How regulators, Republicans and big banks fought for a big increase in lucrative but risky corporate loans

April 6, 2019 | Washington Post Actions by federal regulators and Republicans in Congress over the past two years have paved the way for banks and other financial companies to issue more than $1 trillion in risky corporate loans, sparking fears that Washington and Wall Street are repeating the mistakes made before the financial crisis.

The moves undercut policies put in place by banking regulators six years ago that aimed to prevent high-risk lending from once again damaging the economy. Read more here.

Big Bank Custody Fight

March 8, 2018  |  WSJ         The Senate is debating a bill that would relax Dodd-Frank’s chokehold on small banks, but a couple of provisions that ease capital and liquidity standards for the giants will make the financial system more vulnerable in a panic.

Tucked into Banking Chairman Mike Crapo’s legislation is a directive to federal agencies to amend the “supplementary leverage ratio” for custodial banks by excluding deposits at a central bank. Custodial banks secure assets for clients such as large institutional investors and fund managers.

At first glance, this provision would appear to apply only to Boston-based State Street , Chicago’s Northern Trust and Bank of New York Mellon . But Citigroup and J.P. Morgan also offer custodial services and are trying to join the party. You can bet others will want in too. “As Congress has sought to make a common sense change to the way capital rules treat custody assets, we have asked that they apply that change to all custody banks to maintain a level playing field in this important business,” a Citi spokesman said last week.  Read more here.

Wells Fargo Hit With Class-Action Lawsuit Over Auto Insurance Charges

Los Angeles Times | July 31, 2017          Wells Fargo & Co., which is still settling class-action lawsuits over its fake-accounts scandal, has now been hit with yet another — related to the bank’s revelation last week that it charged auto loan customers for unnecessary insurance.

An Indiana man who says he was charged $598 for auto coverage despite repeatedly asking Wells Fargo to rescind the charges is the lead plaintiff in the case, which accuses the San Francisco bank of scheming with National General Insurance Co. to “bilk millions of dollars from unsuspecting customers.”

The lawsuit, filed Sunday in U.S. District Court in San Francisco, does not name the insurance carrier as a defendant. It is seeking class-action status.

Last week, the bank acknowledged that an internal probe spurred by customer complaints found that, between 2012 and 2017, about 570,000 borrowers may have been wrongly pushed into auto-insurance policies despite having their own coverage.  Read more here.

Ex-Wells Fargo Worker: Intimidation Included No Bathroom Breaks

Harassment, intimidation, even bathroom breaks denied. That's some of the "unconscionable behavior" a former Wells Fargo worker drove five hours to confront a bank executive about.

CNN | October 12, 2016       Nathan Todd Davis said at a California State Assembly hearing on the Wells Fargo (WFC) fake account scandal that he filed 50 ethics complaints during his decade of working at Wells Fargo -- but nothing was ever done.

"I've been harassed, intimidated, written up and denied bathroom breaks," said Davis, who drove 350 miles from his home in Lodi, California, to speak at the hearing.

The former Wells Fargo worker directed his complaints to David Galasso, a senior Wells Fargo executive who was filling in at the hearing for CEO John Stumpf.

"The sales culture of Wells Fargo needs to be picked apart," he said, standing at the podium but looking to his right to address Galasso. Davis estimated that almost two-thirds of Wells Fargo employees "cheat the system" due to unreasonable sales pressure.

After a decade at Wells Fargo, Davis said he was fired in June 2016 for being "90 seconds late to work." The real problem, he said, was that he never "made it to management because I don't cheat."  Read more here.

'Wells Fargo isn't the only one': Other bank workers describe intense sales tactics

Most Americans were shocked when they learned that thousands of Wells Fargo employees had opened millions of fake accounts.

CNN | September 22, 2016     People who work at other banks weren't surprised at all.

Nearly a dozen current and former employees at large and regional banks such as Bank of America (BAC), Citizens Bank, PNC (PNC), SunTrust (STI), and Fifth Third (FITB) tell CNNMoney that a sales obsession pervades their banks. They say they too are under immense pressure to get customers to open multiple accounts.

They described a focus to push as many different products -- think debit cards or new online accounts -- as they can, an industry practice known as cross-selling.

"Wells Fargo is not the exception (with its) absurd sales culture," said one former manager of two large regional banks.   Read more here.

 

Senator Elizabeth Warren Questions Wells Fargo CEO John Stumpf at Banking Committee Hearing

Senator Elizabeth Warren YouTube Account | September 20, 2016    Senator Elizabeth Warren's two round of questions for Wells Fargo CEO John Stumpf at the September 20, 2016 Senate Banking Committee hearing entitled: "An Examination of Wells Fargo’s Unauthorized Accounts and the Regulatory Response." For more information on the hearing, click here.

