A lawsuit against JP Morgan-Chase — the nation's largest bank — asserts that the institution paid off the $4,200,000,000 in mortgage forgiveness that it agreed to as a settlement for widescale mortgage and foreclosure fraud by committing a lot more mortgage fraud, in which homeowners, ethical lenders, and American cities were stuck with the bill.
The original settlement came from the Obama-era policy of not prosecuting finance executives for criminal acts, preferring to extract huge fines from the institutions.
In February 2012, JP Morgan-Chase agreed to pay $5.1B in restitution for its mortgage fraud, which included widescale foreclosures on people who were not even Morgan-Chase customers — the company forged documents that allowed them to seize random houses and sell them out from under their owners on the strength of "robo-signed" paperwork produced by sleazy boiler-rooms where untrained people rubberstamped paperwork after less than 3 seconds' worth of scrutiny.
The $4.2B that Morgan-Chase was supposed to pay in kind was to come in the form of debt forgiveness to borrowers who were about to lose their homes, but rather than do this, Morgan-Chase found a way to forgive the loans of people who didn't owe Chase any money (!), and to pull a list of other baroque cons that threw cities into chaos and revictimized people who'd lost their houses due to Morgan-Chase's brutal foreclosure policies.
(You may be sensing a pattern at this point)
In the runup to the financial crisis, Morgan-Chase made a practice of refusing all requests for loan modifications by borrowers struggling with their mortgages. Instead of allowing these borrowers to refinance and stay in their homes, Morgan-Chase held them to the terms of their original — extremely misleading and often mis-sold — mortgages, which allowed the bank to increase their mortgage payments by 200-400% after the initial "teaser rate" expired.
When these borrowers (predictably) started to default, Morgan-Chase sold their debt for pennies on the dollar, sensing that a crash was coming. Many of these loans were sold to vulture capitalists who hounded borrowers into bankruptcy, but there were a few good eggs, like Larry Schneider, whose 1st Fidelity bank bought 3,529 mortgages from Morgan Chase at $0.001 on the dollar. Schneider then offered refinancing on fair terms to homeowners, reasoning that if they could stay in their homes and make affordable mortgage payments, then Schneider would get stable income, the homeowners could keep their homes, and cities and the economy would benefit.
It was a sleazy deal from the start. Even after Morgan-Chase sold the loans, they still sent bills to the borrowers, and then kept thousands in payments they had wrongly diverted, telling Schneider that the accounting process by which it had misappropriated $47,695.53 was "not reversible." Morgan-Chase even sent sleazy, threatening debt-collectors after Schneider's customers, trying to get them to pay debts they didn't owe.
But then came the settlement and the imperative on Morgan-Chase to start forgiving $4.2B in debt. The company began to send letters to Schneider's customers telling them they didn't owe anything anymore, despite the fact that Morgan-Chase no longer owned their mortgages.
This was just the tip of the iceberg. Morgan-Chase also started to mass-forgive loans on houses that had long been abandoned by defaulting owners, who had been hounded out of their homes by ballooning mortgage payments and Morgan-Chase's unwillingness to modify their loans. Because Morgan-Chase now owned these — rotting, derelict, unlivable — homes, they had to keep paying taxes on them, and make whatever minimum maintenance cities ordered to keep them from becoming firetraps or other hazards.
When Morgan-Chase forgave the loans on these houses, the defaulted, homeless owners once again became responsible for these houses, which Morgan-Chase had allowed to fall into irredeemable disrepair. Now the victims of Morgan-Chase's foreclosure mill were de-foreclosed, they had to come up with thousands to pay the taxes and upkeep on houses that Morgan-Chase had ruined through neglect.
When (predictably), these owners found themselves unable to pay for this upkeep, the cities — who were now significantly down on their property taxes, remember — were stuck with the bill for maintaining them.
You may be asking yourself: how did Morgan-Chase get away with all these shenanigans, especially collecting on and then forgiving loans they didn't own? Good question, but it's got an obvious answer. According to Schneider, they used a firm of sleazy, Scientology-affiliated robosigners.
tl;dr: Morgan-Chase used robosigners to steal houses. They were told to forgive $4.2B in mortgage debt to make good for this crime. They used robosigners to allow them to forgive debts that were not owed to them, and then they stiffed people whose houses they'd taken away with most of the rest of the bill for the $4.2B, and cities had to pick up the tabs that these homeless ex-Morgan-Chase customers couldn't pay.
That is some vintage late-stage capitalism, my friends.
Federal officials knew about the problems and did nothing. In July 2014, the City of Milwaukee wrote to Joseph Smith, the federal oversight monitor, alerting him that “thousands of homeowners” were engulfed in legal nightmares because of the confusion that banks had sown about who really owned their mortgages. In a deposition for the lawsuit against JPMorgan Chase, Smith admitted that he did not recall responding to the City of Milwaukee’s letter.If you pay taxes in a municipality where JPMorgan spun its trickery, you helped pick up the tab. The bank’s shell game prevented municipalities from knowing who actually owned distressed properties and could be held legally liable for maintaining them and paying property taxes. As a result, abandoned properties deteriorated further, spreading urban blight and impeding economic recovery. “Who’s going to pay for the demolition [of abandoned buildings] or [the necessary extra] police presence?” asks Brent Tantillo, Schneider’s lawyer. “As a taxpayer, it’s you.”
Such economic fallout may help explain why Jamie Dimon directed that JPMorgan’s mass forgiveness of loans exempt Detroit, a city where JPMorgan has a long history. The bank’s predecessor, the National Bank of Detroit, has been a fixture in the city for over 80 years; its relationships with General Motors and Ford go back to the 1930s. And JPMorgan employees knew perfectly well that mass loan forgiveness might create difficulties. The 2012 internal report warned that cities might react negatively to the sheer number of forgiven loans, which would lower tax revenues while adding costs. Noting that some of the cities in question were clients of JPMorgan Chase, the report warned that the project posed a risk to the bank’s reputation.
Special Investigation: How America’s Biggest Bank Paid Its Fine for the 2008 Mortgage Crisis—With Phony Mortgages!
[David Dayen/The Nation]
(via Naked Capitalism)
(Image: Daniel Case, CC-BY-SA)
