FORMER EXECUTIVE AT FLORIDA-BASED LENDER PROCESSING SERVICES INC. ADMITS ROLE IN MORTGAGE-RELATED DOCUMENT FRAUD SCHEME


An event of extreme importance to the housing market has just happened; below is the Department of Justice press release made public at 5.01 pm today.

This will have tremendous impact on Banks, Servicers, Remic underwriters and most importantly will have a chilling effect on foreclosure proceedings nationwide.

Obviously thousands and thousands of homeowners have been deprived of their homes in proceedings tainted by these fraudulent documents.

And just as importantly many hundreds of thousands of mortgages and notes secured by them that were "lost" and replaced with fraudulently created documents that might have been used to effect transfer of these documents into various pools of mortgages subsequently sliced, diced and sold worldwide based on their legally owning these mortgages, will have to be scrutinized for validity.

And then, of course, the tax status of REMICs will also be brought into question if it turns out that they  contain mortgages that were transferred based on these fraudulent documents.

This is just the beginning of the next mortgage crisis.... and this one may lead to the failure of a major bank.

In the spotlight will be Bank of America and of course Wells Fargo to name just two of the biggest players.


Time for the Fed to step in and take care of this mess once and for all - after all it is the trade organization that represents the interest of it members only - the banks in the USA!

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FOR IMMEDIATE RELEASE                                                                                                CRM

TUESDAY, NOVEMBER 20, 2012                                                                        (202) 514-2007

WWW.JUSTICE.GOV                                                                                    TTY (866) 544-5309

FORMER EXECUTIVE AT FLORIDA-BASED LENDER PROCESSING SERVICES INC.

ADMITS ROLE IN MORTGAGE-RELATED DOCUMENT FRAUD SCHEME

Over 1 Million Documents Prepared and Filed with Forged and False Signatures, Fraudulent Notarizations

WASHINGTON – A former executive of Lender Processing Services Inc. (LPS) – a publicly traded company based in Jacksonville, Fla. – pleaded guilty today, admitting her participation in a six-year scheme to prepare and file more than 1 million fraudulently signed and notarized mortgage-related documents with property recorders’ offices throughout the United States.

The guilty plea of Lorraine Brown, 56, of Alpharetta, Ga., was announced by Assistant Attorney General Lanny A. Breuer of the Justice Department’s Criminal Division; U.S. Attorney for the Middle District of Florida Robert E. O’Neill; and Michael Steinbach, Special Agent in Charge of the FBI’s Jacksonville Field Office. 

            The plea, to conspiracy to commit mail and wire fraud, was entered before U.S. Magistrate Judge Monte C. Richardson in Jacksonville federal court.  Brown faces a maximum potential penalty of five years in prison and a $250,000 fine, or twice the gross gain or loss from the crime.  The date for sentencing has not yet been set.

            “Lorraine Brown participated in a scheme to fabricate mortgage-related documents at the height of the financial crisis,” said Assistant Attorney General Breuer.  “She was responsible for more than a million fraudulent documents entering the system, directing company employees to forge and falsify documents relied on by property recorders, title insurers and others.  Appropriately, she now faces the prospect of prison time.”

            “Homeownership is a huge step for American citizens,” said U.S. Attorney O’Neill.  “The process itself is often intimidating and lengthy.  Consumers rely heavily on the integrity and due diligence of those serving as representatives throughout this process to secure their investments.  When the integrity of this process is compromised, illegally, public confidence is eroded.  We must work to assure the public that their investments are sound, worthy, and protected.”

            Special Agent in Charge Steinbach stated, “Our country is increasingly faced with more pervasive and sophisticated fraud schemes that have the potential to disrupt entire markets and the economy as a whole.  The FBI, with our partners, is committed to addressing these schemes.  As these schemes continue to evolve and become more sophisticated, so too will we.”