Who Can Go After Banks for the Foreclosure Crisis?

Cities are arguing that they, too, were damaged by risky loans, and that they should be able to take the lenders to court to regain their losses.

The Atlantic | May 3, 2016     In the wake of the housing crisis, surprisingly few people or institutions have been held accountable for the risky lending practices that nearly wrecked the U.S. economy.  That’s partly because the people who were most damaged by the foreclosure crisis—the people who lost their homes—don’t have the resources to bring lawsuits.

But the families who lost their homes weren’t the only ones hurt by the foreclosure crisis. So there’s an argument to be made that they shouldn’t be the only ones who can go after the lenders. Cities, for example, lost tax revenue when homes sat vacant, and saw property values within their boundaries decrease when vacant and boarded-up homes sat empty. Cities had to pay for police and fire protection to keep those homes from being vandalized and to respond to reported break-ins and criminal activity at the houses.

So should cities be able to sue the banks, too?

That’s the question making its way through courts across the country after municipalities including Los Angeles, Miami, Oakland, and Providence all filed lawsuits against lenders under the Fair Housing Act. The lawsuits, which the banks are fighting to have dismissed, argue that the lending practices of these banks harmed the cities too. When lenders targeted minorities for risky loans, knowing that the borrowers would likely lose their homes, they knowingly deprived cities of tax revenue while making them shoulder the expenses of blocks of foreclosures, the lawsuits allege. Oakland, for instance, argues in its complaint against Wells Fargo that the city “has suffered economic injury based upon reduced property tax revenues resulting from (a) the decreased value of the vacant properties themselves, and (b) the decreased value of properties surrounding the vacant properties.” Last month a judge declined to dismiss the suit.

In these cases, the municipalities have accused lenders, including Wells Fargo, JP Morgan, and Bank of America, of “redlining,” or the practice of denying credit to people in particular neighborhoods because of their race, and “reverse redlining,” or the practice of flooding a minority neighborhood with exploitative loan products. These practices, they say, violate parts of the Fair Housing Act.  Read more here.

Big Banks Paid $110 Billion in Mortgage-Related Fines. Where Did the Money Go?

The largest U.S. banks were penalized for their role in inflating a mortgage bubble that helped cause the financial crisis. Who got that money?

The Wall Street Journal | March 9, 2016     The nation’s largest banks paid fines totaling about $110 billion for their role in inflating a mortgage bubble that helped cause the financial crisis. Where did that money go?

In New York, the annual state fair is using bank-settlement money to build a new horse barn and stables. In Delaware, proceeds are being used to subsidize email accounts for local police. In New Jersey, a mortgage firm owned by a former reality-television star collected $8.5 million as a reward for reporting a bank’s misconduct.

Banks also helped tens of thousands of homeowners with their mortgages in neighborhoods from Jacksonville, Fla., to Riverside County, Calif., funded loans for low-income borrowers and donated to dozens of community groups and legal-aid organizations.

Yet some of the biggest chunks of money stayed with the entity that levied the fines in the first place. Of $109.96 billion of federal fines related to the housing crisis since 2010, roughly $50 billion ended up with the U.S. government with little disclosure of what happened next, according to a Wall Street Journal analysis.

The Journal reviewed the terms of more than 30 settlements, filed public-records requests with a dozen agencies at the federal and state level and spoke to dozens of homeowners and others who obtained payouts, tried to or were otherwise involved with the distribution of the settlements. The results represent the most detailed breakdown yet of the billions paid out in the unprecedented deals.

Out of the $110 billion, the Journal found that:

• The Treasury Department received almost $49 billion of the funds, including money the agency received directly and sums funneled to it by other departments, including government-chartered housing associations Fannie Mae and Freddie Mac. How the money is spent isn’t specified.

• About $45 billion was earmarked for “consumer relief,” a category that includes money dedicated to helping borrowers and funding housing-related community groups.

• The Justice Department, whose prosecutors led many of the negotiations with banks, collected at least $447 million. How it spends the money isn’t specified.

• States received more than $5.3 billion, usually to spend as they saw fit. Almost all states received payments from a national settlement in 2012 over mortgage-servicing abuses, and seven also received payments in the Justice Department’s blockbuster mortgage-securities settlements that started in 2013.

• Roughly $10 billion went to other recipients, including housing-related federal agencies, two federal agencies responsible for cleaning up failed banks or credit unions, and whistleblowers who helped the Justice Department. Some funds from these deals typically revert to the Treasury.

