California breaks from 50-state probe into mortgage lenders [Updated]

 

California Atty. Gen. Kamala Harris will no longer take part in a national foreclosure probe of some of the nation's biggest banks, which are accused of pervasive misconduct in dealing with troubled homeowners.

Harris removed herself from talks by a coalition of state attorneys general and federal agencies investigating abusive foreclosure practices because the nation's five largest mortgage servicers were not offering California homeowners relief commensurate to what people in the state had suffered, Harris told The Times on Friday.

The big banks were also demanding to be granted overly broad immunity from legal claims that could potentially derail further investigations into Wall Street's role in the mortgage meltdown, Harris said.

“It has been  a process of negotiating and sitting at a table in good faith, but ultimately I have decided that we have to go our own course and take an independent path. And that decision is because we need to bring relief to Californians that is equal to the pain California experienced, and what is being negotiated now is insufficient," Harris told The Times in an interview.

Harris delivered the news in a letter sent Friday to Iowa Atty. Gen. Tom Miller, who has been leading the 50-state coalition.

[Updated 5:36 p.m.: Iowa Atty. Gen. Tom Miller, who has been leading the negotiations, vowed to press on.

“California has been an important part of our team and has made a significant contribution to this case,” Miller said in a statement. “However, the multistate effort is pressing forward and we fully expect to reach a settlement with the banks.”]

The removal of California from the discussions is a major blow to fraying efforts by the coalition, which has been trying to strike a settlement deal with the big banks for months. The move by Harris to reject the settlement talks is also a key departure from efforts by the Obama administration, which has been pushing for a fast resolution to the so-called robo-signing scandal that erupted last year.

“This whole concept of a settlement on foreclosure abuse is probably dead,” said Christopher Whalen, the founder of Institutional Risk Analytics. “Nobody in their right mind is going to opt into a settlement right now.”

For California homeowners, the move means the probable end of an opportunity for relatively quick relief stemming from revelations last year that banks improperly foreclosed on troubled borrowers. Key reforms to mortgage-servicing and foreclosure practices pushed by the attorneys general may also be delayed.

Harris has faced increasing pressure in recent weeks from inside and outside the state to reject any deal that was considered too weak, particularly as the foreclosure crisis in the Golden State appears to be worsening.

Among the states with the highest foreclosure rates, California led the pack in new foreclosure proceedings last month, with an increase of 55% over July, according to data from Irvine-based RealtyTrac. Metro areas in the inland parts of California posted big jumps in August, with Riverside and San Bernardino counties soaring 68%, Bakersfield 44% and Modesto 57%.

In rejecting the 50-state talks, California also widens the riff among law enforcement officials nationwide over the best approach to pursuing banks for mortgage misdeeds.

New York Atty. Gen. Eric Schneiderman, who was originally part of the 50-state negotiations, has launched a wide-ranging investigation into Wall Street's role in the mortgage meltdown -– focusing on the efforts to bundle low-quality mortgages into sophisticated bonds.

Schneiderman has been highly critical of the proposed 50-state settlement and expressed concern that his counterparts in other states may let the banks off too lightly and provide immunity from other efforts to bring them to account for misdeeds. Schneiderman has also won support from attorneys general in Delaware, Nevada, Massachusetts, Kentucky and Minnesota, some of whom have launched their own investigations.

A spokesman for Schneiderman, Danny Kanner, welcomed Harris's move.

“Attorney General Schneiderman looks forward to his continued work with Attorney General Harris and his other state and federal counterparts to ensure those responsible for the mortgage crisis are held accountable and homeowners who are suffering receive meaningful relief,” said Kanner.

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Photo: California Atty. Gen. Kamala Harris speaks at a news conference in May to announce the creation of the California Attorney General's Mortgage Fraud Strike Force. At left is Los Angeles Mayor Antonio Villaraigosa. Credit: Mel Melcon / Los Angeles Times

Homeowner advocates laud Harris for break with mortgage settlement

Advocates for homeowners in California applauded California Atty. Gen. Kamala Harris' decision to bow out of talks aimed at reaching a national foreclosure settlement with the nation's biggest banks.

Harris has said that the proposed settlement, the product of nearly 11 months of negotiations, let the banks off too easily. She has said that her office will conduct a more rigorous investigation.

