Tag Archives: Bank of America

Flood Of Foreclosures On The Way.

The golden age for foreclosure squatters may soon be coming to an end now that the $26 billion mortgage settlement has been approved.

The settlement, agreed to by the nation’s five largest mortgage lenders, is expected to speed up the foreclosure process by providing stricter guidelines for the banks to follow when repossessing homes.

The banks involved include Bank of America (BACFortune 500), JPMorgan Chase (JPMFortune 500), Citibank (CFortune 500), Wells Fargo (WFCFortune 500) and Ally Financial.

Most foreclosures have been in limbo since fall 2010 following the so-called robo-signing scandal, when banks allowed employees to sign off on thousands of foreclosure documents a month with little verification. Lenders hit the pause button on foreclosures because they “were afraid that anything they did would be under a microscope,” said Eric Higgins, a professor of business at Kansas State University.

As a result, borrowers who were seriously delinquent on their loans have been able to stay in their homes for months, or even years without making a single payment. Nationwide, the average time it takes to foreclose on a home — from the first missed payment to the final bank repossession — stretched to 370 days during the first quarter, almost twice as long as it took five years ago, according to Daren Blomquist, the marketing director at RealtyTrac.

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Reporter Helps to Bring Down Steven J. Baum Foreclosure Mill the New York Times Susan Chana Lask Steven J Baum Joe Nocera Halloween party  real estate related mortgage related debt articles
I know who these ladies are. Don’t bother writing.

In some states, delinquent borrowers have been squatting in their homes much longer. In Florida, the average time was 861 days, and in New York it was 1,056 days — close to three years. “Perhaps a million foreclosures could have been pursued last year but weren’t,” said Rick Sharga, executive vice president for real estate investment company, Carrington Holdings.

But that’s all about to change, he said. “We’re going to see an increase in the speed of foreclosures and a higher number of foreclosure starts.” In fact, there are indications that the pace of foreclosures are already starting to pick up.

While overall foreclosure activity was down during the first quarter, filings were up 10% in the 26 states where foreclosures must undergo court scrutiny, according to RealtyTrac. It was in these judicial states that the processing of foreclosures slowed the most following news of the robo-signing scandal, said Blomquist. Many banks in these states stopped filing foreclosures unless they were extremely confident it would pass muster in the court. (In non-judicial states, foreclosures are reviewed by a trustee, which is a third party such as a title company and less likely to parse every legal document).

But now lenders can move more confidently, said Brandon Moore, RealtyTrac’s CEO.

In the judicial state of Indiana, for example, foreclosure filings were up 45% year-over year. And in Florida, they were up by almost 26%, according to RealtyTrac.

“The dam may not burst in the next 30 to 45 days, but it will eventually burst, and everyone downstream should be prepared for that to happen — both in terms of new foreclosure activity and new short sale activity,” Moore said in a statement.

The resulting flood could bring home prices down even further — yet another impetus for the banks to clear out their foreclosure pipeline as quickly as possible, said Kansas State’s Higgins.

Then, industry thinking is, the housing market would be able to get back to normal and home prices could eventually find their true value. Some industry analysts, such as the chief economist for listing site Zillow, Stan Humphries, are predicting that could happen as soon as the end of the year. Zillow estimates that home values nationwide will fall another 3.7% by the end of 2012, and that price will likely bottom out by early 2013. But, don’t hold your breath. We’re talking about 3 million homes in foreclosure, about to be in foreclosure or about to be bank-owned. I suspect this rush of inventory overhang will knock another 15% off the market, and the bottom won’t be seen until 2014. This is in keeping with Merrill-Lynch‘s earlier forecast just prior to the $26B banking free ride deal. So, if anything it could be 2015 before we hit true bottom. Hold onto those checkbooks, folks, there’s much more to come. 


The Sound a House of Cards Makes.

Right before it starts to collapse.

Was the great securitization machine that made hundreds of billions of dollars in mortgage loans based on a legal foundation of sand?

That possibility, raised by two law school professors, has begun to scare many jittery investors, causing bank stocks to plummet, although they recovered a little Monday.

If they are correct, the best outcome for lenders would be a prolonged delay in completing foreclosures, raising costs still further and paralyzing an already depressed housing market.

The worst outcome would be a conclusion that errors by financial institutions had decoupled the payment promises made by borrowers from the mortgages they signed. In that case, the mortgages would be invalid. Homes could be sold without paying off lenders. There also could be heavy tax consequences for lenders, both in terms of federal income taxes and in payment of back fees for mortgage registrations to local governments across the country. You think B of A has problems now? Ha!

MERS Shareholders. Do we see a collusive pattern here?

The arguments involve MERS, the Mortgage Electronic Registration Systems, which was created to smooth the securitization process and, in the process, to allow lenders to avoid paying registration fees to counties each time the mortgage changed hands.

