Daily Archives: April 27, 2015

Outdated Credit Scoring Shuts Minorities Out of Housing Market

From James H. Carr at Forbes:

At a time when the U.S. economy continues to struggle to create jobs, we cannot afford to leave potentially hundreds of billions of dollars of lending activity and tens of thousands of possible jobs go untapped.

But that’s exactly what we’re doing based on research presented last week by Urban Institute researcher Laurie Goodman and her colleagues. Between 2009 and 2013, mortgage lenders could have originated more than 4 million additional home loans while maintaining relatively conservative lending standards.

These missing 4 million loans reflect the extreme degree to which the housing finance system has over-corrected from the reckless lending behavior in the years before the housing crisis. Today’s loan approval practices can be considered exclusionary because they limit access to mortgage credit without materially improving the safety or soundness of lending.

The Whistleblower’s Tale: How An Accountant Took on Halliburton

In 2005, Tony Menendez blew the whistle on Halliburton’s accounting practices. The fight cost him nine years of his life.

This story was co-produced with Marketplace.

The email that ruined Tony Menendez’s life arrived on a warm and sunny February afternoon in 2006. Menendez is, by nature, precise and logical, but his first instinct was somewhat irrational. He got up to close the door to his office, as if that might somehow keep the message from speeding across cyberspace. Then he sat down at his desk to puzzle out what had just happened.

The email was sent by Mark McCollum, Halliburton’s chief accounting officer, and a top-ranking executive at Halliburton, where Menendez worked. It was addressed to much of the accounting department. “The SEC has opened an inquiry into the allegations of Mr. Menendez,” it read. Everyone was to retain their documents until further notice.

Panic gripped Menendez. How could McCollum have learned he had been talking to the SEC? The substance of the email was true. After months of raising concerns inside the company, Menendez had filed a complaint with regulators and Halliburton’s audit committee that accused the giant oil services company of violating accounting rules. But those complaints were supposed to be kept strictly confidential. Did the agency violate that trust? Did a board member? Somebody had talked.

Ten minutes passed, maybe fifteen. Menendez finally could move. He got up, opened his office door carefully and looked out. The floor normally bustled at that hour in the mid-afternoon. It had cleared out. He turned around quickly, grabbed his computer and rushed out of the heavily secured Halliburton complex north of Sugarland, Texas.

Menendez drove around for hours. He doesn’t remember much about where he went or for how long. At some point, he called his wife.

“Ondy,” he cried out to her, frantic. “They outed me!”

As shocked as Menendez was, his wife had seen something like this coming. Tony was a perennial optimist, even naïve. He always thought the company would do the right thing and fix its accounting problem. More jaded, his wife was prepared for the worst. She’d even urged Tony to start secretly taping his bosses.

“Is anyone following you?” she asked. “Make sure.”

Menendez looked around, seeing only a blur of cars pass at the beginnings of evening rush hour. He didn’t think anyone was tailing him. Then again, how would he know? He needed a lawyer – right now. Only months into the best job he’d ever had, he was in the most trouble of his professional career.

Menendez quickly googled “whistleblower” and “lawyer” on his phone and came up with Philip Hilder, the attorney who had represented the Enron whistleblower, Sherron Watkins. He placed the call and got through. Hilder heard Menendez out and then told him to listen carefully. Hilder instructed Menendez not to tell anyone, not even his wife. Too late for that, and he wouldn’t have kept it from Ondy anyway. They were partners.

“Ok. Then don’t talk on the phone anymore. Don’t talk in your office. Don’t talk in your house,” Hilder continued.

Read on.

Prudential Settles Lawsuits with Bank of America over Mortgage-Backed Securities

New Jersey federal court documents filed earlier this week revealed that Prudential Insurance Co.has moved to settle its ongoing lawsuits withBank of America NA, Merrill Lynch & Co. Inc.,First Franklin Financial Group, and a number of lenders in the mortgage industry.

According to Law360, the suits, which were first filed in March 2013, alleged Bank of America and others knowingly sold Prudential $2.1 billion in low-quality mortgage-backed securities—and made false statements about them. Prudential claimed this left the company with more than 10,000 defective home loans, many that eventually went into default or foreclosure.

The suits also claimed there were deficiencies in loan-to-value ratios, owner-occupation levels, and more, and that the credit ratings touted by the defendants were “garbage,” according to federal court documents.

Many of the claims made by Prudential were dismissed earlier this year, according to Reuters, when District Judge Stanley R. Chesler heard the case in February. Chesler determined that Prudential did not effectively prove that BofA or Merrill Lynch had lied to rating agencies about the quality of their loans, and he dismissed Prudential’s negligent misrepresentation claim.

