Daily Archives: March 14, 2014


[VIDEO] Fannie Mae Securitization

This video describes the entire MBS manufacturing process and the important role Fannie Mae plays in the mortgage finance circle that connects borrowers, lenders, Fannie Mae, and investors.


Overtime Case Against Chase Isn’t a Class Action

Overtime Case Against Chase Isn’t a Class Action

(CN) – Federal court is not the proper venue for overtime claims against Chase Investment Services under California’s Private Attorney General Act, the 9th Circuit ruled.
     Joseph Baumann is the lead plaintiff in the action alleging that Chase had failed to pay financial advisers for overtime or allow them meal and rest breaks.
     He brought the suit under the California Labor Code Private Attorneys General Act of 2004 (PAGA), which authorizes aggrieved employees, acting as private attorneys general, to recover civil penalties from their employers for violations of the Labor Code when the California Labor and Workforce Development Agency (LWDA) declines to investigate the alleged violations.
     In such actions, the agency receives 75 percent of the penalties collected and the aggrieved employees receive the remaining 25 percent.
     Baumann filed his complaint in California superior court, seeking PAGA statutory civil penalties for each of Chase’s alleged violations. Chase removed the action to the U.S. District Court for the Central District of California, invoking jurisdiction under the Class Action Fairness Act (CAFA).
     A federal judge in Los Angeles refused to remand, but the 9th Circuit reversed Thursday after finding that a PAGA suit is not a “class action” as defined in CAFA.
     The California Supreme Court already authoritatively determined that PAGA actions are not class actions under state law, as such statutory suits are essentially law-enforcement actions, according to the ruling.
     CAFA does not require, however, that a lawsuit be filed under a state class action statute, only that it be brought under a state statute similar to Federal Rule of Civil Procedure 23, which allows for class actions under certain conditions.
     The three-judge panel found that PAGA suits are fundamentally different than Rule 23 class actions, so they do not trigger CAFA jurisdiction.
     Unlike Rule 23, “PAGA has no notice requirements for unnamed aggrieved employees, nor may such employees opt out of a PAGA action,” Judge Andrew Hurwitz wrote for the Pasadena court. “In a PAGA action, the court does not inquire into the named plaintiff’s and class counsel’s ability to fairly and adequately represent unnamed employees – critical requirements in federal class actions.”

Allegations of Wells Fargo falsifying foreclosure documents in Minnesota

From Pierce County Herald website:

WHITE PLAINS, NY — Wells Fargo appears to have set up detailed internal procedures to falsify foreclosure papers. The lawyer in a New York bankruptcy case describes in court documents a 150-page manual that was created in November 2011 and updated February 2012. The court papers allege that the booklet details a procedure for processing mortgage notes without the paperwork proving that the company that’s foreclosing owns the loan, and therefore has the right to kick a family out of its home. A Wells Fargo spokesman denied that the manual could be used to order improper documents. Forensic accountant Jay Patterson tells the New York Post, “it’s an explosive document.” An article written in March 2013 for the finance blog Naked Capitalism described allegations of widespread tampering with foreclosure documents at a Wells Fargo office in Minnesota.

Here is the 2013 article from Naked Capitalism:

A contractor who worked at a Wells Fargo facility in Minnesota reports that the bank engaged in systematic, large scale alteration of mortgage notes and fabrication of related documents in preparation for foreclosure. The procedures the bank used are questionable for a large portion of the mortgages.

A team of roughly 100 temps divided across two shifts would review borrower notes (the IOU) to see whether they met a set of requirements the bank set up. Any that did not pass (and notes in securitized trusts were almost always failed) went to another unit in the same facility. They would later come back to the review team to check if the fixes and fabrications had been done correctly.

Not only is having Wells Fargo tamper with documents in this way dubious in many cases (more detail on that shortly), but amusingly, the bank does not even appear to be terribly competent at this sort of falsification. The bank changed procedures frequently, and did not go back to redo its prior work. In addition, it regularly took loans that appear to have been endorsed properly and changed them as well. Finally, even if the procedures had been proper, the temps were required to meet such aggressive production timetables and were so laxly supervised that it seems unlikely that their work was done well.