Several state supreme courts have chipped away at MERS. But none has gone nearly as far as the professors, Christopher L. Peterson of the University of Utah and Adam Levitin of Georgetown, say is possible.

Nonetheless, some investors are growing worried. Bank stocks fell sharply last week, even while most shares were rising. JPMorgan Chase, which is a part owner of MERS, said it had not used the service since 2008. At least one title insurance company has gotten a bank to agree to indemnify it if the securitization process causes problems for titles. Without title insurance, the real estate market would grind to a halt.

And earlier this month a federal judge in Oregon issued an injunction blocking Bank of America from foreclosing on a borrower’s home. United States District Court Judge Garr M. King said that under Oregon law, the borrower was likely to prevail on the argument that the use of MERS had invalidated the mortgage.

Last week the American Securitization Forum, a trade group representing companies involved in the securitization industry, said it believed the securitization process was legal, and that its lawyers were preparing a refutation of arguments to the contrary.

There is no question that MERS has been a success in terms of gaining market share. About 60 percent of mortgages in this country show up in local records as being owned by the service. In fact, none are owned by MERS. It was created to act as an agent for others, whether banks or securitization trusts, which own the actual mortgages.

Mr. Peterson, in a paper with the dry title of “Two Faces: Demystifying the Mortgage Electronic Registration System’s Land Title Theory,” argues that MERS cannot have it both ways, and that it faces problems if it is deemed to be only one of them.

If it is an agent, he wrote, “it is extremely unclear that it has the right to list itself as a mortgagee,” as it does. State real estate laws, he said, “do not have provisions authorizing financial institutions to use the name of a shell company,” in large part because “the point of these statutes is to provide a transparent, reliable record of actual — as opposed to nominal — land ownership.”

If it is a mortgagee, Mr. Peterson added, it has the right to record mortgages in its own name, as it did. But since it does not own the actual loan, doing that could be seen as violating a long line of precedents that bar separating a mortgage from the underlying note in which the borrower promises to pay. He quotes from an 1879 Supreme Court decision holding that “the assignment of the note carries the mortgage with it, while an assignment of the latter alone is a nullity.”

If an assignment of the mortgage alone is a nullity, then the mortgage can no longer be enforced. The borrower would still owe the money, but no foreclosure would be possible and the borrower could sell the home without paying off the mortgage. The lender could sue the borrower, but collecting money from distressed former homeowners might be very difficult in many cases.

It was such an argument that persuaded the judge in Oregon to block a foreclosure being pushed by Bank of America on behalf of a subprime mortgage securitization put together by Goldman Sachs in 2006. That securitization, known as GSAMP Trust 2006-HE5, is a troubled one in which investors have already suffered substantial losses. The senior security of the trust, which was rated AAA at issuance, has not suffered losses so far. But Moody’s now rates it at Caa1, a very low junk bond category.

The problems with MERS began to come to light when “vice presidents” of the firm began to submit affidavits in foreclosures, saying the original note had been lost. In some cases those notes were signed by people who signed thousands of such affidavits, and have now admitted they did not actually review the files, as the affidavits said they had.

Nor were those people really employees of MERS. It turns out that MERS allows financial institutions that are its members to name anyone a vice president or assistant secretary of MERS. It seems a little unlikely that someone who had never been hired or paid by a company could be a vice president.

“Ironically, MERS Inc. — a company that pretends to own 60 percent of the nation’s residential mortgages — does not have any of its own employees but still purports to have ‘thousands’ of assistant secretaries and vice presidents,” Mr. Peterson wrote. “This corporate structure leads to inconsistent positions, conflicts of interest and confusion.”

The MERS Web site asserts that “MERS has been designed to operate within the existing legal framework of all 50 states,” adding, “Any loan registered on the MERS System is inoculated against future assignments because MERS remains the nominal mortgagee no matter how many times servicing is traded.” The company uses the slogan, “Process Loans, Not Paperwork.” In a case in Arkansas, the owner of a second mortgage foreclosed on a home without notifying MERS, which was listed as owning the first mortgage. When MERS sued to overturn the foreclosure, the state supreme court ruled that MERS had no case. It had lost nothing, the court concluded, because it was not the actual beneficiary of the first mortgage.

A spokeswoman for MERS, Karmela Lejarde, said Monday that Mr. Peterson was wrong about several things. “Every single court challenge to the standing of MERS in the foreclosure process has been upheld, either in the initial court proceeding or upon appeal, when proper evidence is presented before the court,” she said in an e-mail.

Asked about the Arkansas Supreme Court decision, she said “that particular case was not about foreclosures,” although it did involve an effort by MERS to overturn a foreclosure. She added that the decision was “in direct contravention to longstanding Arkansas law.”

It is possible that the courts in most if not all states will conclude that the details of how MERS functioned, even if not completely in accord with state law, should not prevent foreclosures.