Brown was the chief executive of DocX LLC, which was involved in the preparation and recordation of mortgage-related documents throughout the country since the 1990s.  DocX was acquired by an LPS predecessor company, and was part of LPS’s business when LPS was formed as a stand-alone company in 2008.  At that time, DocX was rebranded as “LPS Document Solutions, a Division of LPS.”  Brown was the president and senior managing director of LPS Document Solutions, which constituted DocX’s operations. 

DocX’s main clients were residential mortgage servicers, which typically undertake certain actions for the owners of mortgage-backed promissory notes.  Servicers hired DocX to, among other things, assist in creating and executing mortgage-related documents filed with recorders’ offices.  Only specific personnel at DocX were authorized by the clients to sign the documents.

According to plea documents filed today, employees of DocX, at the direction of Brown and others, began forging and falsifying signatures on the mortgage-related documents that they had been hired to prepare and file with property recorders’ offices.  Unbeknownst to the clients, Brown directed the authorized signers to allow other DocX employees, who were not authorized signers, to sign the mortgage-related documents and have them notarized as if actually executed by the authorized DocX employee.

Also according to plea documents, Brown implemented these signing practices at DocX to enable DocX and Brown to generate greater profit.  Specifically, DocX was able to create, execute and file larger volumes of documents using these signing and notarization practices.  To further increase profits, DocX also hired temporary workers to sign as authorized signers.  These temporary employees worked for much lower costs and without the quality control represented by Brown to DocX’s clients.  Some of these temporary workers were able to sign thousands of mortgage-related instruments a day.  Between 2003 and 2009, DocX generated approximately $60 million in gross revenue.        

            After these documents were falsely signed and fraudulently notarized, Brown authorized DocX employees to file and record them with local county property records offices across the country.  Many of these documents – particularly mortgage assignments, lost note affidavits and lost assignment affidavits – were later relied upon in court proceedings, including property foreclosures and federal bankruptcy actions.  Brown admitted she understood that property recorders, courts, title insurers and homeowners relied upon the documents as genuine.

            Brown also admitted that she and others also took various steps to conceal their actions from clients, LPS corporate headquarters, law enforcement authorities and others.  These actions included testing new employees to ensure they could mimic signatures, lying to LPS internal audit personnel during reviews of the operation in 2009, making false exculpatory statements after being confronted by LPS corporate officials about the acts and lying to the FBI during its investigation.  LPS closed DocX in early 2010.

            This case is being prosecuted by Trial Attorney Ryan Rohlfsen and Assistant Chief Glenn S. Leon of the Criminal Division’s Fraud Section and Assistant U.S. Attorney Mark B. Devereaux of the U.S. Attorney’s Office for the Middle District of Florida.  This case is being investigated by the FBI, with assistance from the state of Florida’s Department of Financial Services.  

Today’s conviction is part of efforts underway by President Obama’s Financial Fraud Enforcement Task Force (FFETF), which was created in November 2009 to wage an aggressive, coordinated and proactive effort to investigate and prosecute financial crimes. With more than 20 federal agencies, 94 U.S. attorneys’ offices and state and local partners, it’s the broadest coalition of law enforcement, investigatory and regulatory agencies ever assembled to combat fraud. Since its formation, the task force has made great strides in facilitating increased investigation and prosecution of financial crimes; enhancing coordination and cooperation among federal, state and local authorities; addressing discrimination in the lending and financial markets and conducting outreach to the public, victims, financial institutions and other organizations. Over the past three fiscal years, the Justice Department has filed more than 10,000 financial fraud cases against nearly 15,000 defendants, including more than 2,700 mortgage fraud defendants. For more information on the task force, visit www.stopfraud.gov.

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The Wall Street Journal, a quote regarding the Basel III developments:

"Officials want banks to have large stockpiles of capital so that they will be able to continue lending even if the economy worsens." Is this really the intent of the Basel Committee? To the degree the outlook for an economy worsens, borrowing/lending will increasingly contract as investment is based on forward-looking conditions and lending is based on counter-party risk. If the market hasn't already taught us this lesson, then it's because the market was not able to fully operate with an obstacle course of bad bailout practices.
(click on heading tfor link)

A Must Watch: Especially William K Black - the last 8 mns

(click on the heading above for full interview)

The startling nature of the coverup of wrongdoing in the current financial crisis is revealed by William K Black. He has the perfect credentials for making this indictment ...he ran the Savings and Loan cleanup in the 1980's.
Quite successfully, mind you.
This is something everyone can understand and must take to heart. The next financial crisis is baked in and there is no recovery from the current crisis until the issues Black discusses are addressed.

