When caught in the act, bankers change their stories.
This is a continuation of my interview with Nye Lavalle. Sixteen years ago, he began investigating mortgage fraud when a bank attempted to wrongfully foreclose on a family property. Many of the issues he uncovered more than a decade ago, like robo-signing, are just being recognized today. Lavalle continues to try educate others about problems in the banking industry and the US economy.
Nye Lavalle: That’s why it was funny in Florida when that bank said they lost a note. I would kind of laugh, how do you lose a $2.5 million note? That’s like $2.5 million floating around somewhere.
Jennifer Barry: There is some evidence that the banks aren’t necessarily losing the notes so much as destroying them.
NL: But why would someone destroy a $2.5 million note? The only reason someone would destroy a note would be to cover up endorsements on that note which would have indicated another change of title to whomever really owned that note, so they actually destroyed the evidence.
JB: Right, I think that there’s widespread fraud in banking, so they need to “bury the bodies.”
NL: Exactly, and that’s what happened. Now it could be that they were giving notes to foreign governments, they were lending them out to different people in different places with different deals. But destroying notes, there would be a nefarious motive in destroying a note.
JB: Certainly. I read that you had called out the robo-signing controversy over a decade ago.
NL: Yes, well I called it corporate dummies, I didn’t call it robo-signing. It was my colleagues in West Palm Beach who coined that term. Bank employees, they just went through and back-dated notes or did whatever it took. They would even show up at depositions and say they had no knowledge of anything.
JB: On the internet I’ve seen what you are referring to. You can actually watch the depositions and listen to the outrageous things the robo-signers are saying. I heard a man say he signed as a bank vice-president for 20 banks. He admitted that he never read any of these documents, just signed where he was told. He would also sign as the attorney-in-fact, but he didn’t even know what that meant.
NL: Right, I knew all about this kind of behavior. I remember calling up a guy at Washington Mutual, I believe his name was Eric Spencer, and told him that I knew that people are forging his name on documents. I mean, it doesn’t take a rocket scientist to look at 10 squiggle marks and when you see an X, you see a circle, you see five sticks and a cross, that they don’t match. These are not real signatures. And I called him up and tape recorded it. I said, “I know these are forged,” and he tells me he’s not going to say, and he hung up the phone. He knew.
Now that was back in the ’90s, they’ve been doing it for years. None of this is new, and the situation is that everybody is focusing in on the robo-signing because that’s just so easy.
There are a lot of other serious issues. The banks can’t count – they can’t count to the penny, so they’ve not properly amortized the loans. Through a series of financial manipulations, the principal balances are much higher than they really should be. No one ever audits the numbers, they’re just so happy to get the new car, or the new house, that they just accept the payoff that the bank gives them. Nobody goes and looks if their payments were applied correctly at the right interest or amortization schedule.
So the banks can’t count, but the second point is they also can’t account, in that they can’t account for the all the securitization, they can’t show it going on and off the balance sheets to all these different entities, as well as the change of title that corresponds to the representations. In other words, they really don’t know who owns the note.
Third, when caught with their hand in the cookie jar, they will lie, steal, bet dollars to you and say, “No it’s not a cookie jar, it’s a gummy bear jar.” They’ll just change their tune, and tell you it was never intended to be a cookie jar, and even though it had cookies before, it’s really a gummy bear jar. And that’s pervasive throughout the industry.
JB: That’s definitely interesting to hear you say that. Many of the reports in the media make it sound like the irregularities are some sort of accident, and people were a little sloppy, but you’re definitely saying it was intentional.
NL: In September 2004, Anne Mulcahy, the CEO of Xerox resigned her position on the board of directors of Fannie Mae after getting my report on fraud. And Fannie Mae’s board created a special review committee of my allegations. And that led us to the Rudman report. I’m a footnote in it.
But Fannie Mae hired an independent counsel, the law firm of Baker Hostetler, specifically an attorney named Mark Cymrot, who spent a year investigating my allegations of Fannie Mae’s practices, such as the robo-signing, the lawyers filing false pleadings and affidavits, etc. There was some litigation in Florida, I think it was in the 2004-2005 time frame. I gave them all the information, and they said they were going to change their practices but they didn’t. They kept doing the same frauds the same ways or different variations on the scheme.
I went to the boards and CEOs of major banks like Bear Stearns. I spoke with Jamie Dimon, head of JPMorgan Chase, and before him, William Harrison. I communicated and I flew at my own expense to Chicago and met with lawyers and investigators at JPMorgan, showing how all these scams were going on, and I believe it was a giant Ponzi scheme. They were doing this to cover up and conceal the true ownership and they were placing assets on their books that weren’t theirs, or not putting liabilities on their books that should have been there.