But even if that happens, Mr. Levitin, the Georgetown professor, argues that there might be tax consequences that would further harm investors in mortgage securitizations. That is because the securitizations operate under a special provision of tax law that exempts them from taxation. But that status is predicated on the transfer of mortgages to the securitization when it was created. If that is not the case, that could cause a major tax problem.

In addition, Mr. Peterson argues that local governments might prevail if they sue, claiming that the basic operating structure of MERS involved the filing of false documents. In that case, they might be entitled to collect several mortgage recording fees per mortgage — money that presumably would also come out of the securitization trust.

All of these problems might have been avoided had Wall Street sought legislation in the states to assure that such issues would not be raised. It is not clear why that did not happen. Perhaps the lawyers saw no problem, or perhaps they feared that efforts to change the law would be blocked by county officials wanting to preserve a source of revenue from recording mortgage transactions. In any case, no laws were amended.

Now, Mr. Peterson wrote, the courts may be confronted with a difficult conundrum. “Had the parties to these transactions followed the simple policy of specifying in the documents who owns what, a vast amount of confusing litigation and commercial uncertainty could have been avoided. These anchorless liens now flail in the wind of our commercial tempest,” he wrote.

“Courts that come to understand this situation will be in a bitter predicament,” he wrote. A ruling against the securitizations would “throw the mortgage market into further turmoil.”

But ruling the other way, against the complaining borrowers, would have its own perils, he argued, in part because MERS has made it difficult and in some cases impossible to learn from public records just who owns a mortgage, despite a long tradition that such information must be publicly recorded.

“If the courts write opinions allowing MERS to act as a ubiquitous national proxy mortgagee, they will write into the American common law fundamental legal mischief that will plague generations to come,” he wrote.

If some courts do rule against MERS, the legal battle could be a long one. Real estate law is largely a matter of state law, leaving the 50 state supreme courts as the final arbiters. Stay tuned folks, but I wouldn’t buy any bank stocks.


I Am NOT A Socialist!

One of the followers of this blog today accused me of being a Socialist, apparently because of the cartoon I posted on the blog  “Wall Street Bankers Jailed for Destroying the Economy: Zero”. He said I had the right idea, but the wrong target. He said the politicians and economists should all be put in jail instead.

So, to set the record (and him) straight, I need to point out that I am a proud, card-carrying Capitalist and that I also hold membership in the dreaded one percent club. As many of you who are reasoned have figured out through reading my blog, I also have little patience with those who operate using opaque business practices and who play by rules designed to cause injury and harm to the least empowered among us. So, you could call me a Moral Capitalist. An Honest Capitalist. A Compassionate Capitalist. A Hippocratic Corpus Capitalist. But, never a Socialist. It is a depressing sign of a cultural tragedy when people are able to confuse Socialism with Moral Capitalism.

Do I think that the fools who paved the road to economic ruin, and then drove recklessly down that road, causing permanent damage, sickness and destruction to the global economy should pay some price, should suffer some ruin, should be sent to jail? You bet I do.

If Bill Clinton would simply say, “You know, when I beefed up the 1977 Community Reinvestment Act to force mortgage lenders to relax their rules to allow more socially disadvantaged borrowers to qualify for home loans, I think I made a mistake there. When in 1999, I repealed the Glass-Steagall Act, which ensured a complete separation between commercial banks, which accept deposits, and investment banks, which invest and take risks, I was probably wrong.” I would be OK with that. Clinton has done a ton of good since leaving the Presidency, and I think the scales are probably balanced.

Phil Gramm however, the former US senator from Texas, free market advocate with a PhD in economics who fought long and hard for financial deregulation, should be in jail right now. His work, encouraged by Clinton’s administration, allowed the explosive growth of derivatives, including credit swaps. In 2001, he told a Senate debate: “Some people look at sub-prime lending and see evil. I look at sub-prime lending and I see the American dream in action.” It is not that I have a problem with derivatives, or credit swaps. I have a problem with actions that have no consequences. I have problem with Senators that serve themselves instead of the American citizenry.

According to the New York Times, federal records show that from 1989 to 2002 he was the top recipient of campaign contributions from commercial banks and in the top five for donations from Wall Street. At an April 2000 Senate hearing after a visit to New York, he said: “When I am on Wall Street and I realise that that’s the very nerve centre of American capitalism and I realise what capitalism has done for the working people of America, to me that’s a holy place.” Not so holy now, Phil. Nowhere near soon enough, this asshole eventually left Capitol Hill to work for UBS as an investment banker. Of course he did.

