Katie Porter at Credit Slips has a good post debunking the spin from banks and many conservatives that if banks don’t continue to aggressively pursue foreclosure, regardless of their actual legal standing to do so, then a lot of undeserving people will get free houses. While Porter notes that this really isn’t happening that often to begin with, the notion that bad, non-existent, or fraudulent paperwork would prevent one bank from foreclosing on a homeowner means the person now has a free house is very, very false:

But this win is not the same as a free house. Just because a party lacked standing or statutory authority does not mean that there is not some party out there that does have the authority to foreclosure. Nor does a win on standing mean that there cannot be action taken to give the initial foreclosing party the authority that they need, which might occur by transferring possession of the note or by executing a series of assignments, to foreclose at a later date. Unless other problems exist, there is still a valid note that obligates the homeowner to pay money due and there is still a mortgage encumbering the house. The homeowner does not get a free house. Rather, the homeowner just doesn’t lose her house today to foreclosure. These are pretty different outcomes!

Porter goes on to note that there are still other meaningful consequences of foreclosure issues due to lack of standing or missing documentation. But the important thing is getting passed the hyperbolic moral hazard rhetoric coming from conservatives and banking industry shills:

A fruitful discussion of these issues needs to begin with a clear understanding of the consequences of the problem, as well as empirical evidence on how widespread these problems are. The free house is political handwringing, not legal reality.

The most successful arguments the banking industry and conservatives who support them have made are arguments that hinge on making one group of Americans jealous of another group of Americans. They want homeowners saying, “it’s not fair for my neighbor to get a free house while I work hard to stay current on my mortgage.” They want homeowners saying, “it’s my neighbor’s fault for getting more house than he can afford.” They want homeowners to turn against each other, to make sure that everyone is pulled down to the same level while not looking at the banks towering over them, raking in record profits off of first fraudulent lending and now fraudulent foreclosures. This is not dissimilar to how conservatives and big corporations have turned non-unionized working class people against their unionized neighbors and pushed them not to raise themselves up, but pull their unionized sisters and brothers down to their level of economic distress and exploitation. In short, the moral hazard argument boils down to one in which elites seek to turn members of the working and middle classes against each other, with the consequence that this distraction will prevent anyone from focusing their anger on the real perpetrators of the foreclosure crisis, the same people who are now telling Americans that they should look suspiciously and angrily at their neighbors.

Shahien Nasiripour of Huffington Post has been doing some of the best reporting on investigations into foreclosure fraud and servicer abuses. His latest is that an inspector general for HUD has charged Bank of America with having “”significantly hindered” a federal investigation into the firm’s faulty foreclosure practices on potentially billions of dollars worth of taxpayer-backed loans.” Nasiripour reports:

The bank withheld key documents and data, prevented investigators from interviewing bank employees or asking certain questions, and was slow to provide information, according to a June 1 declaration by William W. Nixon, a fraud examiner and assistant regional inspector general for audit for the U.S. Department of Housing and Urban Development inspector general’s office.

Due to Bank of America’s “reluctance,” Nixon resorted to asking the Justice Department to issue so-called civil investigative demands last December to compel testimony, a “less effective” means of carrying out its investigation, Nixon said. His office can’t compel testimony on its own.

Bank of America, the largest handler of home loans in the U.S., threw up roadblocks to the investigation, Nixon said, like preventing his team from performing a “walkthrough” of the bank’s documents unit.

The bank also failed to fully comply with subpoenas issued by Nixon’s team. HUD’s internal watchdog issued two subpoenas requesting documents and information, and what was returned was incomplete, had conflicting information, and in some cases, the bank provided excerpts of documents rather than the complete record.

There’s a lot more bad behavior documented by HUD in the request to the DoJ to get Bank of America to be responsive.

