Too Busy To Post, Too Enraged Not To Note The Latest Bit of Fraud/Nonsense–Mortgage Backed Securities/Foreclosure disaster edition
On multiple deadlines today, but I couldn’t resist this juxtaposition.
First, this, from two weeks ago (h/t LegalForesicAuditors.com):
NEW YORK — JPMorgan Chase has temporarily stopped foreclosing on more than 50,000 homes so it can review documents that might contain errors.
JPMorgan’s move Wednesday makes it the second major company to take such action this month, underscoring a growing legal problem. The issue could stall an already overloaded foreclosure process.
JPMorgan acknowledged Wednesday that its employees signed some affidavits about loan documents without personally verifying the files. These affidavits verifies the accuracy of the loan information, including who owns the mortgage.
In some states, lenders can foreclose quickly on delinquent mortgage borrowers. But 20 states use a lengthy court process for foreclosures. They require documents to verify information on the mortgage, including who owns it. Florida, New York, New Jersey and Illinois are the biggest states with this process.
Christopher Immel, a Florida lawyer who represents homeowners, said people who already have lost homes could sue their lender, alleging errors in documents.
In August, a judge in Duval County, Fla., ruled that JPMorgan could not foreclose on two homeowners. The reasoning was that Fannie Mae carried the mortgage on its books and JPMorgan Chase only collected payments on the loan. JPMorgan Chase had identified itself as the owner of the loan.
More lawsuits could come soon.
In May, JPMorgan employee Beth Ann Cottrell said in a deposition that she and her staff of eight signed about 18,000 legal documents a month without reviewing every file. In a similar testimony, GMAC employee Jeffrey Stephan said he signed 10,000 documents a month without personally verifying the mortgage information.
And then there’s this, hot of the intertubes via NYTimes.com:
JPMorgan Chase kicked off what was expected to be a mixed quarterly earnings season for big banks on Wednesday with a 23 percent increase in third-quarter income.
After powering ahead for the last year on the strength of its trading operations, JPMorgan topped investor expectations with the help of improvement in its credit card business and a gain from money it had previously set aside to cover possible losses from bad loans.
Net income rose to $4.42 billion, from $3.58 billion a year earlier. Earnings were a $1.01 a share, handily topping analyst forecasts for 88 cents. Earnings were 82 cents a share in the period a year ago.
The Times piece does note the fact that the bank faces significant costs and potential liability as it confronts the failure of its foreclosure process, and it quotes JPMorgan’s new CFO trying to discount the implications of this issue, saying “The whole mortgage issue costs us so much money now, to me it [the foreclosure SNAFU] is incremental.”
Just two quick thoughts:
1: Given the different avenues through which JPMorgan is exposed to potential liability (as holder of delinquent loans, and through its role in the making of the market in mortgage backed securities affected by flawed documentaton — see this excellent series for more), the confidence expressed by the CFO in question, Mr. Douglas Braunstein, reminds me of this moment of assurance:
2: What justification can anyone provide for the ongoing employment and wealth of the management of the major US banks/investment houses?
And to add just one more query in the spirit of honest curiousity: what rationale is left for avoiding a modernized version of Glass-Seagall? Commercial lending is a public utility, and needs to be both regulated and guaranteed as such. Everything else can be at one’s own risk — but the two activities have to be kept separate, not just by alleged Chinese Walls, but institutionally, at the level of holding of capital and the existence of public insurance/guarantees.
Tell me, anyone, why this is wrong.
All of which is to say that before the Obama adminstration or Congress starts immunizing the big Wall St. firms from the consequences of what appears to be a decade of profiteering on real estate fraud, we gotta take the current structure down to the foundations.
Image: Vincent van Gogh, “The Cottage,” 1885.