By Abigail Caplovitz Field | September 7, 2011
Yesterday the Washington Post ran a grotesquely bank-skewed editorial chastising New York Attorney General Eric Schneiderman for his refusal to play ball with the hush money “50 state AG” settlement on the table. Matt Stoller pointed out that the Washington Post owns Kaplan schools, a for profit network of schools, and Schneiderman’s investigating for-profit schools, a fact that the WaPo didn’t disclose. But the Kaplan connection is important in another way too, as it probably explains why the WaPo had so much empathy for the banks in the editorial, and displayed so little understanding of the banks’ victims.
For profit schools of the Kaplan type result in extremely unsustainable student debt because of very high tuition, low quality of education and particularly nasty practices. All schools like Kaplan care about is the access to the student loans; the loans are Kaplan’s (and the WaPo’s) profit center. The schools don’t care if the loans are repaid. Sounds a lot like the banks’ position vis a vis mortgages made during the securitization-fueled housing bubble.
But with student loans, the situation’s worse. The students default, but they can never escape the debt because they can’t discharge it in bankruptcy except in extreme circumstances. Thus students are punished for decades for the naïve and wrong decision to rely on the marketing of Kaplan and similar schools. Seems brutally disproportionate to me. The people running a corporation willing to use those student loans as its profit center have no compassion, no decency. Yes I want the Washington Post to stay in business, yes, journalism is a hard-to-profit in business. But the human misery inflicted to get that stream of money isn’t justified.
Of course, if bankruptcy was reformed to allow the loans to be discharged, the punishment for the bad decision to rely on the schools’ marketing would be less onerous. Even better would be transforming the schools into products worth their price simply by refusing to give loans to their students without the changes. No loans, no cash spigot. Oh wait, The Department of Education tried that. The results were weak. Will Congress solve the problem? I’m not holding my breath.
Back to the bank-talking-point editorial.
Let’s start with the first sentence:
“IT’S BEEN months since the nation learned that some of America’s biggest banks engaged in dubious practices regarding loan modifications and foreclosures, including the now notorious “robo-signing” of what were supposed to be individually vetted documents.”
Months is not a long time to investigate, much less resolve “spectacular wrongdoing”. And what the biggest banks have been doing “regarding loan modifications and foreclosures” has not been “dubious.” The banks’ business practices have been immoral, and sometimes systematically illegal.
The banks have:
1. Told people to default on their loans for three straight months before they could be considered for a modification. Three months is enough time to enable the bank to justify foreclosing and start the foreclosure process. So banks have been telling people: we won’t talk to you about a modification until after we can foreclose on you; take our deal or we take your house. We won’t talk to you about modifying your loan until you’ve racked up a lot of fees for being in default, fees that make it harder to modify your loan and thus easier to justify foreclosing on it. Fees that we get to skim off the top from any foreclosure sale.
2. Told people to disregard foreclosure notices because they are being considered for a loan modification and then they are foreclosed on during the wait for the modification decision. The banks have been stringing people along in the modification process for months, collecting timely and full trial modification payments, and suddenly foreclosing.
3. Told people they were in default when they weren’t, and tried to foreclose on them anyway. Here are two examples just recently included in lawsuits seeking class action status because they’ve got good reason to believe there’s more. Wonder how that’s possible? A guy who used to have access to many banks’ databases of current and defaulted loans when he worked for Lender Processing Services gave a sworn statement about how the banks allow LPS employees to muck up their databases of current loans. Please, WaPo, stop assuming that just because a bank claims something, it’s true.
4. Charged people illegal fees and misapplied their payments.
6. Systematically committed document fraud in myriad forms.
7. Broke settlement agreements with law enforcement and regulators, meaning they resumed breaking the law.
So much for “dubious practices”; turning to the WaPo’s next two sentences:
“Yet in all that time, no one has produced evidence that large numbers of homeowners who were current on their mortgages were cast out of their homes because of bank misconduct. This looks like a case of spectacular wrongdoing with hardly any victims.”
As mentioned, some folks fit even that incredibly narrow definition of victim. But I wonder: does the WaPo count people told to default to get a mod and then were foreclosed on before their mod was officially rejected? How about people who were put into default by the servicers’ abuses? Arguably both are within the WaPo’s definition of victims. Even so, the WaPo’s definition is so narrow it would exclude people who were foreclosed on when a modification would have netted mortgage securities investors more. Those foreclosures were wrongful because servicers are supposed to be working for the investors.