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As I have written on my blog, banks are out of control and they need to be reeled in. I love this interview series. It has so many details of things people suspect, but have no way of proving. Unfortunately, I believe banks are so connected politically that they won’t be held accountable for all of this fraud.
Right now, they are smearing Elizabeth Warren on Capitol Hill, The new Republican majority wants to gut the Dodd-Frank law and hog-tie the new consumer protection agency to protect the banks. The big money influences are trying to get back to businiess as usual.
Hi Bret, you have talked about this a lot on your blog. I’m glad you’re enjoying this interview!
Sadly, I figured that Warren wouldn’t be allowed to do much. I believe she really does want to help the American people, which makes her an enemy of the big banks. I agree that the banks are unlikely to see more than slaps on the wrist under the current system.
Hi Jennifer – This is an eye-opening series. On the robo-signing issue, I don’t mean to counter any of what Nye says, but I think that much of the problem was the attempt to automate the mortgage system to where it can flow like an assembly line with minimal human intervention, and then to be able to neatly package it all for sale and resale on the secondary market.
That’s how all kinds of industries have improved production, but the problem I think is that a business like mortgages doesn’t lend itself well to speed. It involves individual borrowers and properties, a plethora of up-front lenders, and endless legal recording.
Products and certain services can be efficiently automated, but the mortgage world has pushed the envelope right off the table. It can’t work they way it’s being done because a mortgage isn’t a product. You’re not just giving a loan, you’re also creating an asset, so it’s a two part deal. That’s too complicated for what’s been/being done.
That said, it may not be fraud in the sense that we normally think of it, but rather a perpetual series of failed attempts to work within an unworkable system.
Hi Kevin, I think on the lowest level, like the individual mortgage broker, there were simply attempts to cope with a difficult system. However, on the bank executive level, I believe it was truly systemic fraud. With robo-signing, companies set up shop and told their people to affirm lies, like personal knowledge of the loan. They were instructed to claim to be bank vice presidents.
These companies in turn sold their services to banks, who were willing buyers. The robo-signers were acting in behalf of the banks they signed for.
I’m glad you mentioned that mortgages are also assets. This is a key fact, as the mortgage backed security business was a Ponzi scheme. The banks knew there was a housing bubble and they wanted to suck as much money out of it before it collapsed. This involved giving out a lot of mortgages to people who couldn’t afford it so they could be sliced and diced into securities. Robo-signing was another way to speed things up, as you mention.
Even worse, there is evidence that mortgages were sold multiple times. Catherine Austin Fitts, former Assistant Secretary of Housing under George H.W. Bush talks about it here: http://solari.com/archive/housing_bill/#PartV
This article is an “eye opener.” I know banks and all the other businesses in our country are/were created to make a profit. – Their boards of directors keep them on task with that, you better believe – But it seems to me that “consumers” (traditionally those that make and spend the money in our capitalist system) are being “consumed” (i.e. having so much of their wealth committed to debt or taken from them that they must declare bankruptcy) by the very system they are supposed to help perpetuate. Therefore, unless my logic is faulty here, this system cannot continue. If consumers have no means with which to consume, money, (because they are bankrupt) then who is going to buy the goods and services on the market (which in turn is supposed to motivate the market to continue providing goods and services at increasingly competitive rates)? I realize this all theoretical. However, I work with homeless people every day and it wasn’t until I worked with the homeless that I realized how hard it is to get a job, especially today, if you do not have a permanent address and especially if you have had to declare bankruptcy or have a criminal past. If the pool of spenders decreases, who is supposed to keep our capitalist system going?
Thank you so much for this article and allowing readers to comment.
Hi Matt, welcome to Live Richly! My opinion is that the banks have gotten too greedy. It wasn’t enough to make money from loan and honest trading. They realized cheating was much more profitable and the government almost never caught them. When caught, they received a “slap on the wrist” fine. I also believe that the banks knew it was a housing bubble and worked to keep it going as long and as high as possible because that also brought in billions.
Good for you for working with the homeless! Yes, it’s true that many employers won’t hire you with a bad credit score, much less with no permanent address. This makes it very difficult for people to dig themselves out of a hole, and why the US has over 40 million people on food stamps.
I believe that the bankers have gone way too far and contributed heavily to breaking the economy. Most people I know are deep in debt and are poorer than they were 5 years ago. They are often saddled to houses that are too large but they can’t afford to sell because the mortgages are “underwater.”
Unfortunately, I don’t have many answers, but I encourage everyone to buy some gold and silver coins to protect themselves from the depreciation of the US dollar/inflation we’re experiencing now.