Whistle Blowers

I read a piece yesterday that has been rattling around in my brain ever since.  Remember recently the NV AG, Masto, indicted a couple of wheeler dealers on fraud charges for the robo signing scandal in the foreclosure mess?  Well, apparently a large part of her case, and the information she used to investigate the charges, came from one woman at the lower end of the totem pole.  She gave up information in exchange for a reduced sentence in a plea agreement.  She didn’t show up Monday for sentencing and when investigators were sent to her home they found her dead.  Here’s a link to the piece in Naked Capitalism describing some of the events surrounding this interesting and tragic case.

Las Vegas police say it could be weeks before investigators know how 43-year-old Tracy Lawrence died.
Her body was found about 11:30 a.m. Monday at her Las Vegas apartment.
Police Sgt. Matt Sanford says there’s no apparent sign of foul play, and coroner toxicology tests could take up to eight weeks.
Lawrence would have faced up to a year in jail and a $2,000 fine earlier Monday for her guilty plea Nov. 17 to one criminal charge of notarizing the signature of a person not in her presence.
KSNV-TV reports ( http://bit.ly/vWSDtv) that Lawrence admitted notarizing tens of thousands of fraudulent documents as part of a wider foreclosure fraud scheme.

Lawrence had earlier admitted to notarizing “tens of thousands of fraudulent documents” as part of a wider foreclosure fraud scheme involving employees of Lender Processing Services (LPS).  It was Lawrence who turned Nevada Attorney General Catherine Cortez Masto on to two mid level LPS employees who face up to 30 years in jail each if found guilty. 

Lawrence came forward earlier this month and blew the whistle on the operation, in which title officers Gary Trafford, 49, of Irvine, Calif., and Geraldine Sheppard, 62, of Santa Ana, Calif. — who worked for a Florida processing company used by most major banks to process repossessions — allegedly forged signatures on tens of thousands of default notices from 2005 to 2008.

Trafford and Sheppard were charged two weeks ago with 606 counts of offering false instruments for recording, false certification on certain instruments and notarization of the signature of a person not in the presence of a notary public.

Here’s  another sort of whistle blower speaking with regret and admitting at least a guilty conscience if not fraud.  This guy was a Regional Vice President for Chase Home Financial in Florida.

“If you had some old bag lady walking down the street and she had a decent credit score, she got a loan,” he added.

Theckston says that borrowers made harebrained decisions and exaggerated their resources but that bankers were far more culpable — and that all this was driven by pressure from the top.
“You’ve got somebody making $20,000 buying a $500,000 home, thinking that she’d flip it,” he said. “That was crazy, but the banks put programs together to make those kinds of loans.”

Especially when mortgages were securitized and sold off to investors, he said, senior bankers turned a blind eye to shortcuts.
“The bigwigs of the corporations knew this, but they figured we’re going to make billions out of it, so who cares? The government is going to bail us out. And the problem loans will be out of here, maybe even overseas.”

One memory particularly troubles Theckston. He says that some account executives earned a commission seven times higher from subprime loans, rather than prime mortgages. So they looked for less savvy borrowers — those with less education, without previous mortgage experience, or without fluent English — and nudged them toward subprime loans.

These less savvy borrowers were disproportionately blacks and Latinos, he said, and they ended up paying a higher rate so that they were more likely to lose their homes. Senior executives seemed aware of this racial mismatch, he recalled, and frantically tried to cover it up. 

I think it’s important to remember how and why we got into this financial messObviously, government has over spent and over promised, from entitlements to government pensions, but if we’re going to be discussing fairness here we should also understand that a lot of people continue to suffer from a dose of unfairness in this economic shit storm (excuse my french).  Obviously life’s not always fair.

42 Responses

  1. I've watched CSI and the LV Crime Lab will have this wrapped in 44:38, leaving time for commercials.From a real estate law view, the weakness that sustained the retailing of subprime loans to shaky borrowers was the mortgage banking industry. It was composed largely of unregulated brokers of loans who had no money at risk at all but were paid commissions to sign up lenders. That a flood of money was available was attributable to everyone from Alan Greenspan through Goldman Sachs through FanFred, through Bill Clinton+Bob Rubin+ Larry Summers, through Phil Gramm, throughCiticorp+BoA+etc.,etc.,etc. Nevertheless, the scope of the problem of stupid loans was magnified by the mortgage brokers with no skin in the game selling the loans on the front end.*******************I want to be the first one here to declare that I believe the R nominee will in fact be Newt.

    Like

  2. I am SO conflicted about this. On the one hand, I have my own experience: when we (my now-ex and I) decided on our loan we spent countless evenings figuring out what our plans were for the next five-to-ten years, what our plans were for the longer term, and how much debt we could handle and still sleep at night.On the other hand, I have my in-laws, who were facing a shit storm of financial obligations that they had willingly taken on and weren't able to meet at the time. . . but involved peoples' safety and life, so they decided to gamble. And the banks loaned them the money, with full disclosure on my in-laws' part.So who's to blame now?

