causation would ask why the loans went out, which would lead to Steve Sailer's oft-cited Bush Minority Home-Ownership initiative. That would also lead back to the repeal of Glass-Steagall, and the community reinvestment act provisions that were forced on banks in order for them to be allowed to grow and merge. America would then discover that immigration is not just to lower their wages but to provide the new, marginal borrower.
Bank of America acquired Countrywide, and the bank takeover of the Left has come in real handy for them. No prosecutions, no fines and the presumptive nominee continuously says how breaking up the big banks won't end racism or sexism. It's the perfect high capital and technical prowess with low information and pay off combination for democracy.


Laguna Beach Fogey said...

Excellent. Experienced this firsthand at a private bank at the time. To be fair, consultants were also pressured into approving loans and lines for rich white guys in SoCal who were sitting on tens of millions in RE and were leveraged up to the gills. It was a precarious situation and I remember getting into discussions about the risks involved with colleagues, friends, and family. But no one wanted to hear it. The focus then as now was on short term monthly or quarterly profits. Blind leading the blind.

Anonymous said...

I'm no fan of BofA, but the Feds shoved Country Wide down their throats. It was well known that Country Wide was a disaster, BofA didn't want anything to do with their shady loan portfolio. But the Feds were forcing stronger banks to absorb weaker ones, hoping the strong one could save the cripple. Didn't happen as we all know.

Andrew E. said...

There is demand dimension to this problem that no one talks about. The saver class, including pensions, should not be buying crap so they can "grow their money." Save and invest only in what you personally understand. How many people who own stocks (either directly or indirectly through mutual funds, index funds or pension funds) can actually read and understand multinational corporate balance sheets, income statements, cashflow statements and footnotes or MBS or CDO prospectuses?

If you don't understand what you're buying then you shouldn't buy it.

Son of Brock Landers said...

Anon - True about BoA's purchase of CW. It was a shotgun marriage. Same with BoA and ML. When it was happening I expected the Fed to put those losers with BoA so that BoA would become some type of sinkhole to then unwind and take apart. Citi was just begging to be broken up and many banking sector watchers viewed Labor Day 2009 as the tell if the USG would break up Citi or not. Didn't happen and as I pointed out at SM, Citi received a 3rd bailout of roughly $25 bil in Dec of 2009. Barofsky and Bair were both very clear on Citi's horrible state and the need to break it up but that they had political protection.

Angry Midwesterner said...

Citi - NY, BoA - Charlotte. Despite Charlotte being geographically closer to DC, you never know what goes on in that Acela corridor right?

Son of Brock Landers said...

AM - There was an interview where they talked to the BoA CEO from 2008 about the acquisitions and he goes on a 100 blinks in one minute spree as he answers. Shady shit happened.

Portlander said...

I think the way to bring it all down is a buyer's strike by the 50-90%.

We are the bedrock of the economically productive class, and are being milked by the 1% in ways indistinguishable from old-time mobsters. The only difference is the 1% uses the govt for their muscle, and the govt is happy to oblige so long as they get a piece of the action.

Contra the Occupy lay-abouts that had the luxury of no obligation greater than themselves, and the weakness that no one would notice whether they were working or not, the system needs us as much as, in the near-term, we need the system.

So, we need to go to work everyday. We need to cover the mortgage, car payment, school tuition, and put food on the table. There are too many scabs ready and willing to take our jobs for us to be able to engage in overt protest. So, our protest must be silent, but it also must be of consequence. And it has to have the ability to gather momentum without sacrificing early adopters while waiting for it to reach critical mass.

The 1% do have an Achilles' Heel. The wealth of billionaires is leveraged up to the hilt just like the banks in '07. Despite appearances, they have monthly and quarterly nuts and are susceptible to small cash-flow hiccups same as the underclass. Everything the have is a ponzi predicated on the rest of us being their willing buyers.

If the 50-90% of income earners bought nothing but food and gasoline, paid for nothing but the mortgage, car payment, and utilities, used cash exclusively, how fast do you think it would get noticed? 90 days?? 180 days? Look how fast Macy's caved-in when Trump set his sights on them. Recall the Duck Dynasty fiasco and how fast Cracker Barrel tripped over themselves with their back tracking.

Karl Denninger is 1/2 right in that Americans have to get off their arse and demand change in a way that makes it hurt the current vested interests. But he is wrong that his method of quitting can be broadly applicable. It has to be done in a way that can gather momentum and it has to be done in a way that early adopters do not compromise their dependants' security.

Nick B Steves said...

OK OK, WHAT "famous angry line from Steve Carell"???? There are a lot to choose from.