Kathleen Corbet ran the largest of the big three credit rating agencies, Standard & Poor’s. The agencies were basically acting as cheerleaders throughout the 2005-2008 period, assigning the top AAA rating to collateralised debt obligations, the often incomprehensible mortgage-backed securities that turned toxic. Investigations by the Securities and Exchange Commission and the New York attorney general among others, have focused on whether the agencies were compromised by earning fees from the very banks that issue the debt they rate. Compromised? Do you think?  The reputation of the industry was savaged by a blistering report by the SEC that contained dozens of internal emails that suggested they had betrayed investors’ trust. And Kathleen shouldn’t be in jail? Come on, Man.

How about every senior manager at AIG?  AIG had a vast business in credit default swaps and therefore a huge exposure to a residential mortgage crisis. When AIG’s own credit-rating was cut, it faced a liquidity crisis and needed an $85B bail-out from the US government to avoid collapse and avert the crisis its collapse would have caused. It later needed many more billions from the US treasury and the Fed, but that did not stop senior AIG executives taking themselves off for a few lavish trips, including a $444,000 golf and spa retreat in California and an $86,000 hunting expedition to England. “Have you heard of anything more outrageous?” said Elijah Cummings, a Democratic congressman from Maryland. “They were getting their manicures, their facials, pedicures, massages while the American people were footing the bill.” Yes, they should all be in jail.

And, let’s not forget Dick Fuld, Ralph Cioffi and Matthew Tannin. Fuld, a former bond trader known as “the Gorilla”, encouraged risk-taking and yet, had really no idea what securitized products his traders had created.  He knew they were probably worthless if the shit ever hit the fan though, and it is because of this cynical knowledge and his unwillingness to stop the flow of these products emanating from his own house, that he should be in jail. Cioffi and Tannin were Bear Stearns bankers recently indicted for fraud over the collapse of two hedge funds last year, which was one of the triggers of the credit crunch. They are accused of lying to investors about the amount of money they were putting into sub-prime, and of quietly withdrawing their own funds when times got tough. Jail.

Angelo Mozilo, the former chief of Country-wide Bank, the nations largest lender of sub-prime loans is also a crook. BofA recently paid billions to settle investigations by various attorney generals for Countrywide’s mis-selling of risky loans to thousands who could not afford them. The company ran a “VIP program” that provided loans on favourable terms to influential people including Christopher Dodd, chairman of the Senate banking committee, the heads of the federal-backed mortgage lenders Fannie Mae and Freddie Mac, and former assistant secretary of state Richard Holbrooke. I know it’s a free country. I know Dodd, Holbrooke, et al, did nothing technically wrong in accepting these loans. I know Mozilo is in within his rights to create loans for people who clearly could not afford to pay them off. But, they all had a moral responsibility to themselves, their souls and to the American people.

I could go on for a long time here. George Bush, Gordon Brown, Greenspan, Stan O’Neal, Jimmy Cayne, Chris Dodd, Chuck Prince, Joe Cassano, Lew Ranieri, etc., etc., but you get my point. There are, in my mind, clear fiduciary and moral principles that these people all violated in the course of their work, and as the  direct result of their actions, millions of people are now suffering through what will undoubtedly go down as the worst Global depression in history. This housing market has not hit bottom and will continue to be the Albatross around the neck of this recovery for years to come. It will only get worse, as another 4 million homes fall to foreclosure during the next few months. The government management team at Greece did almost exactly the same thing as the Wall Street Bankers did here (knowingly pushed a corrupt and ruptured system well past its breaking point), and in a few months, the entire Eurozone will begin to pay the price for that. And, then the rest of the world.

But, will anyone be thrown in jail? Not likely. So yes, I do feel more than a bit of empathy for the 99%. When they break the law, they almost always get sent to jail.


Getting The New Social Age. Or, Not.

My terrific editorial assistant has reminded me that the vast majority of people don’t really “get” the whole social network thing. We are living in the social age, yet most companies are still living in the mass market, “Tell em what they are going to get, Johnny” era. This shocks me, but I guess I know it’s true. She convinced me this morning that most people don’t understand that what Obama and his campaign did back in 2007-2008 was crowdfunding. This also shocks me, but hey.

She is right. If Sony and Bank of America don’t get it, why should I expect that some random dude is going to get it? So, while I am off building a social finance platform that assumes and embraces the fundamentals of the social era, there are tons of people and companies who while feeling the social era all around them, have nonetheless failed to understand the context in which it has occurred. We can see this most alarmingly in the way companies continue to assume value is being created (measured by 10 year old marketing goal posts), while either ignoring or failing to understand the impact of social networks, crowdsourcing, virtual workforces, freemium models, and on-line communities.

When traditional businesses begin to do what they call “leveraging social media“, they are developing marketing programs to get consumers to “like” them or “fan” them, as if that increased visibility in a social media context, is meaningful. That behavior sort-of (maybe) captures the marketing opportunities inherent in social media but misses the strategic point. As Nilofer Merchant (www.nilofermerchant.com) so eloquently points out, “The social object that unites people isn’t a company or a product; the social object that most unites people is a shared value or purpose. When consumers “love” Apple, they are saying they love great design and the shared idea that ‘thinking differently’ is valuable.”

