[Ed. Note: The following post was written by Charles Seavey. Charles is an excellent writer and frequently posts on LinkedIn’s Securities Fraud and Financial Crimes groups. When not writing about fraud, he also is an accomplished attorney. The opinions in this piece are his.
Stories like this should be upsetting to everyone who believes in good government and fair play.]
Secret deal with Citi confirms that FHFA complaints were a charade from the start
by Charles Seavey
This week the U.S. Federal Housing Finance Agency told a federal judge it had settled its case against Citigroup Inc. But he agency won’t say how much money Citigroup is paying. Neither will Citigroup, which survived the financial crisis only because it got multiple taxpayer bailouts. The parties agreed to keep the terms confidential.
The cases make Section 11 claims stemming from Fannie Mae and Freddie Mac purchases of MBS from 17 banks. The complaints are available at: http://www.fhfa.gov/Default.aspx?Page=110
At the time that these FHFA complaints were filed, I noted that they were exceedingly tame. The allegations are limited to statistical deviations from underwriting standards that avoid mention of the banks’ most serious misconduct.
For example, one might assume that it would be relevant to Section 11 claims that plaintiffs purchased interests in trusts that at the time did not even own most of the mortgages in question. In many cases, the plaintiffs were buying literally nothing. Those would be useful facts that a competent lawyer would include in a Section 11 claim, don’t you think?
You would further assume it might be relevant to making (and proving to a jury) Section 11 claims that the defendants or their agents subsequently engaged in serial forgery in order to create the appearance that the aforementioned mortgages had been in the proper ownership as of the appropriate date.
You also might assume that it would be relevant to point out that the underwriting process itself often involved encouraging mortgage brokers to target the most risky borrowers, to lie about borrowers, and to trick the borrowers into lying about themselves, as in Countrywide’s “Hustle” program, widespread reports of brokers emailing forged income verification forms around to each other, or all the copies of internal communications and references to the securities being “crap” and the like.
The FHFA complaints against Citi and 16 other banks made none of these claims. The tameness of the complaints immediately led those with some knowledge of these matters to speculate that the entire effort was a charade.
We now have evidence that it was indeed a charade. The reason that the settlement amount is being kept secret — which in itself would appear to be questionable if not illegal in a constitutional democracy — is because it is puny.
At this point, everyone in the country can see that the National Mortgage Settlement was a joke from the start. And now we can see that the FHFA cases were a joke as well.
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