December 4, 2022

Fair Game: A Low Bid for Fixing a Big Mess

Just don’t think for a moment that this victory for prosecutors will be keeping the high and mighty of finance up at night. No, some giant financial institutions have a bigger worry — namely, how to make the foreclosure fiasco go away.

As the Rajaratnam verdict captivated many on Wall Street last week, the institutions that service about two-thirds of the mortgages in this country offered to pay $5 billion to settle allegations about robo-signing and other shady practices that quick-step troubled borrowers out of their homes.

That figure is a fraction of the $20 billion that state attorneys general had apparently floated. If regulators accept the lowball offer, perhaps that would be because they haven’t dug deep enough.

Because evidence of extensive and abusive servicing practices does in fact exist. It is piling up at the offices of the United States Trustee Program, the arm of the Justice Department that monitors the bankruptcy system. Over the past six months, the trustee has drawn material from 95 field offices covering 88 judicial districts. The findings should dispel any notion that toxic servicing practices were atypical or have done no harm.

Clifford J. White III, director of the executive office of the United States Trustee, discussed some of the findings in an interview last week. But before we recount the ugly details, it’s worth noting the immense pushback the banks have mounted against the trustee office.

Banks have repeatedly tried to thwart the program’s actions, filing lawsuits and court motions to prevent officials from compiling evidence. Never mind that part of a trustee’s job is to investigate possible improprieties in foreclosures to determine if they are poisoning the bankruptcy system.

“We have faced consistent opposition by all of the major servicers,” Mr. White said. “We are currently facing 200 motions to quash our discovery requests. We also are facing upwards of 20 appeals either in district courts or in circuit courts.”

Those pushing back include Bank of America, Citigroup, G.M.A.C., JPMorgan Chase and Wells Fargo, he said.

The banks typically make two arguments. First, they say the trustee program has no legal standing to delve into individual cases between lenders and borrowers because it is not a “party” to these disputes. Every court has rejected this claim. Nonetheless, the tactic has allowed servicers to stall trustees’ discovery requests.

In other cases, the banks agree to turn over information in specific matters of interest to the trustee program but refuse to provide details on their overall policies and procedures, which could show deep and systemic flaws.

Why are these institutions so afraid of a little sunlight?

To be sure, the nationwide investigation by the United States Trustee’s office represents an aggressive tack that big financial institutions are unaccustomed to. “The bankruptcy system provided an early warning sign of problems in mortgage servicing,” Mr. White said. “We began looking a few years ago at some of the violations of mortgage servicers, on a case-by-case basis. What’s different from the past is, if we find a facial discrepancy” — something that’s a problem on its face — “we are off the bat seeking discovery.”

When the banks have provided information, lawyers for the trustee program have often found extensive errors in amounts owed and charges levied. Needless to say, these mistakes do not typically favor the borrowers.

Mr. White declined to get specific. But the mistakes that his office has found fall into two broad categories. One involves inaccurate amounts that the banks say borrowers owe. The accuracy of these documents, which are filed with the courts, is crucial. Borrowers and bankruptcy judges overseeing their cases use them to determine payment schedules to cure defaults, for example.

Inaccuracies often arise because loan servicers fail to reflect that borrowers are in trial loan modifications, like those offered by the government, Mr. White said. As a result, though borrowers are paying the proper amounts, the servicer shows them falling behind. Then the bank moves to restart foreclosure.

Article source: http://feeds.nytimes.com/click.phdo?i=de0bf66e6f5b6f0e49cdd91e81988dce

Economix: Podcast: Insider Trading, Robo-Signing and Food Claims

The Galleon hedge fund trial was perhaps the most prominent insider-trading case in a generation — and the conviction of Raj Rajaratnam, the hedge fund’s co-founder, has been portrayed both as a great victory for the prosecution and as a chilling warning that lawbreaking, even by the very rich, will be harshly punished.

But will the case have broader implications for Wall Street and for law enforcement?

Peter Lattman, who covered the trial for The Times, addresses these questions in the new Weekend Business podcast. Investigations continue into the use of expert networks to provide information to hedge funds, and the use of wiretaps in the Galleon case may have a deterrent effect on those who may be tempted to violate the rules, he says. Still, the hedge fund investigations don’t bear directly on the major issues that arose in the financial crisis, he says, and very few criminal cases have been brought against those who might be responsible for the economic cataclysm from which the United States is still recovering.

In a separate conversation, Gretchen Morgenson focuses on evidence of widespread robo-signing and other shady practices by mortgage servicers who helped to force troubled borrowers out of their homes. Some of those firms have offered to pay $5 billion to settle allegations brought by state attorneys general, who have apparently demanded much more. Evidence of extensive and abusive servicing practices, meanwhile, has been amassed by the United States Trustee, the Justice Department unit that monitors the bankruptcy system. Ms. Morgenson writes about these issues in her column in Sunday Business.

A dispute over the validity of food companies’ health claims is the subject of a Sunday Business cover article by Natasha Singer and of a podcast conversation between Ms. Singer and David Gillen. Federal regulators, who require that statements about a food’s beneficial qualities are supported by scientific evidence, have maintained that some company marketing has crossed a line.

Darwinian economics — drawn from evolutionary theory — can provide insights that are lacking in the otherwise very useful theories of behavioral economics, according to a Sunday Business column by Robert Frank, a professor at Cornell University. As he explains on the podcast, because the human brain was forged through millions of years of natural selection, many of our instinctive responses are extremely useful, even if they cause us immediate discomfort and don’t make us happy.

Worrying about getting a specific job, for example, may seem to make little sense if you will be just as happy if you never get that job. But up to a certain point, that fretting provides motivation that helps us survive as individuals and as a species.

Surviving as investors is the subject of my Sunday Business column about gold and other commodities. I also discuss it on the podcast, recounting a parable written by John Ruskin, the English economist:

A rich man carrying a heavy bag of gold coins on a sea voyage decides, before his ship capsizes, to tie the bag to his waist and jump overboard. He sinks with his fortune, never to be seen again. “Now, as he was sinking, had he the gold?” Ruskin asks. “Or had the gold him?”

Investors may want to ask the same question today. Gold and other commodities have been very volatile. Should they be part of a typical investment portfolio? The answer isn’t simple. I explain why in the podcast and, in greater depth, in the column.

As articles discussed in the podcast are published during the weekend, links will be added to this posting.

You can find specific segments of the podcast at these junctures: the Galleon case (35:30); news headlines (28:00); investing in commodities (25:13) functional foods (20:45); Gretchen Morgenson on mortgage abuses (13:57); Robert Frank (8:36); the week ahead (2:18).

You can download the program by subscribing from The New York Times’s podcast page or directly from iTunes.

Article source: http://feeds.nytimes.com/click.phdo?i=9784bc30c6f0a3d7cbb40918b35e8972