By promoting Drupal, Apache, Joomla!, FireFox, MySQL, and other open-source software, the message form the web development community is “We don’t need no commercial software from the dark side. Our community will build what our community needs.” We don’t need no stinking badges.  We don’t need no education. Teachers! Leave those kids alone. Oh, sorry.

What they are saying is that they believe software ought to be designed by real world users from the base functionality outward and made available “for free” over the web, so that others may contribute to its functionality on an on-going basis. This is truly Crowdsourced software. And it isn’t that it is free. It’s not just a movement. It is a crusade, and it typifies the Social Age. Wouldn’t you like to have a crusade driving your business?

All of a sudden, consumers have the ability to force you to stand for something. To stand for a shared-value. Because if you don’t, it won’t matter how many Facebook friends you have, or how many “Like us on Facebook” tags you put on your website. You won’t be selling anything to them, because they, not you, are now in charge of your markets, which is about time because they, not you, are in fact, your markets. The Clue Train Manifesto taught us all (who were paying attention) 15 years  ago that because of technology, markets were becoming conversations, and the kind of conversations that we could influence, but never control. Steve Jobs understood that. Why do people stand in line for the most expensive products in their niche, year after year? Why is Macworld such an enormous event, with an absolute cult-like following? The message is “We love what you’re doing and we want you to keep doing it. Here’s more of our money to prove it.” You won’t find similar enthusiasm at a Microsoft event.

I submit to you that if Bank of America tried that $5 debit card routine 15 years ago, we would have barely noticed, then swallowed it and moved on. Not today. Because of the Internet, markets move like wildfire. It was a matter of hours before B of A said, “Oops. Didn’t really mean that. Sorry.” Similarly, “Words With Friends” had a sudden jump of 300,000 new gamers 24 hours after Alec Baldwin had a dust-up with a flight attendant.

If Bank of America really had a clue as to the power of the social age, or an ounce of innovation in their DNA, it would have been they that invented the social lending space, and not a couple of entrepreneurs at Lending Club and Prosper. They could have set up a small lending lab and quietly developed a targeted community. But, alas. And frankly, now that Lending Club and Prosper have succeeded in offering investors an opportunity to earn substantially more on their investments than at a traditional bank while working alongside the SEC, they have simply become another bank. Dictating interest ranges. Setting loan ceilings. Abandoning every element of the social lending space they created. I know, I know. It’s not their fault. It is the SEC and Congress. Well, that will soon change. Will LC and PM re-convert to true social lending platforms based on affinity lending models? Don’t bet on it. Based on the amount of venture capital each company has raised for compliance, I assume they will be quite happy to prove their point until Chase or Wells or Citi comes around to acquire.

“Social Age” is much bigger than the marketing programs developed to “leverage” social media. The actual embrace of the Social Age enables a business to become a different business, and requires that the new business fuse its fundamental principles into the spine of the new business model. What are those principles? First, you begin to operate with a shared purpose. You stop telling your market what they will like and what’s good for them. Instead you listen. And adapt. Netflix is a classic talker/bad listener. Instead of telling us what film we should like to see next, why not share with us what our community is watching and loving? Amazon also uses a formulaic recommendation engine. They would be better off crowdsourcing their suggestions.

Why? because collaborating with people through shared purpose allows everyone to work towards a single goal. When people know the purpose of an organization, they are not waiting to be told what to do. They take on ownership and work hard to make the brand successful. It wasn’t great product that made Apple what it is today. It was great enthusiasm for a shared value. The value of great design. Of great functionality. Of great applications of technology. A crusade against a big, entrenched power. A crusade against Microsoft. And then, ultimately a brand new music delivery channel. A brand new company.

With shared purpose, alignment is created, not by mass marketing, but by word-of-mouth and community commitment. Shared purpose makes customers and team-members more than transactions and employees. It allows markets to dis-intermediate markets, and become a part of the business. There is no longer an inside and an outside of the business. There is only the business and the markets; and they have become one and the same, empowered to create product and service that is designed precisely to the needs and goals of the markets. Banks don’t set the rules anymore. The market sets the rules. When Microsoft makes a mistake, they now pay dearly for it. Maybe they should start listening.

Crowdsourced and Crowdfunded websites are springing up like wildflowers because they embrace the fundamental principles of the Social Era. Funding Artists, Musicians, Researchers, Film Makers, Political Parties, Charities and Fashion Designers. All of these sites are run entirely by the crowd. And, their biggest supporters are obviously their own markets. Google once had such a following when it still adhered to its founding mantra of “First, do no harm.” Not so much anymore.