The White House said tens of billions of dollars have been recovered for American consumers since 2009, including funds that went to government agencies and programs and the Treasury, according o Deputy White House Press Secretaren Friedman.

The lack of detailed disclosure bothers some people. “The government has a responsibility to its citizens to be transparent about where its revenues are going,” said Aaron Klein, who focuses on financial regulation for the Bipartisan Policy Center in Washington, D.C. “When settlement funds just go into the black box of the general fund of the government, who is accountable?”

Bank executives grumble privately about the opaque process and are critical the government didn’t ensure more money went to housing-related issues.

Given the historic scope of the fines, the money “shouldn’t just be a slush fund,” said Francis Creighton, executive vice president of government affairs at the Financial Services Roundtable, an industry group.

The settlements arose from bank behavior prosecutors said fueled the housing crisis and aggravated its effects. Among other things, banks were accused of pushing expensive mortgages on unqualified borrowers, selling hundreds of billions of dollars of securities that they knew were likely toxic and filing fraudulent paperwork on people being booted from their homes.

The Journal analysis included fines paid by the four biggest U.S. banks— Bank of America Corp. , J.P. Morgan Chase & Co., Citigroup Inc. and Wells Fargo & Co.—as well as investment banks Morgan Stanley and Goldman Sachs Group Inc. One settlement, the Justice Department’s $16.65 billion deal with Bank of America, was the biggest ever imposed by the U.S. government on a single entity.

The analysis excluded settlements from private lawsuits—including some investor suits that resulted in multibillion-dollar payouts—as well as fines levied on banks for conduct outside the housing and mortgage crisis.

Fines generally are funneled to the Treasury, which manages the federal government’s finances. There, the money goes into the government’s general fund, where it can be spent on any budgeted item, including employee salaries or reducing the deficit. The Treasury Department said the settlement money isn’t specifically tracked.

A spokesman, Rob Runyan, said the funds are “spent as Congress authorizes.”

Most of the money attributed to Treasury in the analysis came indirectly. Fannie Mae and Freddie Mac, which buy loans from lenders and package them into securities, and their regulator, the Federal Housing Finance Agency, collected more than $34 billion in fines. The bulk was transferred to Treasury, which spent $187.5 billion to bail out Fannie and Freddie during the financial crisis.

The housing companies said they have been profitable since 2012 and have together paid the Treasury about $246 billion in dividends.

There is precedent for broad use of penalties. Funds from a 1998 deal for tobacco companies to pay states an estimated $200 billion over 25 years, intended to help states pay for smoking-related health costs, have also been used to balance state budgets and to fund school reading programs, after-school services and infrastructure.

A Justice Department spokesman, Patrick Rodenbush, said the bank settlements “hold financial institutions accountable for various forms of fraud in the mortgage industry” and that the money compensated “government agencies and programs harmed by the banks’ conduct.”

In three major settlements analyzed by the Journal—$13 billion from J.P. Morgan Chase, $7 billion from Citigroup and the $16.65 billion from Bank of America—banks were censured for misleading investors about shoddy mortgage securities. The Justice Department played the lead role in doling out pieces to other agencies and states involved in the litigation, according to people involved in the lawsuits.

Seven states, most with attorneys general who played important roles in previous litigation against the banks, participated directly in those settlements and received funds for special projects and local residents.

In New York, Gov. Andrew Cuomo is using proceeds to help replace the Tappan Zee Bridge north of New York City, renovate the Port of Albany and provide high-speed Internet access in rural communities.

Last year, when Mr. Cuomo announced in a speech that the New York state fair would get $50 million for an overhaul, Troy Waffner, the acting director of the fair, jumped up and down and called his mother. The fair will use the funds for improvements like a bigger concert stage, making the grounds more accessible to the disabled and an equestrian facility with warm-water washing stations for the horses.

Some New York housing advocates said more money should have been directed to areas directly affected by the financial crisis. Mr. Waffner is among those who support a broader distribution. “The more money we can invest in bringing back the economy…I don’t think that’s a bad use of funds,” he said.

Gov. Cuomo’s office said his own $20 billion, five-year investment in affordable housing, homeless services and related programs, “far exceeds what the state has collected from financial settlements,” said Morris Peters, a spokesman for Mr. Cuomo’s budget office.

Most states have directed settlement funds to state pension plans, which oversee savings accounts for public employees such as teachers, judges and other government workers. Many of those funds had invested in mortgage securities that went sour during the crisis. California sent the bulk of its $700 million in bank penalties to its two biggest state pension funds. The office of state Attorney General Kamala Harris said it held back $28 million for itself “to support this and related litigation.”