This account confirms what foreclosure defense attorneys have reported for some time: that servicers have been engaging in document fabrication for some time. It’s not uncommon for a servicer or foreclosure mill to present “tah dah” documents that miraculously remedy the problems that homeowner attorneys have raised, sometimes resulting in clear proof of fabrication, like two different notes (borrower IOUs) having been presented to the court, each supposedly an original.

But what is striking about this practice is both the brazenness and the scale. Our source was told that Wells Fargo added a second shift to its mortgage review operation in November 2011 [update: it is likely the related doctoring activities were increased correspondingly]; he* did not know when it had been established. Bank employees claimed that some of these operations had formerly been done by outside firms and the cost of doing it in-house was much lower than the cost of doing it externally. Apparently having plausible deniability was too expensive.

We sought comment from Wells Fargo on these allegations and they declined to respond.

Description of Mortgage Doctoring Operations

The document fixing took place at 1000 Blue Gentian Road in Eagan, Minnesota, which the whistleblower described as an enormous facility, and ironically, one at which one of the 9/11 hijackers received flight training.

The whistleblower worked with a team of 50-60 temps, one of the two shifts involved in checking documents before and after the “corrections” were made. The temps came via agencies, were required to have a college degree and pass a security clearance, and were paid roughly $13.00 to $14.50 an hour for eight hours (seven hours of work + breaks). The whistleblower said very few people (under 20%) had prior experience with mortgage documentation. Since Wells has a long-standing practice of promoting temps into permanent positions, the workers had a strong incentive to perform well. Our source worked for the bank for nine months.

His unit would review mortgage documents of borrowers who were described as “in foreclosure” which he understood in practice meant they were delinquent but the foreclosure has not not been initiated. When our source arrived (spring 2012), they were in the process of doubling the work capacity of this effort. Wells Fargo beefed up in the wake of the state attorney general/Federal mortgage settlement of early 2012, evidently seeing it as a green light for more aggressive and systematic document fixing.

This team had two tasks. The first was to review documents that were delivered periodically (often daily) to make sure they were in order. The part we’ll focus on is that they would check the notes to see if the endorsements matched up against what the bank wanted them to look like. (Regular readers of this blog will recall that mortgage notes are endorsed to convey ownership, and in foreclosures, attorneys often challenge the foreclosure if the borrower note does not show a complete and unbroken chain of endorsements to the party initiating the foreclosure). The whistleblower estimated that 99.5% of the notes that he reviewed that had been securitized failed the bank’s tests, and roughly 10% to 15% of the bank owned mortgages were tagged as “fails”.


Woman wins lawsuit against Wells Fargo

Woman wins lawsuit against Wells Fargo


“I just wanted what was mine,” said Margaret Zurro.

Margaret Zurro said she was scared to take on a bank as big as Wells Fargo, but after they took half of her life savings, she had no choice.

“If it wasn’t for Mr. Rambaum, I had no recourse. None at all. They were not going to listen to me. They were sorry for any inconvenience. That was not acceptable but they were forcing me to accept it,” said Zurro.

Five years ago, Wachovia, now Wells Fargo, took Zurro’s $25,000 CD to make up for a loss on Zurro’s sister’s defaulted loan. The problem, Zurro’s sister’s name was not listed on the account. Zurro was not aware that her CD had been emptied until she went to the bank to check on it. Zurro said she tried for more than two years work it out with the Bank.

“The bank was just very unresponsive,” said William Rambaum, Zurro’s attorney. “It’s disappointing because they hold themselves out as being honest and above board and in reality, I think, in this case they were not at all.”

The Judge points out in his ruling that the problem was not of Wells Fargo’s making. “They inherited this from a prior bank, Wachovia, and have been left with the chore of straightening out what Wachovia left behind,” reads the statement from the Honorable Jack St. Arnold.

Yet, the Judge ruled that the bank had no right to take the money and must pay it back to Zurro with interest. Zurro said she is pleased with the ruling but hopes it will teach Wells Fargo a lesson.

