The Obama White House’s settlement deals with major banks over mortgage finance and foreclosure abuses were widely panned as paper tigers at the time they were announced, with dollar figures too small to meaningfully punish the banks’ misdeeds and fine-print conditions that shrunk the penalties even further in practical terms.
But now, thanks to fresh reporting from David Dayen in The Nation, the true depravity of Obama’s deal with JP Morgan is plain. The bank’s “payments” under the settlement were made in substantial part by counting loans the bank had already sold to third parties as part of JP Morgan’s own books, to satisfy the paltry debt-forgiveness requirements of the settlements.
The bank’s deal — struck after then-Attorney General Eric Holder agreed to override his staff’s plans to go to take their fraud evidence to court once JP Morgan CEO Jamie Dimon reached out personally to the Department of Justice — required it to cancel billions of dollars in loan debts for homeowners. The provision was marketed as direct aid to the little guy, even though it was clear from the jump that the bank would be able to turn the forgiveness provisions to its own financial benefit as well.
But JP Morgan went further than abusing the spirit of the deal, documents obtained by Dayen now show. The bank claimed — and the DOJ accepted — credit for forgiving loans that were already off of its books, long since sold to other firms hoping to collect from the embattled families on the other end of the contracts.
“JPMorgan no longer owned the properties because it had sold the mortgages years earlier to 21 third-party investors” who are now suing the bank in federal court, Dayen writes. “In a bizarre twist, a company associated with the Church of Scientology facilitated the apparent scheme. Nationwide Title Clearing, a document-processing company with close ties to the church, produced and filed the documents that JPMorgan needed to claim ownership and cancel the loans.”
In other words, JP Morgan, a multi-billion-dollar-a-year banking and investments house, first engaged in highly profitable mortgage-backed securities trading that many in the finance industry knew were headed for a crash but trusted to return short-term profits and personal wealth. After the crash, when the pushy sales tactics of ground-level mortgage brokers and dishonest wink-nudge partnerships between securities traders and ratings agencies had left millions of American homeowners underwater on their loans and facing eviction from overpriced homes, the bank took to robo-signing documents to justify illegitimate foreclosures that homeowners would otherwise have been able to dispute.
And then, when government investigators had put together enough proof to scare Dimon into calling Holder and striking a deal, the bank had the audacity to fulfill its meager commitments to the government and the public by counting products they no longer owned as part of their penance.
Then, despite having won a sweetheart deal far smaller than the harm his firm had caused and further driving down the cost of that deal through the fraud alleged in Dayen’s documents, Dimon publicly decried the settlement as “unfair” and suggested regulatory scrutiny of banking was unpatriotic.
Even before the revelation that Dimon’s team used somebody else’s money to cover its commitments, the debt-relief provisions of the Holder-Obama team’s various deals with mortgage fraudsters were alarming watchdogs.
The consumer relief that banks agreed to provide did not cost them money. Often, the renegotiation of these loans was actually better for the banks’ bottom line than it would have been to foreclose. A renegotiated loan that a homeowner can afford to repay is an account receivable for the bank, as opposed to a foreclosure process where they would likely lose money.
If the consumer relief rules were keeping more people in homes they didn’t deserve to lose, then the deficiencies of these programs in punitive crime-deterrence terms might not cause so much outrage. But here, too, the government’s framing of its mortgage fraud settlements drastically overstated their efficacy. Fewer than 84,000 people ended up keeping their homes thanks to true renegotiations — lowered principal and longer payment schedules on an original, first-lien mortgage, as opposed to cosmetic tweaks on second-lien notes or fee structures — under the consumer relief terms of the much-ballyhooed National Mortgage Settlement from early 2012. The Obama administration had claimed that the deal would keep more than a million families in their homes.
Uplifting tales of families rescued from unjust foreclosure thanks to swift and pragmatic government intervention were relatively rare. Underwater homeowners getting insultingly small one-off checks from banks and refusing to even cash them were far more common.
When the government’s own oversight group for the national settlement began tugging at the threads of the consumer relief failure, the administration shut them down. Rather than follow up on data suggesting massive ongoing problems with the banks’ interactions with foreclosure victims, the White House agreed to cease that oversight work as part of a separate follow-on settlement that was even smaller. The settlement effectively served as a cover-up of banking abuses, with regulators themselves arguing that details of how financiers had screwed people over amounted to “trade secrets” that could not be divulged.