Out of the $110 billion in settlements, the Justice Department retained at least $447 million, the Journal’s analysis showed. The department keeps up to 3% of most civil fines collected, in its Three Percent Fund. It isn’t required to disclose how much money it puts in the fund or how it is spent.

Last year, a report by the Government Accountability Office, the investigative arm of Congress, estimated the Three Percent Fund collected $158 million from all eligible civil fines in fiscal 2013.

Diana Maurer, a GAO director, said her office believes the Justice Department should develop better plans for the use of the Three Percent Fund. The Justice Department countered, according to Ms. Maurer, and said it wanted to avoid creating improper incentives for prosecutors.

“They did not want to plan out” the spending for the long term, Ms. Maurer said. “And we said, ‘No, you really should, this is hundreds of millions of dollars.’ ”

The Justice Department didn’t comment on the use of the fund.

Banks agreed to provide an estimated $45 billion from the settlements in the form of consumer relief.

For example, according to the independent monitor overseeing Bank of America’s $16.65 billion agreement—which sets aside $7 billion in consumer relief—the bank has so far modified mortgages for nearly 20,000 homeowners and made loans to more than 21,000 borrowers who are low-income, lost their previous homes to foreclosure or live in parts of the country hit especially hard by the housing crisis. The monitor, mediator Eric Green, said the bank has completed nearly 60% of its obligations.

Bank of America declined to comment beyond Mr. Green’s report.

Six years after the end of the recession, the housing sector is still on unsteady ground. Home prices have rebounded, but the weak pace of new home construction and a lack of first-time buyers raise concerns. A million homeowners or more are facing foreclosure, by industry estimates.

Massachusetts determined Karen Lojek, a staff accountant at a manufacturing company, had been harmed by a deceptive loan that violated state lending laws, according to the state attorney general’s office.

Ms. Lojek bought her Methuen, Mass., home in 2004. Her husband died soon after, leaving her struggling to make ends meet.

At the end of 2014 she learned she would receive $19,600, part of $80 million the Massachusetts attorney general’s office received in certain settlements.

The windfall only reduced her overall mortgage debt and didn’t cut her monthly payment of about $1,300, which is scheduled to climb when her interest rate resets in December.

Ms. Lojek estimated she now owes about $235,000 on the house, which is worth roughly $200,000.

“It just doesn’t make sense,” Ms. Lojek said. “With all the settlements that were made, I thought maybe it would all be fixed. How can I still be in this situation with everything that supposedly happened to correct the situation?”    Read full WSJ article here.  Where did the money go?  Interactive site here.

America's Foreclosure Crisis Isn't Over

CBS News |  January 26, 2016    With Goldman Sachs (GS) recently agreeing to pay $5.1 billion to settle claims related to its role in the 2008 mortgage scandal, the firm became the latest big Wall Street bank to reach a deal with the U.S. government. As part of the settlement, $1.8 billion is to be set aside for programs to help homeowners who are still trying to fend off foreclosure?

Yet nearly seven years since the Great Recession ended, the question remains: How well have these anti-foreclosure programs worked? It depends on whom you ask and where they live.

Back-stopping the nation's banking system was the top federal priority during the height of the 2008 financial crisis. But out of the $475 billion that Congress authorized for the Troubled Asset Relief Program (TARP), $46 billion was supposed to help millions of struggling families avoid foreclosure.

A subsequent 2014 settlement between prosecutors and Bank of America (BAC) netted an additional $16.6 billion, of which then-Attorney General Eric Holder said $7 billion would go to "provide relief to struggling homeowners, borrowers and communities affected by the bank's conduct."

All told, between the programs administered through the Treasury Department -- like the Home Affordable Modification Program (HAMP) -- and the pools of money committed by Wall Street banks as part of their settlements, tens of billions of dollars have been set aside to assist families facing foreclosure by modifying their mortgage terms so they can remain in their homes.  Read more here

JPMorgan Fined $48 Million for Failures in U.S. Robo-Signing Settlement

Reuters |  January 6, 2016    JPMorgan Chase has been fined $48 million for failing to meet terms of a settlement to resolve mortgage servicing violations, U.S. bank regulators said on Tuesday.  The fine will be on top of $2 billion that JPMorgan had been ordered to pay to cover remediation costs and foreclosure assistance to borrowers, the Office of the Comptroller of the Currency said.

JPMorgan was among a number of banks that participated in a 2013 nationwide settlement with regulators over the practice of robo-signing, where banks pursued faulty foreclosures by using defective or fraudulent documents.

The OCC also said on Tuesday that EverBank will pay a $1 million fine for similar violations connected to the mortgage servicing case.   Read more here