By William Hudson
The big banks have demonstrated to the world that they own everything including the courts, law enforcement and government officials. They have demonstrated this fact by rigging currency and economies, obtaining bailouts when they had no losses, foreclosing on loans they can’t prove they own, playing both sides of the market and by purchasing government representatives with “deals” they just can’t turn down. Meanwhile 318 million Americans have had their lives impacted or decimated by illegal banking practices.
In late May, a federal appeals court ruled it will not hold Bank of America accountable for the sale of worthless mortgages, overturning a paltry $1.27 billion penalty they had been ordered to pay. A panel of three judges ruled that federal prosecutors had failed to prove that Bank of American’s Countrywide Mortgage division had defrauded Fannie Mae and Freddie Mac by selling them fatally flawed loans. Seriously, who cares when the federal government, courts and banks can fleece the American taxpayer for the bank’s bad behavior?
The judges ruled that Countrywide employees “may” have sold loans in 2007 and 2008 (more like from 2000 to 2008) that were not of the quality promised in the contracts with Fannie and Freddie. Moreover the judges ruled that there was no evidence that these “sales” — an element of a loan program at Countrywide that was known informally as “the hustle” — were part of a “deliberate deception”. Apparently the judges didn’t feel that selling D grade paper as A paper and then forging appraisals, failing to deliver the notes to the trust, falsifying loan documents and inflating buyer qualifications to deceive investors was a criminal act.
“The trial evidence fails to demonstrate the contemporaneous fraudulent intent necessary to prove a scheme to defraud,” Judge Richard C. Wesley wrote in a 31-page ruling that refused to acknowledge that this case was evidence of a nationwide practice between small lenders and the big banks.
The ruling by the United States Court of Appeals for the Second Circuit is simply another attempt to sabotage the Justice Department’s ineffectual prosecution of Wall Street after the mortgage crisis. It is also a message for Preet Bharara, the United States attorney for the Southern District of New York, and any other state attorney who dares to prosecute the big banks. Bank of America was so arrogant in its fraud that they called its practice of rubber-stamping high-risk loans and selling them to Fannie and Freddie “spectacularly brazen”- but not criminal?
This is evidence of the insane times we are now living in. Back in 2014, Judge Jed S. Rakoff of the Federal District Court in Manhattan ordered Bank of America to pay a $1.27 billion penalty in the “hustle” case. But that sum is an insignificant fraction of the billions of dollars that Bank of America has paid in legal fees and settlements related to Countrywide, in which Bank of America “purchased” in 2008. Bank of America has spent nearly $37 billion on litigation expenses since 2010, most of it related to the legal fallout from the financial crisis.
The hustle prosecution was important because in addition to Bank of America, federal prosecutors had FINALLY decided to hold a major industry player accountable by the name of Rebecca Mairone, who was a former Countrywide executive who was aware that faulty loans were being issued and sold.
However, this case is different in that Bank of America, who normally will fight an opponent until the end, settled most of the charges before the case went to trial. That in itself demonstrates that Bank of America knew they had something to hide. However, from the beginning, it was obvious that Bank of America’s attorneys were confident they would win the hustle case, based on the fact that in all cases against the big banks- there is NO party prosecuted for criminal conduct and all fines and settlement are too miniscule to deter future criminal behavior.
“The Second Circuit understood this was a massive government overreach from the beginning,’’ said Josh Rosenkranz of the law firm Orrick, who represents Ms. Mairone. “The message is that government should stop looking for fraud where it doesn’t exist.” That is a great message considering homeowners with no education in mortgage fraud are quite capable of finding fraud in their own Countrywide loan documents just by doing a cursory search on google to see if the signatures and assignments are valid.
The case was referred to as the “hustle” because a program at Countrywide was known as the “High-Speed Swim Lane” that the originator created to sell mortgages to Fannie and Freddie as the subprime mortgage market was imploding. By October 2013, federal prosecutors singled out and accused Ms. Mairone of overseeing the high-speed lane program that pushed through fraudulent loans to unqualified buyers knowing that ultimately the loans would fail (while the banks bet against the securities to fail). The high speed lane would result in more than $1 billion in losses. The faster the employees originated loans, the higher their bonuses were paid.
The appeals court acknowledged that Countrywide’s contracts with Fannie and Freddie may have including false statements but that “intentional” contract breaches did not constitute fraud on the part of the mortgage lender. And poor little Ms. Mairone was forced to leave her job at JPMorgan Chase after a jury convicted her of one count of fraud. Mairone is now consulting, and it is likely her services are in high demand.
The government’s case was based on a whistle-blower complaint brought by Edward O’Donnell, who was a former Countrywide executive. Mr. O’Donnell received $57 million from the government (taxpayers) for his role in bringing the issues to light (and the award will stand).
Predictably, the taxpayers end up paying almost half a billion dollars and NO ONE goes to jail! The message sent to the big banks is that they are above the law- therefore, rape and pillage the American homeowner with wild abandon.
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