“She stayed at the table on the settlement as long as was reasonable,” said Brian Heller de Leon, a representative of PICO California, an advocacy group for homeowners. “It became clear that there was no longer a reasonable path for California to stay in these negotiations.”

Heller de Leon said the proposed settlement would only have helped a tiny minority of California homeowners.

Harris has recently come under pressure from politicians and progressive groups inside and outside the state who wanted her to reject the settlement that was being discussed by the banks and the committee of state attorneys general.

Richard Hopson, chairman of the Alliance of Californians for Community Empowerment, said Friday that "a thorough investigation" is needed.

"We applaud Attorney General Harris for pulling out of this proposed 'settlement,' " Hopson said in a statement. "The banks need to pay for what they have done."

Meanwhile, Iowa Atty. Gen. Tom Miller, who has been leading the national negotiations, vowed to press on for a settlement without Harris.

His statement:

California has been an important part of our team and has made a significant contribution to this case. However, the multistate effort is pressing forward and we fully expect to reach a settlement with the banks. This multistate is about foreclosures and mortgage servicing abuse, and we are 100% focused on providing relief to homeowners while it can still make a difference and save homes from foreclosure. Providing relief after the foreclosure crisis is over would be a hollow victory indeed. Individual states are situated differently and after a settlement is reached it will be provided to all 50 states so that each Attorney General can make a decision on whether or not to join.

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California breaks from 50-state probe into mortgage lenders

California Atty. Gen. Kamala Harris will no longer take part in a national foreclosure probe of some of the nation's biggest banks, which are accused of pervasive misconduct in dealing with troubled homeowners.

Harris removed herself from talks by a coalition of state attorneys general and federal agencies investigating abusive foreclosure practices because the nation's five largest mortgage servicers were not offering California homeowners relief commensurate to what people in the state had suffered, a person familiar with the matter said.

The big banks were also demanding to be granted overly broad immunity from legal claims that could potentially derail further investigations into Wall Street's role in the mortgage meltdown, the person said.

The removal of California from the discussions is a major blow to fraying efforts by the 50-state coalition that has been trying to strike a settlement deal with the big banks for months. The move by Harris to reject the settlement talks is also a key departure from efforts by the Obama administration, which has been pushing for a fast resolution to the so-called robo-signing scandal that erupted last year.

For California homeowners, the move means that gone is the chance for quick relief stemming from revelations last year that banks improperly foreclosed on troubled borrowers. Key reforms to mortgage-servicing and foreclosure practices pushed by the attorneys general may also be delayed, affecting hundreds of thousands of Californians facing the loss of their homes.

But Harris has faced increasing pressure in recent weeks from inside and outside the state to reject any deal that was considered too weak, particularly as the foreclosure crisis in the Golden State appears to be worsening.

Among the states with the highest foreclosure rates, California led the pack in new foreclosure proceedings last month, with an increase of 55% over July, according to data from Irvine-based RealtyTrac. Metro areas in the inland parts of California posted big jumps in August, with Riverside and San Bernardino counties soaring 68%, Bakersfield 44% and Modesto 57%.

In rejecting the 50-state talks, California also widens the riff among law enforcement officials nationwide over the best approach to pursuing banks for mortgage misdeeds.

New York Atty. Gen. Eric Schneiderman, who was originally part of the 50-state negotiations, has launched a wide-ranging investigation into Wall Street's role in the mortgage meltdown -– focusing on the efforts to bundle low-quality mortgages into sophisticated bonds.

Schneiderman has been highly critical of the proposed 50-state settlement and expressed concern that his counterparts in other states may let the banks off too lightly and provide immunity from other efforts to bring them to account for misdeeds. Schneiderman has also won support from attorneys general in Delaware, Nevada, Massachusetts, Kentucky and Minnesota, some of whom have launched their own investigations.

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Photo: California Atty. Gen. Kamala Harris speaks at a news conference to announce the creation of the California Attorney General's Mortgage Fraud Strike Force. Credit: Mel Melcon / Los Angeles Times

Reports of boom-era mortgage fraud on rise

Mortgage fraud reports to the Treasury Department jumped 88% in the second quarter as banks, under pressure from investors to buy back defaulted loans, dug deeper into files from the easy-money era of the housing boom.

