his summer I wrote a story for DealFlow’s The Distressed Debt Report warning more whistleblowers have come forward to spell out how Tom Marano’s mortgage team at Bear Stearns knowingly threw out any form of loan level due diligence while packaging and selling residential mortgage backed securities years before the 2008 financial crisis. When investors complained about early defaults in the RMBS they’d bought from Marano’s traders, the Bear executives simply instructed their servicing and due diligence underlings to massage the numbers or mislead the trustee of the securities about the real health of the loans. Viewers of RT’s The Keiser Report heard me warn this summer about upcoming litigation that would detail the alleged pre-planned scheme designed by Bear’s mortgage team to cheat their own clients in the name of sales and fee revenue –now those details have been made public in an amended complaint filed late Friday by monoline insurer Assured Guaranty against Bear Stearns, EMC, and it’s current owner J.P. Morgan.
“Bear don’t Care” was the mantra spread throughout the halls of outside underwriter firms Bear hired to review the mortgage loans for its residential mortgage securities, says the Assured lawsuit. It spells out a callous disregard to create products that could perform and then shows how Bear allegedly executed a widespread fraud to cover it up when their investors started to question the legitimacy of the product they were sold.
Over 30 whistleblowers from an outside due diligence firm hired by Bear Stearns, Watterson Prime, have come forward since I first warned about possible fraud and criminal acts by the Bear traders in two stories for The Atlantic. But what is really telling is the fact that this complaint has people speaking out from every part of the Bear mortgage securitization machine admitting Team Marano knew from the start the RMBS they were selling to pension funds and the monolines were not packed with gold platted performing loans. Emails obtained by Assured’s lawyers during discovery show Tom Marano sold personal investments in the mortgage insurance companies that are now suing Bear. Yet at the same time, in late 2007, his team was assuring these companies the RMBS they sold them were a quality product. This should be of interest to the New York authorities who I reported are now building a case against his Bear team.
Read more from Teri Buhl.
Will be keeping my eye on the case.
New York’s top prosecutor filed a civil complaint against J.P. Morgan Chase Co.,JPM +1.21% alleging widespread fraud in the sale of mortgage-backed securities in the run-up to the financial crisis.
Eric Schneiderman, New York’s attorney general, filed the civil lawsuit in New York state court Monday. The case is the first brought under the aegis of a law enforcement group that was formed by President Barack Obama in January to pursue alleged wrongdoing related to the financial crisis.
Update: Here is the NY AG’s 31 page complaint against JP Morgan Chase. Hat tip to Alison Frankel. Click here. One wrinkle in NY AG suit: Asserts JPMorgan’s successor liability for Bear Stearns/EMC MBS judgments thru NY de facto merger law. Bad for JP Morgan Chase. JPMC complaint: Bank “failed to fully evaluate the loans, largely ignored the defects that their limited review did uncover…”
The Securities and Exchange Commission agreed to accept the settlement and forego any appeals after a California judge effectively gutted the government’s case.
Read on from American Banker (sub. req.).
Posted in Uncategorized
WASHINGTON, D.C. — The Consumer Financial Protection Bureau (CFPB) today announced an enforcement action with orders requiring three American Express subsidiaries to refund an estimated $85 million to approximately 250,000 customers for illegal card practices. This action is the result of a multi-part federal investigation which found that at every stage of the consumer experience, from marketing to enrollment to payment to debt collection, American Express violated consumer protection laws.
“Several American Express companies violated consumer protection laws and those laws were violated at all stages of the game – from the moment a consumer shopped for a card to the moment the consumer got a phone call about long overdue debt,” said CFPB Director Richard Cordray. “Today’s orders require the American Express companies to fully refund about $85 million to consumers and it requires them to make specific changes in their business practices. The American Express companies will identify the harmed customers, notify them, and make sure they get back their money.”
The Federal Deposit Insurance Corporation (FDIC) together with the Utah Department of Financial Institutions discovered the illegal activities during a routine examination of an American Express subsidiary, the American Express Centurion Bank. The FDIC transferred portions of the investigation to the CFPB when the Bureau opened its doors last year and together the agencies pursued the matter. The CFPB later concluded that many of the same violations that occurred at American Express Centurion Bank also took place at American Express Travel Related Services Company, Inc. and American Express Bank, FSB.
Posted in Uncategorized
The financial services sector has cut 9,000 jobs over the past three months as business volumes and profitability fell for the first time in more than three years, the CBI employers’ group and PwC have reported.
The job cuts were deepest in banking, which has been beset by a scandal over the Liborbenchmark interest rate and a slowdown in investment banking revenues.
The findings, from a survey of 104 companies, contrast with signs that the economy may be returning to growth.
Financial services groups think growth in business volumes will resume in the next quarter, according to the CBI/PwC survey but they also expect to cut 3,000 more jobs.
The Nevada Supreme Court has sided with banks by validating a key cog in the foreclosure enforcement machinery that has sparked legal disputes all over the country.
In a 26-page ruling delivered Thursday, all seven justices agreed that hundreds of thousands of home mortgages in the state involving the Mortgage Electronic Registration System Inc. could be put into foreclosure after technical adjustments.
As foreclosures mounted in the past five years, consumer groups and attorneys have targeted MERS as hiding the identity of the actual lender, making it difficult to work out new mortgage terms, while not properly holding an interest in a loan.
Posted in Uncategorized
Because mortgages and foreclosures are such important issues in today’s shared ownership communities, we wanted to begin our column this week with a couple of legal notes and warnings.
First, a comment about short sales and taxation issues. If a homeowner sells their home for less than the amount owed on the mortgage (typically accomplished through a short sale), the amount of loan forgiveness (that is, the portion of the mortgage that will go unpaid) would ordinarily be subject to taxation on the homeowner as gain. Because of the potential impact of this rule on a large number of financially depressed homeowners, Congress passed a law in 2007 that allowed homeowners to avoid paying taxes on forgiven debt for their primary residence. However, that law expires at the end of 2012. Unless Congress extends the law, sellers should be aware that they may face significant taxes on their short sales.