    Like

  3. "I want to be the first one here to declare that I believe the R nominee will in fact be Newt. "That's bold.

    Like

  4. Funny Mark, I put a piece up yesterday at the Plumline from David Dayen that claimed Newt was just getting started and that he would be preferable to conservatives over Romney. Obama, Romney, Gingrich all bought and paid for by our friends on Wall Street, IMO, but at least Newt expresses the proper derision of Liberals required to run on the R ticket.

    Like

  5. "if we're going to be discussing fairness here we should also understand that a lot of people continue to suffer from a dose of unfairness in this economic shit storm."What would a fair resolution look like? There's not an easy answer; the ideal outcome is a system in which people do not suffer from others' mistakes. But how you get there is not at all clear.

    Like

  6. Michi, I don't think many of us have a huge amount of respect for borrowers who knowingly went out on a precarious financial limb but most of those people have already suffered their losses. It's those of us who were left holding the bag, who didn't participate in the free for all, but are stuck in underwater mortgages, job losses and economic reversal that are continuing to pay the price. There are some indications that things are slowly improving and according to John we're the Knight on the White Horse for Europe, so we'll struggle through. Apparently, it's again in Main Street's interest to save the banks, so be it.I just think it's odd to discuss fairness in terms of the top earners and whether we need to worry about that too much when the middle and lower earners can't even get out of Dodge for one of those jobs in Texas because they're stuck in a home that no longer holds much value other than credit worthiness.

    Like

  7. I just think it's odd to discuss fairness in terms of the top earners and whether we need to worry about that too muchCouldn't agree more. I think it comes down to the basic divide about whether or not we believe America was built solely on rugged individualism or a common ideal.Let the comments begin!

    Like

  8. But how you get there is not at all clear.OWS and Dems have the same problem, no easy solutions. In the meantime we wait. I just think it's slightly "unfair" to discuss fairness in the tax system or entitlement reform or any other obfuscating issue while most of us know where the real problems lie. And we also know who's really going to bail the country out, the middle class, again. It's consumer confidence and consumer spending that's causing us to turn the corner ever so slightly, not Washington, not Wall Street and certainly not the 1%.

    Like

  9. He says that some account executives earned a commission seven times higher from subprime loansWho signed off on that kind of arrangement? You provide AEs with perverse incentives, they will be correspondingly perverse. That's crazy. Why would any bank be offering a commission seven times higher on loans much more likely to default, by definition?

    Like

  10. LMS, click on Baseline Scenario to read Simon Johnson's derision of Geithner and praise for John Huntsman.This is tagentially related to the topic, rather than OT.Anyone else who likes SJ should do the same.It also poses another example of why I take Huntsman seriously and wish for a more moderate world in which he would be seen as Mr. Conservative and I would be listening].

    Like

  11. I originally thought the moment Perry entered the race, he was guaranteed the nomination. And I think he would have been, had his debate performances not been so routinely incoherent. I also thought, at the outset, Newt had blown up his candidacy and had no chance (and also, very few friends in the GOP establishment). But he's managed to hold on an turn in debate performances that are helping him out. But . . .I think it's still likely to be Mitt at this point. Although, if he's still in the race, I'm voting Ron Paul in the primary. 😉

    Like

  12. "Why would any bank be offering a commission seven times higher on loans much more likely to default, by definition?"Commission based on front end points and interest rate.

    Like

  13. Mich:I think it comes down to the basic divide about whether or not we believe America was built solely on rugged individualism or a common ideal.These two notions are not at odds. Although they may appear to be if one equates a "common ideal" with government policy.

    Like

  14. Re: Newt and Paul, Paul's got a pretty brutal ad up on Newt that NPR is covering

    Like

  15. lms:…or any other obfuscating issue…So any discussion about things other than your preferred topic is an "obfuscating issue"?while most of us know where the real problems lie.Where is that?

    Like

  16. ""if we're going to be discussing fairness here we should also understand that a lot of people continue to suffer from a dose of unfairness in this economic shit storm."What would a fair resolution look like? There's not an easy answer; the ideal outcome is a system in which people do not suffer from others' mistakes. But how you get there is not at all clear. "Bankruptcy cramdown. Reduce the loan principle to the new, actual value of the house, provided that the borrower can actually make the reduced payments (otherwise they still get foreclosed on) and the banks are forced to eat the difference as an unsecured loan that is treated the same as other unsecured debt, i.e. credit card debt. The borrower gets the unpleasant experience of Chapter 13 bankruptcy and a multi year court supervised repayment structure along with the hit to their credit rating. The big advantages of bankruptcy versus other mortgage only solutions are:1. We already have a Federal bankruptcy system in place so there is minimal ramp up time.2. All the debt of the homeowner is taken into account when working out a repayment plan, not just the mortgage debt.3. Creditor rights are fairly represented in court and ultimately a judge decides what is an equitable settlement that balances both parties interest according to a fixed set of rules, i.e. the bankruptcy code, versus an ad-hoc system run for political purposes out of the Treasury Department that is more likely to be gamed.