And California led the way in this dubious trend, Treasury's Financial Crimes Enforcement Network division said.

In a report Wednesday, the agency said mortgage servicers filed 29,558 suspicious activity reports involving loan fraud, compared with 15,727 in the same quarter of 2010.

Most of the fraudulent mortgages closed during the height of the real estate bubble, the financial crimes division said: 81% of the reports involved suspicious activities before 2008 and 63% described what appeared to be fraud occurring four or more years ago.

Charts from the Financial Crimes Enforcement Network show that California had more reports of mortgage fraud on a per-capita basis than any other state, followed by Florida and Nevada. Six of the top 10 metropolitan-area hotbeds of mortgage fraud were in the Golden State.

Banks are required to report suspicious activities to their regulators. The Treasury unit attributed the spike of mortgage fraud reports in large part to loan repurchase demands from investors who contend that mortgages backing securities were riskier than represented when the bonds were sold.

"Financial institutions are uncovering fraud as they sift through defaulted mortgages," Financial Crimes Enforcement Network Director James H. Freis Jr. said in a statement.

Fraud continues in new loans, albeit at a lower level, he added, with misrepresentations of income, occupancy, or debts and assets the most common violations.

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Photo: Financial Crimes Enforcement Network Director James H. Fries Jr. Source: Financial Crimes Enforcement Network 

Admitted Countrywide data thief gets 8 months in prison

 
A former employee of mortgage lender Countrywide Financial Corp. was sentenced Tuesday to eight months in prison and ordered to repay $1.2 million after pleading guilty to downloading millions of borrower files on thumb drives and selling the information to other loan officers.

Assistant U.S. Atty. Angela Davis had recommended a sentence of 30 months in prison for Rene L. Rebollo Jr. of Pasadena, who had worked as a senior analyst at Countrywide's subprime unit, Full Spectrum Lending. In January Rebollo changed his plea from not guilty to guilty.

In an impassioned entreaty to U.S. District Judge Christina A. Snyder, Rebollo expressed remorse for his actions, described his efforts to cooperate with prosecutors and told the judge that he wanted to be free as soon as possible to try to repair the damage he had caused his family.

Synder sentenced Rebollo to 10 months at a halfway house as well as the eight months in prison.

The $1.2 million represented the costs that Bank of America Corp., which acquired Calabasas-based Countrywide in 2008, incurred in notifying 2.5 million individuals that their personal financial information had been stolen. The data in about 50,000 of those cases included Social Security numbers, which make it especially easy to commit identity fraud, Davis said.

Rebollo was arrested in August 2008, a month after Bank of America acquired Countrywide. Authorities said he sold the borrower information to employees of other loan companies to be used as sales leads. Davis said Rebollo made $400,000 from the sales, but Rebollo's lawyer said it wasn't that much.

Another defendant in the case, Wahid Siddiqi, was previously convicted of selling the information that Rebollo provided and was sentenced to 36 months in prison. Davis said Siddiqi had a previous criminal history.

The case, which identity theft experts said was the biggest reported data theft that they could recall by a financial insider, led to more than 30 lawsuits, including nationwide class actions.

Bank of America settled the suits in August 2010 by agreeing to provide free credit monitoring, identity theft insurance and reimbursement for losses to as many as 17 million consumers who had dealt with Countrywide.

There was no evidence that the 2.5 million borrowers whose personal data were stolen had suffered financial harm as a result, Davis said. The government had listed Countrywide as the victim of the crime but not the borrowers.

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Photo: The Charlotte, N.C., headquarters of Bank of America, which acquired Countrywide in 2008. Credit: Getty Images / Davis Turner 

Wall Street: Dow up, gold down, Citigroup-SEC talks, rogue trader

  

Gold: Trading at $1,790.50, down $36. Dow Jones industrial average: Up 72.58 points to 11,319.31.

Citigroup talks. The Securities and Exchange Commission reportedly is negotiating with Citigroup Inc. on a potential settlement calling for the bank to pay more than $200 million for questionable mortgage-bond deals.

Rogue trader. Investment bank UBS warned that an employee's unauthorized trading could cost it more than $2 billion.

Groupon IPO. The daily deals site is proceeding with its delayed initial public offering, which now may take place in late October or early November.