Hopefully this sort of affront raises some ire at the Department of Justice and at HUD. The extent to which these banksters are comfortable lying, dissembling, and hiding evidence from federal investigators is staggering. Only the reluctance of the federal government to actually take out a stick and pursue criminal charges for banksters is more staggering. While Bank of America is entitled to pursue a path of self-preservation, it is the lack of accountability and meaningful investigations by oversight bodies in the federal government (and to a lesser extent, the states) which institutionalizes the two-tiered system of justice that the banksters seek to put in place. This is an opportunity for the DoJ to do the work needed to fight against privileging of elites in the halls of justice. We shall see what course of action the federal government takes.

The NYT’S Gretchen Morgenson has Eric Schneiderman & Beau Biden investigating the mortgage securitization practices of Bank of New York Mellon & Deutsche Bank. Shahien Nasiripour of Huffington Post also has Schneiderman looking at Bank of America. The key here is that New York and Delaware laws govern how securities must be formed and what paperwork has to be done on a specific timeline. What we have seen so far is that it appears to be widely the case that when mortgages were packaged together into securities, the originators failed to properly convey mortgage notes to the trusts as dictated by the Pooling and Servicing Agreements on the mortgage-back securities. If this was not properly, the net result is that instead of having mortgage backed securities, you have non-mortgage backed securities. The investors were sold something that they didn’t actually get and the ability for servicers to foreclose on securitized mortgages is dependent on them actually proving they the note and therefore having the right to foreclose.

David Dayen’s analysis is here:

This is an ENORMOUS deal. Schneiderman is looking at the failure to properly convey notes and mortgages to the securitization trusts, which court records clearly show was practically the industry standard during the housing bubble. Abigail Field’s work looking at just a handful of mortgages in one district court showed a perfect record of failure. These trusts were strictly time limited under New York law, and there’s no way for the banks to really make this right. By the way, the mortgages Field looked at had Countrywide as the originator. Countrywide is now part of Bank of America.

If this plays out as it could, Schneiderman could declare these securities invalid under New York trust law. There would be a lawsuit in response, of course, but the exposure of Bank of America for this claim is massive, potentially bigger than their capital reserves. Pretty much every investor in a BofA MBS would demand their money back on the faulty security. Not to mention the inability to foreclose on borrowers because of the lack of proof of ownership of the loan. We’re talking about trillions of dollars in losses on millions of loans with no true owner. It’s a nightmare scenario for the banks.

Obviously Schneiderman is just at the beginning of his probe. But at the least, this scrutiny of the loan documents shows that he’s completely not ready to join a 50-state settlement where he gives up his investigation in exchange for some nominal, piddling sum of money. That does not match his recent history and his ongoing investigations.

My big question will be at what point does the administration, Treasury, HUD, FTC, and the DoJ start leaning hard on Schneiderman, Biden, and the other state AGs who are conducting their own investigations into robosigning and foreclosure fraud (two things which come in large part due to the improper securitization Schneiderman and Biden are investigating) to stop them and get back on board with whatever Tom Miller negotiates. Schneiderman and Biden’s investigations have the potential to make a mockery out of any settlement – which will be coming without any meaningful investigation into the actual practices surrounding securitization, robosigning, foreclosure fraud or illegal servicer behavior.

Gretchen Morgenson of the New York Times:

The New York attorney general has requested information and documents in recent weeks from three major Wall Street banks about their mortgage securities operations during the credit boom, indicating the existence of a new investigation into practices that contributed to billions in mortgage losses.

Officials in Eric T. Schneiderman’s, office have also requested meetings with representatives from Bank of America, Goldman Sachs and Morgan Stanley, according to people briefed on the matter who were not authorized to speak publicly. The inquiry appears to be quite broad, with the attorney general’s requests for information covering many aspects of the banks’ loan pooling operations. They bundled thousands of home loans into securities that were then sold to investors such as pension funds, mutual funds and insurance companies.