Analysis: Major banks bolster reserves for mortgage repurchases

The four largest commercial banks in the country -- Bank of America, JPMorgan Chase, Citigroup and Wells Fargo -- booked $2.5 billion in second-quarter charges to cope with requests for mortgage repurchases.

Most of the requests came from Fannie Mae and Freddie Mac. The banks have faced soaring costs as mortgage buyers and insurers search borrowers' files for issues.

How in this wide world does the Government expect co-operation from the banking community in solving the mortgage crisis this way?

They force the banking community to sit on huge excess reserves, and prudent bankers now reserve a large portion of these excess reserves to give back to the Government via Fannie and Freddie mortgage repurchases!!

To make matters even worse, the uncertainty over the fate of said GSE's and the present panicked desperation surfacing in the form of clawbacks from the banks on any pretext, cannot make these "prudent" bankers enthusiastic about taking on any more risk with new mortgages or Heaven Forbid refinancing on terms favourable to the borrowers!

And now, to add misery to these woes the new Finance Reform contains provisions that mandate lending quotas....a major contributing factor in this mortgage mess in the first place!! ...the eggs of the next financial crisis have been laid and will soon hatch!

Imagine that your Government is here to help: you have made more loans to white borrowers than black and hispanics.

So in order to correct this unacceptable statistical anomaly you are ordered to make more loans the other way or face sanctions that will force you out of business!

It matters not a whit to the politicians that statistically, financially and in every other sane and rational deployment of centuries old criteria for lending that this population of borrowers is less credit worthy by any standard. Incomes are lower, collateral is poorer quality, credit histories are far worse, delinquencies are rife... but we are to ignore these inconvenient truths.

Rational business people dont make suicidal investment decisions guranteed to lead to their business demise.

The Federal Government does just that. It's sending more billions to 12 states that it deems most in need of mortgage help so that distressed borrowers can be forgiven parts of their loans. Of course, the new rules will apply. So how can this not again lead to lower lending standards just to meet quotas?

This morass is too difficult for lenders to negotiate. Better they make no loans to anyone except the Government which still allows them to borrow money at effectively no interest and lend it right back at a 2%-3% positive interest carry. And all this is risk free!

OF COURSE ALL THIS IS IRRELEVANT IF BUSINESS ACTIVITY IS SO DEPRESSED THAT NO-ONE WANTS TO BORROW ANY MONEY.

Marie Antoinette could not have said it better. They're hungry for bread? Let em eat cake. Sheesch!

Banks in "peripheral" Europe face $122 billion in maturing bonds

Italian, Spanish, Irish and Greek banks face high interest charges in rolling over existing debt, even after European regulators concluded that they are in sound condition and ready to ride out another economic downturn. Banks in countries with the region's heaviest debt loads have $122 billion in bonds maturing this year. Bloomberg
Stress Tests? The tests did not solve the funding issue.

U.S. banks are already finding regulatory loopholes

Bank analysts who worried that regulatory reform would cripple the U.S. financial sector have relaxed, after they looked over the law and saw opportunities to get around the rules, industry experts said. Dick Bove, a banking analyst at Rochdale Securities, said it won't take long for executives to show that they know more about how the financial system works than politicians who wrote the law. CNBC
Totally agree with that last sentence.

