Friday, August 5, 2011


California attorney general subpoenas CitiGroup over mortgage practices

CitiBankCalifornia State Atty. Gen. Kamala D. Harrishas subpoenaed CitiGroup Inc. and its banking subsidiary, CitiBank, ordering the two entities to answer questions regarding the selling and marketing of mortgage-backed securities in the Golden State, a person familiar with the investigation said.
The person, who was not authorized to speak publicly about the matter and spoke on condition of anonymity, would not further characterize the nature of the investigation. Spokespeople for the attorney general’s office and Citi declined to comment.
In May, Harris announced the creation of a Mortgage Fraud Strike Force that would target mortgage fraud of any size. Harris said then that she would tackle corporate fraud, including instances in which bundled mortgages were sold as securities to the state or its pension funds under false pretenses. To prosecute some of the cases, Harris said she would use California's False Claims Act, which makes it a crime to defraud the state.
The probe comes as several other investigations into the practices of other large banks are underway.
New York and Delaware have more than a dozen attorneys working full time on a wide-ranging investigation into Wall Street's role in the mortgage meltdown. Those investigators have subpoenaed or requested information from 13 financial firms, including Goldman Sachs Group Inc. andJPMorgan Chase & Co. Citi is not a focus of that probe.
Citi is one of five large banks negotiating with a committee of all 50 state attorneys general probing banks' servicing and foreclosure practices. Those negotiations are still underway.
-- Alejandro Lazo
Twitter: @AlejandroLazo
Photo: A CitiBank branch in downtown Washington. Credit: EPA / Matthew Cavanaugh

Bank of America announces $14-billion settlement of Countrywide mortgage claims

Rusty BofA sign
This post has been corrected. See the note at the bottom for details.
If Countrywide Financial co-founder Angelo Mozilo had sold former Bank of America boss Ken Lewis a kitchen sink, maybe they could have tossed that in there too.
Bank of America, which under Lewis bought Countrywide in 2008 for stock then worth $2.5 billion, said in a statement Wednesday that settling claims by holders of Countrywide mortgage securities would cost it an additional $14 billion.
That amount, to be recorded in Bank of America's second-quarter earnings, is just the latest in a long string of painful payouts stemming from the takeover of Countrywide, the Calabasas lender that once was the nation's largest writer of mortgages -- many of them of the subprime and liar loan varieties.
On top of an $8.5 billion payout to 22 institutional investors, which The Times reported on Wednesday, the $14 billion includes $5.5 billion to cover other demands by holders of mortgage securities.
[For the record, 9:55 a.m. June 29: An earlier version of the paragraph above incorrectly said $14 million; the correct figure is $14 billion. It also said the $14 billion included a $2.6-billion write-off.
Bank of America says it will report a second-quarter loss of $8.6 billion to $9.1 billion after recording $6.4 billion in additional mortgage-related charges, including a $2.6-billion write-off of its Countrywide investment.]
That follows a similar action in January, when B of A Chief Executive Brian Moynihan chopped $2 billion off the value of Countrywide on the bank's books.
All told, the settlement covers the Charlotte, N.C., bank's exposure to claims by holders of securities backed by 530 trusts stuffed with Countrywide mortgages with an original principal balance of $424 billion.
"This is another important step we are taking in the interest of our shareholders to minimize the impact of future economic uncertainty and put legacy issues behind us," Moynihan said in a statement. 
"We will continue to act aggressively, and in the best interest of our shareholders, to clean up the mortgage issues largely stemming from our purchase of Countrywide."
Bank of America said the settlement would resolve "nearly all" of its exposure to claims that Countrywide misrepresented the riskiness of first mortgages backing bonds it sold to investors such as Newport Beach bond giant Pimco.
The bondholders to be paid off also include the Federal Reserve Bank of New York. The Fed wound up with them when JPMorgan Chase & Co. agreed to take over failed Wall Street giant Bear Stearns -- but only if the government pocketed Bear Stearns' most toxic securities.
There's still a lot of Countrywide liability left for Moynihan to deal with. In addition to securitized second mortgages, Bank of America still faces demands including those of mortgage insurers who claim they should be repaid for their Countrywide losses.
And let's not forget the borrowers who wound up in foreclosure on their Countrywide loans. Bank of America is among five major mortgage servicers that are negotiating with state and federal officials over botched foreclosure proceedings. The total settlement figues being bandied about for months now start at $5 billion and range upward of $20 billion.
-- E. Scott Reckard
Photo: Rusty Bank of America sign in downtown L.A. Credit: E. Scott Reckard