The whole idea behind “Social Lending” was to provide a platform for people to borrow and lend from their real and virtual social networks, without a banking intermediary, based on trust wrought from affinity. Lending Club and Prosper began life that way, but the SEC took the Social out of Lending. But, the world has changed. The world has changed. How companies create value has changed. Organizationally and culturally, the vast majority of entrenched businesses have not changed. It is wholly insufficient to put the word “social” in front of existing business models and expect things to be different. What we need to do is to re-imagine the business enterprise within the context of  the “Social Age” and create lean, adaptive, and community-driven organizations. Soon, “social” will be returning to finance. I guarantee it.


The Watchdogs That Didn’t Bark, and a Fun Halloween Party.

New York foreclosure firm, Steven J. Baum, dressed up as homeless and decorated offices like foreclosed homes for Halloween, before November 2010 when they were shut down because of robo-signing, among other offenses.  NY State court judge called one foreclosure filing from the Baum firm “incredible, outrageous, ludicrous and disingenuous.”
Photos from a former employee: Two Steven J. Baum employees mocking homeowners who have been foreclosed on.
A “squatter” in Baum Estates – photo of the Halloween  party from former employee. Funny, right?

Four years after the banking system nearly collapsed from reckless mortgage lending, federal prosecutors have stayed on the sidelines, even as judges around the country are pointing fingers at possible wrongdoing.

The federal government, as has been widely noted, has pressed few criminal cases against major lenders or senior executives for the events that led to the meltdown of 2007. Finding hard evidence has proved difficult, the Justice Department has said.

The government also hasn’t brought any prosecutions for dubious foreclosure practices deployed since 2007 by big banks and other mortgage-servicing companies.

But this part of the financial system, a Reuters examination shows, is filled with potential leads:

Foreclosure-related case files in just one New York federal bankruptcy court, for example, hold at least a dozen mortgage documents known as promissory notes bearing evidence of recently forged signatures and illegal alterations, according to a judge’s rulings and records reviewed by Reuters. Similarly altered notes have appeared in courts around the country.

Banks in the past two years have foreclosed on the houses of thousands of active-duty U.S. soldiers who are legally eligible to have foreclosures halted. Refusing to grant foreclosure stays is a misdemeanor under federal law.

The U.S. Treasury confirmed in November that it is conducting a civil investigation of 4,500 such foreclosures. Attorneys representing service members estimate banks have foreclosed on up to 30,000 military personnel in potential violation of the law.

In Alabama, a federal bankruptcy judge ruled last month that Wells Fargo & Co. had filed at least 630 sworn affidavits containing false “facts,” including claims that homeowners were in arrears for amounts not yet due.

Wells Fargo “took the law into its own hands” and disregarded laws banning perjury, Judge Margaret A. Mahoney declared.

And in thousands of cases, documents required to transfer ownership of mortgages have been falsified. Lacking originals needed to foreclose, mortgage servicers drew up new ones, falsely signed by their own staff as employees of the original lenders – many of which no longer exist.

But the mortgage-foreclosure mess has yet to yield any federal prosecution against the big banks that are the major servicers of home loans.

UNPRECEDENTED FRAUD

Reuters has identified one pending federal criminal investigation into suspected improper foreclosure procedures. That inquiry has been under way since 2009.

The investigation focuses on a defunct subsidiary of Jacksonville, Florida-based Lender Processing Services, the nation’s largest subcontractor of mortgage servicing duties for banks.

People close to the investigation said indictments may come as early as the end of this month. Nationwide press reports had showed photos of what appeared to be obviously forged signatures on foreclosure affidavits.

The Justice Department doesn’t disclose pending investigations, making it impossible to say if other criminal inquiries are underway. Officials in state attorneys’ general offices and lawyers in foreclosure cases say they have seen no signs of any other federal criminal investigation.

“I think it’s difficult to find a fraud of this size on the U.S. court system in U.S. history,” said Raymond Brescia, a visiting professor at Yale Law School who has written articles analyzing the role of courts in the financial crisis. “I can’t think of one where you have literally tens of thousands of fraudulent documents filed in tens of thousands of cases.”

Spokesmen for the five largest servicers – Bank of America Corp., Wells Fargo & Co., JP Morgan Chase & Co, Citigroup Inc., and Ally Financial Group – declined to comment about the possibility of widespread fraud for this article.

Paul Leonard, spokesman for the Housing Policy Council, whose membership includes those banks, said any faults in foreclosure cases are being addressed under a civil settlement earlier this year with federal regulators.

FALSE STATEMENTS

Justice Department and Federal Bureau of Investigation officials say they have brought mortgage-fraud criminal cases through their “Operation Stolen Dreams.” None, however, were against big banks. All targeted small-scale operators who allegedly defrauded banks with forged mortgage applications or took advantage of homeowners by falsely promising arrangements to get them out of default and then pocketing their money.