Given the liability waiver that the banks are seeking—to cover document fraud, securitization issues, MERS, and more—it’s absurd to consider the victim class to be “homeowners who were current on their mortgages…cast out of their homes because of bank misconduct.” What about tax payers, because pension funds were massively de-funded by “AAA” mortgage backed junk? What about the neighborhoods filled with foreclosed properties that don’t sell? What about all the underwater but current borrowers, who wouldn’t be underwater without the securitization-fueled housing bubble price spikes? What about everyone, because banks have screwed up the once public and accurate land records with MERS? What about everyone, because the banks have demonstrated a thorough disrespect for the rule of law, an attitude of being totally above the law, that undermines our entire legal system?
Finally, consider how little investigating has happened. It’s hard to criticize a failure to produce evidence when evidence hasn’t been systematically gathered.
The WaPo’s next paragraph is obnoxious:
“How do you handle a situation like that? For the 50 state attorneys general, the answer was: Use the specter of legal liability, however vague, to extract concessions from the banks. The banks, meanwhile, would prefer to make the whole embarrassing mess go away if they can do so for less than it would cost to litigate the principle of “no harm, no foul.””
“specter of legal liability, however vague, to extract concessions”. Hmmm, despite the failure to investigate liability seems clear enough that a massive amount of lawsuits have already been filed. “extract concessions”? That’s not an accurate description of the law enforcement v. banks negotiation position. If anything, the AGs seem to be negotiating from a position of artificial weakness. If the AGs were serious about extracting concessions, they’d stop talking to the banks, investigate, file prosecutions, and then reopen talks. “embarrassing mess”? What a way to trivialize what’s happened. “no harm, no foul”? Unbelievable. Is that how the WaPo views its treatment of Kaplan students?
Skipping ahead a little, we get this paragraph:
“But the deal may fall apart because of a squabble among the attorneys general over how much legal immunity to give the banks, which say they need guaranteed legal “peace.” New York attorney general Eric Schneiderman has been warning that he won’t go along with any deal that keeps him from pursuing the banks for alleged securities fraud related to rotten mortgages they packaged and sold to investors. The majority of the other attorneys general, led by Tom Miller of Iowa, have kicked Mr. Schneiderman out of the negotiations, accusing him of making excessive demands. Mr. Schneiderman protests that the banks are to blame, for trying to use the robo-signing case to get immunity they could use on the securities front. Mr. Miller and his colleagues respond that they have no intention of letting the banks off that particular hook.”
“Squabble”? “Excessive demands”? Schneiderman’s trying to stand up for the rule of law, investigate and prosecute, and he’s being treated like the problem child. How about saving that scorn for Iowa’s Tom Miller, who has been trying to defend the banks instead of the rule of law from day 1? And that claim that the liability waiver the banks want won’t get in Schneiderman’s way? See this Financial Times article, which says Schneiderman’s right and other AGs share his concerns.
Here’s some more of the editorial:
“… banks are getting what they deserve for being sloppy, and that the attorneys general are getting what they deserve for exploiting an overblown scandal to shake down the banks.
After all, the banks will have to come up with that $20 billion somehow — perhaps through reduced lending and higher fees. That wouldn’t be a problem if the money were going to compensate victims. But it won’t, because there don’t seem to be many victims. In fact, the people who end up getting principal reductions and other relief through this settlement will be a completely different group from those who got foreclosed on during the age of robo-signing.”
The banks have been far more than “sloppy”; all things document fraud is not “an overblown scandal”, and the banks want a liability waiver for far more than document fraud; the AGs are doing nothing that resembles a “shake down”, though I wish they were. And again with the “don’t seem to be many victims” line. True, principal reductions if they happen will go to people not yet foreclosed on, but that doesn’t mean those getting them weren’t victims of the banks.
The WaPo concludes by saying it would be good to “reform foreclosure processes” and claims that giving the banks the deal they want would “restor[e] stability to the banking system and the housing market.” Sure, fixing foreclosure processes is good, but it needn’t come with a bank get out of jail free card. And letting the banks off the hook ($20 billion for 14 banks, especially if credit for past mods is given isn’t a meaningful penalty to any of the banks) has nothing to do with stability of the banking system and the housing market.
As the FHFA pointed out, the financial system depends on issuers not committing securities fraud, which requires going after issuers when they do. Similarly, the stability of the banking system depends on banks following the law and being held accountable when they don’t. Beyond that, the stability of the financial system depends on honest financial statements, and from what I hear, the banks’ “Tier 3” capital accounting is anything but accurate. Finally, the housing market won’t be stabilized by increasing the speed of foreclosures. The housing market needs more demand, not more supply, which is what foreclosures provide. And where will the needed demand come from? Hard to see in an era of mass unemployment, underemployment, and job insecurity.
Way to go, WaPo.