This is good news. While it’s not clear if Schneiderman is pursuing criminal or civil charges, it’s a big step forward in terms of oversight. As New York’s Attorney General, Schneiderman is uniquely positioned to investigate Wall Street, something his predecessors Eliot Spitzer and Andrew Cuomo did repeatedly. Most important in the Morgenson article:

The requests for information by Mr. Schneiderman’s office also seem to confirm that the New York attorney general is operating independently of peers from other states who are negotiating a broad settlement with large banks over foreclosure practices.

By opening a new inquiry into bank practices, Mr. Schneiderman has indicated his unwillingness to accept one of the settlement’s terms proposed by financial institutions — that is, a broad agreement by regulators not to conduct additional investigations into the banks’ activities during the mortgage crisis. Mr. Schneiderman has said in recent weeks that signing such a release was unacceptable.

Any foreclosure settlement that takes place prior to an actual investigation into the banking industries foreclosure practices would a colossal miscarriage of justice. AGs have a duty to investigate what actually happened before trying to paper over it with a settlement. Hopefully other AGs are emboldened by Schneiderman’s investigation and start their own independent looks at what’s going on with foreclosure fraud.

The New York Times’ Gretchen Morgenson and Louise Story have a long, detailed account of how no major figures who caused the financial collapse of 2007-2008 have been criminally prosecuted for their roles in wrecking the economy. Morgenson and Story frame their piece, “why, in the aftermath of a financial mess that generated hundreds of billions in losses, have no high-profile participants in the disaster been prosecuted?” One of the overarching themes they find is a choice by prosecutors like Andrew Cuomo, then New York’s Attorney General, and regulators like Timothy Geithner, then at the New York Fed, to not risk market instability by holding people accountable or conducting detailed investigations. Morgenson & Story have plenty of regulators saying they “have done the best they could under difficult circumstances,” but nonetheless, “no senior executives have been charged or imprisoned, and a collective government effort has not emerged.” This is in contrast to the S&L scandals of the 1980s, when “special government task forces referred 1,100 cases to prosecutors, resulting in more than 800 bank officials going to jail.”

One of the articles most powerful quotes comes from Bill Black:

“This is not some evil conspiracy of two guys sitting in a room saying we should let people create crony capitalism and steal with impunity,” said William K. Black, a professor of law at University of Missouri, Kansas City, and the federal government’s director of litigation during the savings and loan crisis. “But their policies have created an exceptional criminogenic environment. There were no criminal referrals from the regulators. No fraud working groups. No national task force. There has been no effective punishment of the elites here.”

Glenn Greenwald describes this as evidence of our two-tiered system of justice in the United States:

The evidence of rampant criminality that led to the 2008 financial crisis is overwhelming, but perhaps the clearest and most compelling such evidence comes from long-time Wall-Street-servant Alan Greenspan; even he was forced to acknowledge that much of the precipitating conduct was “certainly illegal and clearly criminal” and that “a lot of that stuff was just plain fraud.”

Despite that clarity and abundance of the evidence proving pervasive criminality, it’s entirely unsurprising that there have been no real criminal investigations or prosecutions. That’s because the overarching “principle” of our justice system is that criminal prosecutions are only for ordinary rabble, not for those who are most politically and financially empowered. We have thus created precisely the two-tiered justice system against which the Founders most stridently warned and which contemporary legal scholars all agree is the hallmark of a lawless political culture.

Not surprisingly, Greenwald has a comprehensive look at other stories where law-breaking elites are given a complete pass when it comes to accountability, from warrantless wiretapping to torture as compared to vicious prosecution of minor drug offenders overflowing our prisons and whistleblowers whose leaks shed needed light on illegal or immoral behavior by our government.

Matt Taibbi has been writing about the choice to not pursue criminal charges for the financial collapse for a while. The Morgenson piece really just validates a lot of his work and shows, in painful clarity, the extent to which the scales of Justice are no longer balanced and her blindfold has been removed in the United States of America.