    Like

  17. So any discussion about things other than your preferred topic is an "obfuscating issue"?Where is that?You're free to discuss any issue you want here Scott, you know that. If I find it obscures the true nature of our problems I'm also free to express that opinion.Housing melt down.I've always agreed jnc re bankruptcy cram down but there has never been any political will to do that as you know. My point is in reality we're stuck waiting for demand to come back from the bulk of Americans who aren't in the top 1% to 10% of earners, who also happen to generate most of the economic activity in this country. I have trouble feeling too concerned about the fairness of our progressive tax system while we wait. I'm sure Wall Street will contribute handsomely to all three future Presidential candidates in the meantime as well. I'm slightly frustrated by that.

    Like

  18. "I just think it's odd to discuss fairness in terms of the top earners and whether we need to worry about that too muchCouldn't agree more. I think it comes down to the basic divide about whether or not we believe America was built solely on rugged individualism or a common ideal."To me these statements reflect the real divide, which is between the idea that our government is a tool to represent the interests only of some — the nonrich — or is supposed to treat everyone impartially and equally. The "rugged individualism or a common ideal" dichotomy is a false one. What "common ideal"? To work in contradiction to "rugged individualism," presumably it must be an "ideal" that works in contradiction to liberty and equality under the law, since it has to mean that people aren't free to pursue their own ends but instead are indentured to the demands of others who want government to tax and redistribute their treasure if they get too far ahead.

    Like

  19. lms:You're free to discuss any issue you want here Scott, you know that.Yes, I do know. I just found your characterization odd, and wanted to clarify that that is what you really meant. Apparently you did.Housing melt downI agree this was/is a major problem.I have trouble feeling too concerned about the fairness of our progressive tax system while we wait.I'm guessing you had just as much trouble feeling too concerned even prior to our current economic woes, and those troubles will remain even after we get a recovery. Again, just a guess.

    Like

  20. NoVA:I was wondering who was going to try to take Newt down first. Obviously, Romney has to do something, but he has his own damage control to do after that Fox interview."Serial hypocrisy" — ouch.

    Like

  21. Thanks NOVAH.Tough ad.Coupled with the BHO ad against the two Mitts and I don't know what you get.Huntsman? Nahh.

    Like

  22. scottI've agreed many times that we need tax reform, I don't agree however that we should eliminate the progressive system we have. I believe we could lower income tax rates overall by getting rid of many of the more "unfair" deductions and exemptions and achieve a better result in funding the government. I just happen to think that now while the middle and working class are suffering the largest decline in fortune in decades is not necessarily the time to enact changes that will adversely affect the segment of our population that spends the money.qb, the old punish success argument just doesn't have the same umph it used to considering the over 200% increase in wealth that has magically appeared in the accounts of the richest 1%. You're free to trot it out whenever possible though, lol.I'm off to read Simon Johnson, thanks Mark, you know I love that guy.

    Like

  23. These loans were never meant to be paid off, they were meant to be refinanced. As long as real estate prices kept going up, these loans would more or less be "money good." And that was the gargantuan assumption behind all of this. Everyone had an incentive to play the game: If the borrower ended up buying too much house, they could always sell at a profit. Not only that, as the house went up in value, they could do a cash-out refi and buy a boat. For the lender, the value of the collateral would always be worth more than the mortgage, so what does it matter if the borrower isn't exactly credit worthy? For the government, it meant meeting all sorts of social engineering policy goals. For Fannie and Fred, it meant unreal profits (pardon the pun) and socialized risk. For the Fed, it meant alleviating the deflationary effects from the burst tech stock bubble. Remember we had never had a nationwide drop in house prices since the Great Depression. Everyone drank the koolaid – government, the GSEs, the Fed, borrowers and lenders. Everybody thought you couldn't lose money in real estate, you had shows dedicated to flipping real estate. It reminded me of Jim Cramer and the merry crew on BubbleVision (CNBC) in the 90s. Bubbles happen and they cause messes when they blow up. Unfortunately the autopsy has so far coalesced along partisan lines – banksters vs fannie mae. Both have culpability, but the biggest culprit – The Fed – continues to get a free pass.