Additionally, Chesler also said Prudential’s “after-the-fact” computer analysis of securities—a key piece of evidence for the plaintiff—was unreliable.

Read on.

The Virtual Immunity Of The Well-Connected: Gen. Petraeus Edition

Submitted by Ray McGovern via Consortium News,

The leniency shown former CIA Director (and retired General) David Petraeus by the Justice Department in sparing him prison time for the serious crimes that he has committed puts him in the same preferential, immune-from-incarceration category as those running the financial institutions of Wall Street, where, incidentally, Petraeus now makes millions. By contrast, “lesser” folks – and particularly the brave men and women who disclose government crimes – get to serve time, even decades, in jail.

Petraeus is now a partner at KKR, a firm specializing in large leveraged buyouts, and his hand-slap guilty plea to a misdemeanor for mishandling government secrets should not interfere with his continued service at the firm. KKR’s founders originally worked at Bear Stearns, the institution that failed in early 2008 at the beginning of the meltdown of the investment banking industry later that year.

Despite manifestly corrupt practices like those of subprime mortgage lenders, none of those responsible went to jail after the 2008-09 financial collapse which cost millions of Americans their jobs and homes. The bailed-out banks were judged “too big to fail” and the bankers “too big to jail.”

Two years ago, in a highly revealing slip of the tongue, Attorney General Eric Holder explained to Congress that it can “become difficult” to prosecute major financial institutions because they are so large that a criminal charge could pose a threat to the economy – or perhaps what he meant was an even bigger threat to the economy.

Holder tried to walk back his unintended slip into honesty a year later, claiming, “There is no such thing as ‘too big to jail.’” And this bromide was dutifully echoed by Holder’s successor, Loretta Lynch, at her confirmation hearing in late January.

Words, though, are cheap. The proof is in the pudding. It remains true that not one of the crooked bankers or investment advisers who inflicted untold misery on ordinary people, gambling away much of their life savings, has been jailed. Not one.

And now Petraeus, who gave his biographer/mistress access to some of the nation’s most sensitive secrets and then lied about it to the FBI, has also been shown to be too big to jail. Perhaps Holder decided it would be a gentlemanly thing to do on his way out of office – to take this awkward issue off Lynch’s initial to-do list and spare her the embarrassment of demonstrating once again that equality under the law has become a mirage; that not only big banks, but also big shots like Petraeus – who was Official Washington’s most beloved general before becoming CIA director – are, in fact, too big to jail.

It strikes me, in a way, as fitting that even on his way out the door, Eric Holder would not miss the opportunity to demonstrate his propensity for giving hypocrisy a bad name.

A Slap on Wrist for Serious Crimes

The Justice Department let David Petraeus cop a plea after requiring him to admit that he had shared with his biographer/mistress eight black notebooks containing highly classified information and then lied about it to FBI investigators. Serious crimes? The following quotes are excerpted from “U.S. v. David Howell Petraeus: Factual Basis in support of the Plea Agreement” offered by the U.S. District Court for the Western District of North Carolina, Charlotte Division:

“17. During his tenure as Commander of ISAF in Afghanistan, defendant DAVID HOWELL PETRAEUS maintained bound, five-by-eight-inch notebooks that contained his daily schedule and classified and unclassified notes he took during official meetings, conferences, and briefings. … A total of eight such books (hereinafter the “Black Books”) encompassed the period of defendant DAVID HOWELL PETRAEUS’S ISAF [Afghanistan] command and collectively contained classified information regarding the identities of covert officers, war strategy, intelligence capabilities and mechanisms, diplomatic discussions, quotes and deliberative discussions from high-level National Security Council meetings, and defendant DAVID HOWELL PETRAEUS’s discussions with the President of the United States of America. [emphasis added]

“18. The Black Books contained national defense information, including Top Secret//SCI and code word information.”

Despite the sensitivity of the notebooks and existing law and regulations, Petraeus did not surrender them to proper custody when he returned to the U.S. after being nominated to become the Director of the CIA. According to the Court’s “Factual Basis,” Petraeus’s biographer/mistress recorded a conversation of Aug. 4, 2011, in which she asks about the “Black Books.” The Court statement continues:

“ [Petraeus] ‘Umm, well, they’re really – I mean they are highly classified, some of them.  … I mean there’s code word stuff in there.’ … On or about August 27, 2011, defendant DAVID HOWELL PETRAEUS sent an email to his biographer in which he agreed to provide the Black Books to his biographer. … On or about August 28, 2011, defendant DAVID HOWEL PETRAEUS delivered the Black Books to a private residence in Washington, D.C. where his biographer was staying. … On or about September 1, 2011, defendant DAVID HOWELL PETRAEUS retrieved the Black Books from the D.C. private residence and returned them to his own Arlington, Virginia home.” [emphasis added]