New York Banks compete for New Yorkers seeking jumbo mortgages

New York consumers interested in jumbo mortgages were recently being turned away by most large banks, but that trend has reversed this summer. Banks have been developing new products and offering attractive options for borrowers seeking jumbos, which are home loans too big to receive a guarantee from Fannie Mae, Freddie Mac or the Federal Housing Administration. The Wall Street Journal

 Low interest rates start to hit profits at large banks

The Federal Reserve's monetary policy of maintaining low interest rates for an extended period has helped boost earnings at banks such as JPMorgan Chase and Bank of America. However, the policy is starting to make it more difficult for the major lenders to generate profit. "That's the gift from the Fed," Christopher Whalen, co-founder of Institutional Risk Analytics, said of the interest rate. "But at the same time, the cash flow on your assets eventually starts to re-price and match the low-rate environment. The zero-rate environment is eventually bad for everybody." Bloomberg

Report: Chinese local governments probably will default on bank loans

China's banks loaned more than $1 trillion to provincial financing agencies to stimulate the economy, but many of the loans are expected to go into default, according to Century Weekly, citing information from the China Banking Regulatory Commission. Almost a quarter of the loans are at risk of going unpaid, according to the publication. Many of the borrowers are of "questionable credit quality," a Standard & Poor's analyst said.
Google

Fed worries about economic slowdown, considers taking a stimulus role

The U.S. Federal Reserve is considering taking a stronger role in boosting economic growth, with Congress deadlocked on how to cope with a troubling slowdown. Options being weighed include buying more mortgage securities and cutting interest paid to banks that are putting funds on deposit with the central bank from 0.25% to zero, giving financial institutions more incentive to loan.
The Washington Post.

As usual the Federal Government is culpablly and dangerously late in diagnosing the problem. Of course banks are not lending to the public.

They would be sued for imprudent business practises by shareholder activists. After all, it is the height of managerial irresponsibility to make loans to risky borrowers when a risk free, high profit margin alternative borrower - The US Treasury - is panting at the door.

No, Mr Geithner, any first year MBA student will identify correctly that the problem is NOT the interest rate paid to banks, it is the very incentive to replace bad mortgage assets with pristine capital so regulatory capital levels are acceptable.

Until the real problem, which is the continual drop in value of the real estate collateral that is the bulk of assets of lending institutions is addressed this kind of Govertnment meddling will make the problem worse and worse.

Bernanke and Geithner, did they deliberately mis-inform Congress?

From a story in Bloomberg today

Fed Made Taxpayers Unwitting Junk-Bond Buyers
By Caroline Salas, Craig Torres and Shannon D. Harrington - Jul 1, 2010

Federal Reserve Chairman Ben S. Bernanke and then-New York Fed President Timothy Geithner told senators on April 3, 2008, that the tens of billions of dollars in “assets” the government agreed to purchase in the rescue of Bear Stearns Cos. were “investment-grade.” They didn’t share everything the Fed knew about the money.

“Either the Fed did not understand the distressed state of some of the assets that it was purchasing from banks and is only now discovering their true value, or it understood that it was buying weak assets and attempted to obscure that fact,” Senator Sherrod Brown, an Ohio Democrat and member of the Senate Banking Committee, said in an e-mail when informed about the credit quality of holdings in the Maiden Lane LLC portfolio. The committee held the April 3 hearing.

If "the Fed did not understand the distressed state of some of the assets that it was purchasing from banks.." then we are allowing incompetent entities and disingenuous people to write rules and spend taxpayer money on another scam perpetrated on we the people by the smartest manipulators on earth.

How the economy works by Clark and Dawes

And you thought you knew this stuff!!!
Get educated...

Stress from the "stress test"

A friend called late yesterday to ask me what I thought about the "stress test." I told him it seemed to be working, I was pretty stressed out by the market thanks to the carnival act we call the Treasury and Fed.

Top short seller: Short bank stocks now

From Newsmax:

Hedge fund manager Doug Kass said he is selectively shorting U.S. financial stocks, which have more than doubled since bottoming in early March, on the belief that they have been "priced to perfection" ahead of the banks' stress test results later on Thursday.

"From my perch, investors should sober up and reduce their holdings in financials now," Kass said in a note to clients. "Financial stocks are now priced to perfection."