    Like

  24. Both have culpability, but the biggest culprit – The Fed – continues to get a free pass.Hey, we agree on something.

    Like

  25. MarkJohnson on the basis of my point above.The path we are on leads to more state ownership of banks in Europe – not a good idea – and, in the United States, huge open-ended subsidies to private banks. Executives in those banks get the upside and American taxpayers and workers get the downside – a huge recession, damage to millions of lives, and a huge run-up in government debt due to lost tax revenue.I swear if Huntsman means what he says, I would vote for him, especially if he made Johnson Sec. Treasury. I think Buddy "change campaign finance rules" Romer could play second base. I love day dreaming during work.

    Like

  26. "Executives in those banks get the upside and American taxpayers and workers get the downside"How is that? Most of the executives involved in the MBS / CDO business were either fired or went down with their entire net worth tied up in worthless stock options in bankrupt companies. Even the ones that survived had their holdings massively diluted by capital increases and have their net worth tied up in deep out of the money stock options.I think it is a myth that culpable Wall Street executives sidestepped the carnage that everyone else has felt.

    Like

  27. Brent:I think it is a myth that culpable Wall Street executives sidestepped the carnage that everyone else has felt.Absolutely. But it is a myth that will probably never die.

    Like

  28. I don't doubt that there are people in the industry whose fortunes dropped with the fortunes of the economy. But I still remember this from last year. Maybe their bonuses will shrink for 2011? I think Johnson's point is that the average taxpayer took the majority of the risk and the hit. You may disagree but all I have to do is look around me to see the hit we took here and listen to our customers across the nation. Perhaps the misery is beginning to trickle up? Industry executives acknowledge that the numbers being tossed around — six-, seven- and even eight-figure sums for some chief executives and top producers — will probably stun the many Americans still hurting from the financial collapse and ensuing Great Recession.Goldman Sachs is expected to pay its employees an average of about $595,000 apiece for 2009, one of the most profitable years in its 141-year history. Workers in the investment bank of JPMorgan Chase stand to collect about $463,000 on average.

    Like

  29. Scott and Brent, the myth is fueled by the apparent increases in remuneration to Blankfein and Dimon.In any case, I wish both of you would read "Baseline Scenario" today and the criticism of Geithner and the proposed Huntsman idea and reflect on them to us. If you two and John would do that, it would be very informative to the rest of us because YOU KNOW MORE than I do about finance.

    Like

  30. Besides I also think Johnson was referring to executives at the TBTF banks not some of the riskier enterprises that sank with the market. Do you guys think the big 5 or so major banks are too big? And don't I get any kudos for saying I would consider voting for a Republican, albeit one most Republicans don't like?

    Like

  31. You are assuming these people are the same people who created the CDOs and structured products that blew up the financial system. They are not. They were fired in 2007 and are sitting at home.Wall Street is a lot more than structured products. Most Wall Street workers had zero involvement with the structured products arena and many navigated the financial crisis fine and took advantage of the opportunities presented. They made money for their firms and they will get paid. Many of these people are brokers who are paid straight commission and take zero risk for the firm. You generate $5 million of commission dollars for your firm, you are taking home around $1.5 million. Period. At smaller shops, you will take home half. Because the way it works for these guys is you get a desk, a Bloomberg, and a phone and that's it. You eat what you kill.

    Like

  32. You eat what you kill.Sounds like most small businesses.

    Like

  33. "Sounds like most small businesses."At a different pay scale.

    Like

  34. "At a different pay scale."As an owner of one, I can certainly vouch for that, especially the last couple of years. We were prescient five years ago and built a warehouse in our back yard and moved the business home, otherwise I doubt we would have made it through this ourselves.

    Like

  35. bsimon:At a different pay scale.No, the scale is the same. Again, you eat what you kill. The more you kill, the more you eat.

    Like

  36. Mark:If you two and John would do that…I will try to read it and provide some comments a bit later.

    Like

  37. "Sounds like most small businesses."At a different pay scale. ______________________________You try to convince a customer to pay you 3 cents a share when they can trade electronically for half a penny. Shrimpin aint easy

    Like

  38. "No, the scale is the same."LOL. I've worked for small businesses, large businesses & been self employed. In no instance did average or median pay approach $400k.

    Like

  39. mark: Commission based on front end points and interest rate.Clearly, that was a big problem. I hope that sort of incentive system is no longer present. I imagine it's not. But it's a terrible incentive that was guaranteed to encourage folks to push crappy loans.

    Like

  40. bsimon:Obviously, then, you weren't killing $400k worth of food.

    Like

  41. We're more like to carry $400K worth of hunters with excuses.

    Like

  42. "Obviously, then, you weren't killing $400k worth of food."That's one possible interpretation. My biggest year does not correlate directly to the year(s) I worked hardest. Instead it was a capital gain year when a buyer valued some property more than I. There's nothing like leverage to make a guy appreciate how people avoid real work.

    Like

Be kind, show respect, and all will be right with the world.

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Google photo

You are commenting using your Google account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s

%d bloggers like this: