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Editor’s Comment and Analysis:
It was and remains a big lie — the securitization the loans, the origination of the loans, the assignments, alleges and endorsements. $46.5 million sounds like a lot and these whistleblowers will get a “windfall” as a result of it. But it is a drop in the bucket and we need to fill the bucket. And our bucket list should include taking down the big banks, removing money from politics, and getting back to government by the people and for the people.
Schiller, the scholar who has been leading the way in economic analysis of the housing market, has offered an audacious plan that is the last possible way for government intervention to save the economy, which is heavily dependent upon consumer spending, particularly in the housing market. Eminent domain has long been sustain as the right of government to take private property and convert it to public use. Whether it is a highway, downtown redevelopment or other reasons, eminent domain has been played by the banks and developers as a way to get land they need, at a price that could not be achieved using the power of the government behind them.
While seemingly unusual and audacious, Schiller’s proposition has many precedents in history and should be considered as the last great hope after the 50 attorney generals agreed in the 50 state settlement that now prevents them from further investigation and prosecution against the banks. Schiller’s, the originator of the case-Schiller index showing that median income and income disparity is harmful to the economy and deadly to the housing market, proposes that we use the power of eminent domain to seize the remaining mortgages, and perhaps the property that has already been foreclosed, and remake the deals so that they make sense. Translating that means that the homeowners will get the deal that they should have received when they bought o refinanced their house. And it capitalizes on the inconvenient truth that it was the banks who created risks that neither the investors nor the homeowners signed up for.
By paying the value of the remaining mortgages — more than 30% are reported still under water and when carefully analyzed the figure is closer to 60%, the banks get no more and no less than they should, the investors still get their money — 100 cents on the dollar if they insist on payback from the banks in addition to the money from the new mortgages on the old property, and the homeowner is back in charge of his own home paying principal, interest, costs, fees and insurance and taxes that are fair market value indicators. It is better than the proceeds of foreclosures, so the banks now must argue that they have a right to take less money in order to get the foreclosure.
The banks want the foreclosure because they lied. And with the foreclosure it adds to the illusion that they funded or paid for loans in which they do not have a nickel invested. The fact that the balance sheets of the mega banks are going to take a giant hit is only an admission that the assets they are reporting are either not worth anything or are worth far less than the value shown on their public financial statements. They are still lying about that to investors, the SEC and other regulatory agencies.
So whistleblowers must pave the way and show the lies, show the inequality, show the inflated appraisals that could not stand the test of time and force government to act as it should. The chief law enforcement of the country and the chief law enforcement of each state owes his/her citizens at least that much and more. They must find ways to clear up the corruption of title records that are irretrievably lost.
And the lawyers who keep turning down these cases because they are too complex or too weak should take a close look at these whistleblower cases. The settlement, as always, comes before the trial because the fact remains that the banks are o the hook for their bets on the mortgages and not the mortgages themselves. Lawyers need to show a little guts and seek some glory and wealth from these cases, while at the same time doing their country a service.
We are turning the corner and the banks are starting to lose. Keep up the fight and your effort will probably go well-rewarded.
Whistleblowers win $46.5 million in foreclosure settlement
By James O’Toole
NEW YORK (CNNMoney) — Getting served with foreclosure papers made Lynn Szymoniak rich.
While she couldn’t have known it at the time, that day in 2008 led to her uncovering widespread fraud on the part of some of the country’s biggest banks, and ultimately taking home $18 million as a result of her lawsuits against them. Szymoniak is one of six Americans who won big in the national foreclosure settlement, finalized earlier this year, as a result of whistleblower suits. In total, they collected $46.5 million, according to the Justice Department.
In the settlement, the nation’s five largest mortgage lenders –Bank of America (BAC, Fortune 500), Wells Fargo (WFC, Fortune 500), J.P. Morgan Chase (JPM, Fortune 500), Citigroup (C, Fortune 500) and Ally Financial — agreed to pay $5 billion in fines and committed to roughly $20 billion more in refinancing and mortgage modifications for borrowers.
A judge signed off on the agreement in April, and in May — Szymoniak received her cut.
“I recognize that mine’s a very, very happy ending,” she said. “I know there are plenty of people who have tried as hard as I have and won’t see these kinds of results.”
Whistleblower suits stem from the False Claims Act, which allows private citizens to file lawsuits on behalf of the U.S. when they have knowledge that the government is being defrauded. These citizens are then entitled to collect a portion of any penalties assessed in their case.
The act was originally passed in 1863, during a time when government officials were concerned that suppliers to the Union Army during the Civil War could be defrauding them.