Justice Department spokeswoman Adora Andy declined to comment on the absence of prosecutions for foreclosure practices by big banks. She said in a statement: “The Department of Justice has been and will continue to aggressively investigate financial fraud wherever it occurs, including at all levels of the mortgage industry and, when we find evidence of a crime, we will not hesitate to pursue it.”

Some judges have accused banks of falsely stating in court that they are working on loan modifications for homeowners in default.

In a November 30 court hearing, not previously reported, a federal bankruptcy judge in New York accused Bank of America of falsely telling courts and the public that it was working to renegotiate loans.

“Bank of America issues constant press releases about how it is responsive to their borrowers on these issues. They are not, period,” said Judge Robert Drain, in a case involving homeowner Richard Tomasulo, a pharmacist from Crompond, New York. Drain said Bank of America had been telling the court since January that it was working to modify Tomasulo’s mortgage, but hadn’t done so.

“Whoever is in charge of this program and their supervisor, who should be following it, should be fired” because “they are frankly incompetent.”

Bank of America spokeswoman Jumana Bauwens said the bank has completed “nearly one million” modifications since 2008. The U.S. Treasury in 2011 suspended loan modification incentive payments to the bank because it was “seriously deficient” in responding to requests for modifications.

CHEATERS AND LIARS

Foreclosure fraud came to light in September 2010, with evidence that employees of Ally Financial Corp. had committed “robo-signing,” in which low-level workers signed and swore to the facts in thousands of affidavits they hadn’t read or checked.

The affidavits were notarized outside the signers’ presence, in apparent violation of state and federal criminal laws.

Since then, mounting evidence of possible foreclosure fraud has convinced judges and state regulators that servicers have harmed homeowners and the investors who bought mortgage-backed securities.

A unit of the Justice Department that oversees bankruptcy court cases, the U.S. Trustees Program, said in its 2010 annual report that there were “pervasive and longstanding problems regarding mortgage loan servicing,” which “are not merely ‘technical’ but cause real harm to homeowners in bankruptcy.”

Banks, the Trustees Program says, have falsified affidavits by claiming homeowners owe fees for services never rendered and by overstating how much owners are behind on payments.

Former federal prosecutor Daniel Richman, a professor of criminal law at Columbia University Law School, says a central question is who prosecutors would target in criminal investigations. Richman said it would be easy but not worthwhile to charge large numbers of rank-and-file workers who, directed by supervisors, falsely churned out affidavits.

He said criminal investigations would be warranted, but harder to bring, “if there are particular individuals who lie at the heart of this conduct in a very significant way.”

In October 2010, members of Congress pressed the Justice Department to investigate. Attorney General Eric Holder said investigations were best left to the states, with help from the Justice Department.

The Office of the Comptroller of the Currency, the top bank regulator, quickly negotiated settlements with the 14 largest servicers, requiring changes in practices and “remediation” for harmed homeowners. That settlement allows the banks to choose their own contractors to determine who was harmed and by how much.

Lawmakers and homeowner advocates have criticized the arrangement, contending that it will let the banks avoid making all wronged homeowners whole, because the contractors are paid by and answer to the banks.

Since then, the department’s civil division has worked with a shaky coalition of all 50 states, which have been seeking a civil settlement with five banks that are the largest loan servicers. The negotiations center on requiring them to pay $20 billion or more in penalties, only some of which would go to compensate wronged homeowners.

STATES TAKE ACTION

Federal law enforcement has been noticeably absent, even in areas hardest hit by the crisis, such as Las Vegas.

In 2010 the FBI’s Las Vegas office shut down its mortgage fraud task force, which had focused on small-scale swindlers.

Tim Gallagher, chief of the FBI’s financial crimes section, said that the Las Vegas office had asked to transfer agents to other duties.

Impatient with the lack of federal prosecution, states including New York, Massachusetts, Delaware and California have launched their own investigations of the banks.

In November, it became the first state to file criminal charges. The state attorney general obtained a 606-count indictment against two California-based executives of Lender Processing Services.

It accuses the executives of paying Nevada notaries to forge the pair’s signatures and falsely notarize them on notices of default, documents Nevada requires in foreclosure actions. State officials said more indictments are expected.

In an interview, John Kelleher, Nevada’s chief deputy attorney general, said the investigation began in response to citizen complaints.

“We were concerned and then shocked at the sheer number of fraudulent documents we were finding that had been filed with the county recorder,” Kelleher said.

Investigators found “tens of thousands” of false records filed on behalf of big mortgage servicers, he said.

The two executives have pleaded not guilty. In a press release, the company said: “LPS acknowledges the signing procedures on some of these documents were flawed; however, the company also believes these documents were properly authorized and their recording did not result in a wrongful foreclosure.”