Solyndra battle. Washington lawmakers are fighting an increasingly heated battle over the Fremont, Calif., solar equipment maker that failed after getting a federal loan.

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Photo: On Wall Street. Credit: Stan Honda / Getty Images

Feds: BofA improperly fired employee who exposed Countrywide fraud

 
Bank of America Corp. wrongly fired an internal investigator who exposed "widespread and pervasive wire, mail and bank fraud"  at Countrywide Financial Corp., according to the U.S. Labor Department.

Finding that the employee was protected by whistle-blower law, the department's Occupational Safety and Health Administration ordered BofA to reinstate and pay the employee $930,000, including back wages, interest, compensatory damages and attorney fees.

Bank of America acquired Calabasas-based Countrywide in July 2008 and fired the whistle-blower shortly thereafter, OSHA said in a news release Wednesday.

In a statement, Bank of America said it would challenge the order. "The bank’s actions to dismiss were solely based on issues with the employee’s management style and in no way related to the employee’s complaints and the allegations made in the complaint," it said.

The federal agency didn't name the employee. It identified the worker only as an L.A.-area person who led internal investigations into Countrywide employees.

"It's clear from our investigation that Bank of America used illegal retaliatory tactics against this employee," OSHA Assistant Secretary David Michaels said in the news release.

"This employee showed great courage reporting potential fraud and standing up for the rights of other employees to do the same."

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Photo: Countrywide Financial co-founder Angelo Mozilo, center. Credit: Irfan Khan/Los Angeles Times

 

Former Bank of America employee sentenced in mortgage fraud scheme

 
A North Hollywood man has been sentenced to 15 months in federal prison for his role in a scheme that used stolen identities to “purchase” homes that were not for sale, according to the U.S. attorney's office in L.A.

Federal authorities said Venedie Roberto Valencia, 27, worked at Bank of America at the time of the offense. In a guilty plea, Valencia admitted that he forged a document related to nonexistent bank accounts, prosecutors said.

In addition to the prison sentence, U.S. District Judge Dale S. Fischer in Los Angeles ordered Valencia to pay $51,688 in restitution, said a statement issued by Thom Mrozek, a spokesman for the U.S attorney's office in Los Angeles.

Two co-conspirators were previously convicted, the statement said. Felix Pichardo, 29, a licensed real estate agent from Lancaster, was sentenced to eight years in federal prison in 2009. Latrice Shaunte Borders, 31, of Long Beach, was sentenced to two years in federal prison in 2010.

According to court documents, Pichardo used false identities on loan applications to obtain mortgages on real estate that was not for sale.

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Photo: U.S. Atty. André Birotte Jr. of Los Angeles. Credit: Los Angeles Times / Al Seib

 

Feds sue Goldman Sachs over credit union losses

Federal regulators have filed the fourth in a series of about 10 planned lawsuits against banks that sold questionable mortgage-related securities to big credit unions that subsequently failed.

The latest target is Goldman Sachs & Co. A $401-million lawsuit, filed Tuesday in U.S. District Court in Los Angeles, accuses the giant Wall Street firm of misrepresenting the soundness of mortgage bonds that were purchased by the now-failed U.S. Central and Western Corporate federal credit unions.

Goldman Sachs spokesman Stephen Cohen declined to comment, saying the firm prefers not to litigate disputes in the media.

Lenexa, Kan.-based U.S. Central and San Dimas-based Western Corporate are so-called wholesale credit unions, which handle transaction processing and investments for the smaller retail credit unions that deal directly with the public.

Shocks from the mortgage meltdown and financial crisis caused five of these wholesale credit unions to fail, and the National Credit Union Administration is now suing to recoup some of the losses on $50 billion worth of bonds that plunged in value.

The other defendants so far are the Royal Bank of Scotland and JPMorgan Chase & Co., with the NCUA seeking a total of about $2 billion in damages.

The lawsuits illustrate how federal authorities, largely stymied in attempts to mount major criminal prosecutions related to the mortgage crisis, are targeting financial firms and their executives in civil lawsuits.

Among the federal agencies pursuing this course is the U.S. attorney's office in Manhattan, which is seeking $1 billion from Deutsche Bank, Germany's largest bank, related to mortgages backed by the Federal Housing Administration.