In 1986, Congress modified the law to make it easier for whistleblowers to bring cases and giving them a larger share of any penalties collected. Whistleblowers can now take home between 15% and 30% of the sums collected in their cases. In the cases addressed in the foreclosure settlement, the whistleblowers revealed that banks were gaming federal housing programs by failing to comply with their terms or submitting fraudulent documents.
In Szymoniak’s case alone, the government collected $95 million based on her allegations that the banks had been using false documents to prove ownership of defaulted mortgages for which they were submitting insurance claims to the Federal Housing Administration.
The FHA is a self-funded government agency that offers insurance on qualifying mortgages to encourage home ownership. In the event of a default on an FHA-insured mortgage, the FHA pays out a claim to the lender.
Szymoniak’s case was only partially resolved by the foreclosure settlement, and she could be in line for an even larger payout when all is said and done.
As an attorney specializing in white-collar crime, the 63-year-old Floridian was well-placed to spot an apparent forgery on one of the documents in her foreclosure case, one she saw repeated in dozens of others she examined later.
“At this point, the banks are incredibly powerful in this country, but you just have to get up every morning and do what you can,” she said.
The other five whistleblowers in the settlement came from the industry side, putting their careers at risk by flagging the banks’ questionable practices.
Kyle Lagow, who won $14.6 million in the settlement, worked as a home appraiser in Texas for LandSafe, a subsidiary of Countrywide Financial. He accused the company in a lawsuit of deliberately inflating home appraisals in order to collect higher claims from the FHA, and said he was fired after making complaints internally.
Gregory Mackler, who won $1 million, worked for a company subcontracted by Bank of America to assist homeowners pursuing modifications through the government’s Home Affordable Modification Program, or HAMP. Under HAMP, the government offers banks incentive payments to support modifications.
Mackler said Bank of America violated its agreement with the government by deliberately preventing qualified borrowers from securing HAMP modifications, steering them toward foreclosure or more costly modifications from which it could make more money. He, too, claims to have been fired after complaining internally.
There’s also Victor Bibby and Brian Donnelly, executives from a Georgia mortgage services firm who accused the banks of overcharging veterans whose mortgages were guaranteed by the Department of Veterans Affairs, thereby increasing their default risk. Bibby and Donnelly won $11.7 million in the settlement; their attorneys did not respond to requests for comment.
Shayne Stevenson, an attorney who represented both Lagow and Mackler, said the two weren’t aware of possible rewards when they first brought their evidence to his firm.
“The reality of it is that most of the time, whistleblowers don’t even know about the False Claims Act — they don’t know they can make money,” Stevenson said. Both his clients, Stevenson added, “just wanted the government to know about this fraud, so they deserve every penny that they got.”
A Bank of America spokesman declined to comment on individual cases, but said the national settlement was “part of our ongoing strategy to put these issues, particularly these legacy issues with Countrywide, behind us.” BofA acquired mortgage lender Countrywide in 2008, thereby incurring the firm’s legal liabilities.
The other banks involved either declined to comment or did not respond to requests for comment.
While the whistleblowers in the settlement scored big paydays in the end, the road wasn’t easy. Stevenson said his clients “were pushed to the brink” after raising their concerns, struggling to find work and beset by financial problems.
“They were facing evictions, foreclosure, running away from bills, trying to deal with creditors that were coming after them,” Stevenson said. “This went on and on and on, and this is part and parcel of what happens to whistleblowers.”
For Robert Harris, a former assistant vice president in JPMorgan’s Chase Prime division, the experience was similar.
Harris accused the bank of failing to assist borrowers seeking HAMP modifications and knowingly submitting false claims for government insurance based on wrongful foreclosures. He was stymied when he tried to complain internally, and says he was fired for speaking out.
While Harris ended up with a $1.2 million payout in the settlement, the father of five says he’s been blacklisted within the industry and exhausted by the ordeal.
“It completely turned my life upside down,” he said. “I’m trying to raise my kids, recover from a divorce, recover from the loss of my career — it just comes to down to surviving and putting this to an end.”
“I guarantee the other whistleblowers, too, have sacrificed a lot,” he added. “But to be able to sit back and sleep at night is worth it.”
Filed under: bubble, CDO, CORRUPTION, currency, Eviction, foreclosure, GTC | Honor, Investor, Mortgage, securities fraud Tagged: | Ally Financial, appraiser, BAC, Bank of America, Brian Donnelly, case-Schiller index, Citigroup, eminent domain, False Claims Act, Federal Housing Administration, FHA, Fortune 500, Gregory Mackler, HAMP, J.P. Morgan Chase, James O'Toole, JPM, Kyle Lagow, Robert Harris, Schiller, Shayne Stevenson, Szymoniak, Victor Bibby, Wells Fargo, WFC, Whisleblower