Government prosecutors who relied on a Florida whistleblower’s evidence to win foreclosure fraud settlements with major banks two years ago are declining to help her pursue identical claims against a second set of large financial institutions.
Lynn Szymoniak first found proof that millions of American foreclosures were based on faulty and falsified documents while fighting her own foreclosure. Her three-year legal fight helped uncover the fact that banks were “robosigning” documents — hiring people to forge signatures and backdate legal paperwork the firms needed in order to foreclose on people’s homes — as a routine practice. Court papers that were unsealed last summer show that the fraudulent practices Szymoniak discovered affect trillions of dollars worth of mortgages.
Government prosecutors intervened in Szymoniak’s case in 2012 and struck a deal with Bank of America, JP Morgan, Citigroup, Wells Fargo, and Ally Financial. The specific instances of fraud she uncovered accounted for $95 million out of a broader $25 billion settlement between the government and the five lenders. But when Szymoniak alleged similar misconduct at other major banks, including Deutsche Bank, HSBC, Bank of New York Mellon, and US Bancorp, the government left her to fight singlehanded against a horde of corporate attorneys, Bloomberg reports. A Department of Justice (DOJ) spokeswoman declined to comment on the government’s rationale, according to the report, and representatives for each bank did likewise. One of Szymoniak’s attorneys said the DOJ’s decision means that “they are leaving money on the table.”
Whatever its motives, the public record of the Obama administration’s foreclosure fraud cases and mortgage finance enforcement efforts suggests a pattern of letting powerful and abusive companies off the hook in various ways. The much-touted $25 billion settlement that absorbed Szymoniak’s initial lawsuits ultimately failed to stop the industry from continuing to violate homeowners’ rights. The failures were so persistent and widespread that the government ended up going back and rewriting the terms of the deal last fall. The settlement ended up helping far fewer people than it was supposed to and did nothing to stop the flood of faulty documents in foreclosure cases that continues to this day.
The government has offered similarly inflated and optimistic portrayals of other financial industry oversight efforts and legal settlements relating to the mortgage industry and the financial crisis. Administration spokespeople made exaggerated claims about a crackdown on mortgage fraud that never really materialized, according to the DOJ’s Inspector General. Attorney General Eric Holder even claimed that the department had filed five times as many cases relating to the housing market as it actually had under his watch. Holder’s purported $13 billion settlement with JP Morgan will cost the bank less than half that total because most of it is tax deductible and only a fraction of it is made up of actual payments by the bank. That deal is being used as a template for similar settlements with other major banks, indicating that the government is prepared to close the books on housing bubble misdeeds through deals that appear tough at a glance but crumble upon inspection.
On top of all that, federal regulators halted an independent nationwide review of foreclosure documents that had already uncovered more than a million suspicious cases at the time that it was quashed. While the regulators said that the settlements that stymied the review did more for homeowners than a full airing of those cases would have done, the ranking member of the House Oversight Committee says documents cast doubt on that analysis. Rep. Elijah Cummings (D-MD) is seeking a hearing to investigate how the administration came to that decision.
There were fewer financial fraud prosecutions in 2011 than there had been in 20 years. The crisis that banks precipitated just a few years earlier has cost the world at least $6 trillion and probably closer to $20 or $30 trillion, and bank profits outweigh their legal costs by about three-to-one. Even in the rare instances where those companies have faced legal consequences, they have been too minor to dent banks’ bottom lines.