Another example is the Federal Deposit Insurance Fund, which is demanding that former officers of Washington Mutual, IndyMac and other failed banks cough up hundreds of millions of dollars to cover losses to the nation’s deposit insurance fund.

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Photo: Goldman Sachs' New York headquarters. Credit: Mark Lennihan / Associated Press

Wells Fargo, KPMG reach $627-million settlement of lending suit

The legal fallout from high-risk, boom-era mortgage lending never stops, it seems -- the latest example being Wells Fargo & Co.'s $590-million proposed settlement of a class-action lawsuit centering on controversial "Pick-a-Pay" loans issued by Oakland's World Savings.

The San Francisco bank disclosed the deal Friday in its quarterly report to the Securities and Exchange Commission. It would settle claims brought against Wachovia Corp., the big bank Wells took over during the financial crisis, which, in turn, had acquired World Savings' parent, Golden West Financial, in 2006.

Wells said its financial reporting would not be affected because it already had set aside funds to cover the gigantic settlement.

Wells admitted no liability or wrongdoing by Wachovia in settling with the plaintiffs, mainly pension funds, who had bought bonds and preferred stock from Wachovia in 2007 and 2008.

In several lawsuits consolidated before a federal judge in New York, they alleged that Wachovia had been negligent in failing to disclose the risks embedded in the portfolio of Pick-a-Pay loans, which gave borrowers the option of paying so little that the amount they owed went up instead of down.

The accounting firm KPMG, which audited Wachovia's books, has agreed to provide an additional $37 million as part of the settlement, bringing the total to $627 million, said Darren Robbins, a San Diego attorney representing the plaintiffs.

That would be the largest total settlement so far of any securities class-action claims stemming from the credit crisis, Robbins said.  The runner-up: a $624-million settlement by Bank of America and KPMG in federal court in Los Angeles of a shareholder class action alleging that Countrywide Financial Corp. of Calabasas, now part of B of A, misled investors about its financial condition and lending practices.

On a related legal front, Bank of America recently agreed to pay a far greater amount -- $8.5 billion -- to settle demands by a group of big investors that it buy back soured Countrywide loans that had been bundled up to back mortgage securities. Many big banks, including Wells Fargo, are facing similar demands by investors in bonds backed by subprime and other high-risk mortgages.

A Wells Fargo spokeswoman, Mary Eshet, said the bank agreed to the settlement "to avoid the distraction, risk and expense of on-going litigation."

Wells Fargo’s shares were down 63 cents, or 2.4%, at $25.11 in midday trading. The stock has fallen more than 13% since its recent high of $29.01 on July 22, before the big sell-off in the stock market.

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Photo: A branch of Wells Fargo, which said it already had set aside funds to cover its $590-million lawsuit settlement announced Friday. Credit: Paul Sakuma / Associated Press

California attorney general subpoenas CitiGroup over mortgage practices

California State Atty. Gen. Kamala D. Harris has subpoenaed CitiGroup Inc. and its banking subsidiary, CitiBank, ordering the two entities to answer questions regarding the selling and marketing of mortgage-backed securities in the Golden State, a person familiar with the investigation said.

The person, who was not authorized to speak publicly about the matter and spoke on condition of anonymity, would not further characterize the nature of the investigation. Spokespeople for the attorney general’s office and Citi declined to comment.

In May, Harris announced the creation of a Mortgage Fraud Strike Force that would target mortgage fraud of any size. Harris said then that she would tackle corporate fraud, including instances in which bundled mortgages were sold as securities to the state or its pension funds under false pretenses. To prosecute some of the cases, Harris said she would use California's False Claims Act, which makes it a crime to defraud the state.

The probe comes as several other investigations into the practices of other large banks are underway.

New York and Delaware have more than a dozen attorneys working full time on a wide-ranging investigation into Wall Street's role in the mortgage meltdown. Those investigators have subpoenaed or requested information from 13 financial firms, including Goldman Sachs Group Inc. and JPMorgan Chase & Co. Citi is not a focus of that probe.

Citi is one of five large banks negotiating with a committee of all 50 state attorneys general probing banks' servicing and foreclosure practices. Those negotiations are still underway.

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Photo: A CitiBank branch in downtown Washington. Credit: EPA / Matthew Cavanaugh