Government accuses Deutsche Bank of mortgage fraud

U.S. prosecutors are suing Deutsche Bank and accusing it of fraudulently approving mortgages over a number of years in ways that have ended up costing the government hundreds of millions of dollars.
The lawsuit filed Tuesday morning in Manhattan federal court says that Deutsche Bank and its subsidiary, MortgageIT, lied to the government and "recklessly" approved mortgages for federal mortgage insurance without fully vetting the quality of the mortgages.
From 1999 to 2009, MortgageIT was part of a government program that allowed it to approve home loans for Federal Housing Administration mortgage insurance, and it ended up doing this with 39,000 mortgages worth $5 billion, according to the complaint. After Deutsche Bank acquired MortgageIT in January 2007, it marketed and sold these mortgages to investors.
The complaint says that Deutsche Bank and MortgageIT pushed out the mortgages at a rapid pace, without worrying about the quality of the mortgages or problems with the approval process.
"When an outside auditor provided findings to MortgageIT revealing serious problems, those findings were literally stuffed in a closet and left unread and unopened," the complaint says.
The rapid production of low-quality home loans, spurred on by fee-hungry investment banks, has taken much of the blame for the financial crisis, but so far few banks have faced government lawsuits over their activities leading up to the crisis.
According to the suit, the government has already paid $386 million in insurance claims related to bad MortgageIT loans and expects to pay "hundreds of millions of dollars" more.
The government is seeking to recover in damages and penalties triple what it has paid out, which would be at least $1 billion.
The bank did not immediately respond to a request for comment.
-- Nathaniel Popper
Photo: U.S. attorney Preet Bharara announces a lawsuit against Deutsche Bank AG, which accuses the bank of lying "repeatedly" to qualify thousands of risky mortgages for a government insurance program.   Credit: Louis Lanzano/Bloomberg

Mortgage fraud, prescription drugs, boiler room: Your weekly ScamWatch

Here is a roundup of alleged cons, frauds and schemes to watch out for.
Mortgage lawsuits -- The Better Business Bureau recommends that homeowners not respond to a mailing asking them to join a "national" lawsuit against their mortgage companies. Michelle L. Corey,  president and chief executive of the St. Louis BBB, says the mailings are a new twist on schemes to obtain upfront payments of $5,000 or more from homeowners struggling to pay their mortgages. Several property owners in Boone County, Mo., recently got letters saying their loans “may be eligible for national litigation aimed at fraudulent lender actions,” the BBB said. The letters listed no company name or return address. But public records connect the mailings to John J. Ehlinger and his company, Diversified Financial Protection Agency, the BBB said. The BBB has issued two warnings on Ehlinger and Capital Debt Management since last summer for allegedly deceptive activities.
Prescription drug extortion –- The Food and Drug Administration is cautioning consumers about criminals who pose as FDA special agents in an extortion scam. The criminals call victims and tell them they are under investigation by the FDA or another agency for illegally purchasing prescription drugs from foreign pharmacies. The callers tell victims that they’ll face prosecution unless they pay a fine over the phone with a credit card, the FDA said. Anyone who receives such a call should refuse to make the payment and hang up, the FDA said.
Ponzi scheme –- The FBI is asking for the public’s help in finding Gerald Berke, who is accused of defrauding investors of more than $80 million through a Ponzi scheme operated out of a Los Angeles company called GJB Eneterprises. Federal prosecutors have charged Berke with fraud for allegedly telling clients that he would use their money to make short-term loans to businesses, but instead spending it on personal expenses and to make interest payments to early investors. An FBI “wanted” bulletin said Berke is believed to be living in Vancouver, Canada. Anyone with information about Berke’s whereabouts can contact the FBI or any U.S. embassy or consulate, the FBI said.
Boiler room –- The Securities and Exchange Commission has filed a lawsuit accusing a Santa Ana company and three executives of defrauding investors of $10 million through a telemarketing scheme that sought investments in a proposed initial public offering of stock in a company called mUrgent Corp. The father and twin sons that ran the company used investor money to pay themselves salaries and bonuses of more than $1.3 million and to purchase luxury cars and other personal items, the SEC alleged. The lawsuit seeks a court order that would force the company to reimburse investors and refrain from similar practices.
-- Stuart Pfeifer

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