“They need to be shown that they cannot do this,” she said. “This is not right and they cannot do this and then think that that person cannot afford to fight us. They’re just going to have to swallow it. Too bad, so sad.”

Fed Investigated FX Rigging Months Before Manipulation Was Exposed, Did Nothing

Via WSJ,


The Federal Reserve examined a key foreign-exchange benchmark months before global regulators sounded the alarm about potential manipulation, but officials took no public action.


Today, that benchmark—the so-called WM/Reuters fix—is at the center of a burgeoning investigation into whether bank traders and others colluded to manipulate the $5.3-trillion-a-day currencies market. Roughly two dozen bank traders have been fired or suspended. Banks are bracing for potentially huge civil and criminal penalties.


Until earlier this year, the Fed has been absent from the long list of authorities publicly probing the situation.



The New York Fed’s queries started around September 2012. At the time, the scandal over banks’ attempted manipulation of the London interbank offered rate, or Libor, was in full swing. Barclays had admitted wrongdoing and reached a high-profile settlement with U.S. and British authorities, and UBS AG was nearing its own $1.5 billion settlement and guilty plea to U.S. criminal charges.


So the New York Fed set out to see how other benchmarks were set, according to a person familiar with the central bank’s thinking. The WM/Reuters fix was one place they looked.



In light of the focus on reference rates in other markets, we sought to better understand the various reference rates that exist in the FX market,” a New York Fed spokeswoman said. “Accordingly the [Fed’s foreign-exchange committee] undertook an effort to catalog commonly used rates.”



FRBNY representatives expressed a desire to gather more information about the range, type, and use of benchmarks in the foreign-exchange market,” according to minutes from the meeting published on the Fed’s website.

FBI Blocked In Sens. Harry Reid and Mike Lee Corruption Probe

Via The Washington Times,


FBI agents working alongside Utah state prosecutors in a wide-ranging corruption investigation have uncovered accusations of wrongdoing by two of the U.S. Senate’s most prominent figures — Majority Leader Harry Reid and rising Republican Sen. Mike Lee — but the Justice Department has thwarted their bid to launch a full federal investigation.


The probe, conducted by one Republican and one Democratic state prosecutor in Utah, hasreceived accusations from an indicted businessman and political donor, interviewed other witnesses and gathered preliminary evidence such as financial records, Congressional Record statements and photographs that corroborate some aspects of the accusations, officials have told The Washington Times and ABC News.


But the Justice Department’s public integrity section — which normally handles corruption cases involving elected figures — rejected FBI agents’ bid to use a federal grand jury and subpoenas to determine whether the accusations are true and whether any federal crimes were committed by state and federal officials.


The information involving Mr. Reid and Mr. Lee is not fully developed but centers on two primary issues:


Whether both or either politician sought or received money or other benefits from donors and/or fundraisers in connection with doing political favors or taking official actions.


Whether Mr. Lee provided accurate information when he bought, then sold a Utah home for a big loss to a campaign contributor and federal contractor, leaving his mortgage bank to absorb large losses.


“There are allegations, but they are very serious allegations and they need to be looked at by somebody,” Sim Gill, a Democrat who is the elected chief prosecutor in Salt Lake County, told The Times. “If true, or even if asserted, they truly should be investigated and put to rest, or be confirmed.”


US FDIC sues 16 banks for rigging Libor

US FDIC sues 16 banks for rigging Libor

(Reuters) – The Federal Deposit Insurance Corporation sued 16 of the world’s largest banks on Friday, accusing them of collusively suppressing interest rates.

The lawsuit, filed in the federal district court in New York, was the latest to accuse financial institutions of conspiring to manipulate Libor, or the London Interbank Offered Rate.

The FDIC said the defendants’ conduct caused substantial losses to 38 banks that the U.S. regulator had taken into receivership since 2008, including Washington Mutual Bank and IndyMac Bank.

Among the banks named as defendants include Bank of America Corp, Barclays PLC, Citigroup Inc, Credit Suisse Group AG, Deutsche Bank AG, HSBC Holdings PLC, JPMorgan Chase & Co, the Royal Bank of Scotland Group PLC and UBS AG.