BACK HOME IN NEW YORK

The U.S. Attorney’s Office in Manhattan is the federal prosecutors’ office that traditionally has filed the most cases against top banks and financiers. But it hasn’t brought any foreclosure-related criminal cases involving Wall Street’s biggest financial houses or the law firms that represent them.

To date the only step it has taken publicly was an October 2011 civil settlement with New York State’s largest foreclosure law firm.

The Steven J. Baum P.C. law firm, based near Buffalo, New York, in recent years filed approximately 40 per cent of all foreclosures in New York State, on behalf of banks and other mortgage servicers. Court records show that the firm angered state court judges for alleged false statements and filing suspect documents.

Arthur Schack, a state court judge in Brooklyn, in a 2010 ruling said that pleadings by the Baum firm on behalf of HSBC Bank, a unit of London-based HSBC Holdings, in a foreclosure case were “so incredible, outrageous, ludicrous and disingenuous that they should have been authorized by the late Rod Serling, creator of the famous science-fiction television series, The Twilight Zone.”

Another state judge that year imposed $5,000 in sanctions and ordered the firm to pay $14,500 in attorneys’ fees, ruling that “misrepresentation of the material statements here was outrageous.”

But the U.S. Attorney’s office in Manhattan filed no criminal charges against the Baum firm. Instead, it signed a settlement with Baum ending an inquiry “relating to foreclosure practices.” The agreement made no allegations of wrongdoing, but required the firm to improve its foreclosure practices.

Baum agreed to pay a $2 million civil penalty, but didn’t admit wrongdoing.

The law firm said it would shut down after New York Times columnist Joe Nocera in November published photographs of a 2010 Baum firm Halloween party in which employees dressed up as homeless people. Another showed part of Baum’s office decorated to look like a row of foreclosed houses.

“The settlement between the Manhattan U.S. Attorney’s Office and the Steven J. Baum Law Firm resulted in immediate and comprehensive reforms of the firm’s business practices,” said Ellen Davis, spokeswoman for the Manhattan U.S. Attorney’s office.

Earl Wells III, a spokesman for Baum, said the lawyer wouldn’t comment because “he’s laying low right now.”

An HSBC spokesman said: “We are working closely with the regulators to address any matters raised regarding” the bank’s foreclosure practices.

BROKEN PROMISES

The most serious potential foreclosure violations involve falsified mortgage promissory notes, the documents homeowners sign vowing to repay mortgage loans. Courts uniformly have ruled that unless a creditor legally owns the promissory note, it has no legal right to foreclose. For each mortgage there is only one promissory note.

Bankruptcy court records reviewed by Reuters show that at least a dozen radically different documents purporting to be the authentic promissory note have turned up in foreclosure cases involving six different properties in the federal bankruptcy court for the Southern District of New York.

In one, Wells Fargo is battling to foreclose on the Bronx home of Tindala Mims, a single mother who works as an ambulance driver. In September 2010, Wells Fargo filed a promissory note bearing a signed stamp showing that the note belonged to defunct Washington Mutual Bank, not Wells Fargo. The judge threw out the case.

In a second attempt, the court was given a different version of the note. But inspection showed physical alterations. A variety of marks on the original were missing or seemed obviously altered on the second. And the second version had a stamped endorsement, missing on the first, that appeared to give Wells Fargo the right to foreclose.

The judge threw out the second attempt too. Wells Fargo is trying a third time. It declined to comment on the case.

Linda Tirelli, Mims’ lawyer, in October sued Wells Fargo, alleging “fabrication of documents.”

“It seems to me that Washington is deathly afraid of the banking industry,” Tirelli said. “If you’re talking about filing false documents and filing false notarizations, do you really think that the U.S. Attorney would find it too difficult to prosecute?”

The office of Attorney Preet Bharara in Manhattan has routinely brought charges involving forgery and filing false documents against smaller targets.

In April, the FBI arrested seven employees of the USA Beauty School in Manhattan. Bharara’s office alleged that the seven suspects had forged documents such as high school diplomas, attendance records and applications for financial aid for students taking cosmetology classes.

In August, Bharara’s office filed felony charges against a sports-memorabilia company’s CEO, accusing him of auctioning jerseys falsely advertised as “game used” by Major League Baseball players.

In a press conference, a U.S. Postal Inspection Service official said prosecution was important because “victims felt that they had a piece of history only to be defrauded and left with a feeling of heartbreak.”

Given the record of Bharara’s office, and those of his fellow U.S. Attorneys around the country, to aggressively pursue violations both big and small, the absence of cases involving the foreclosure fiasco seems to stand out.

“Why there hasn’t been more robust prosecution is a mystery,” said Brescia, the visiting professor at Yale.


So, Not Only Does the Mortgage Settlement Cost the Banks Nothing, but

Some States Are Using Mortgage Deal Funds To Close Budget Gaps. Who Gets Screwed? Who ALWAYS Gets Screwed?

Well, that was fast.

Two states have already announced that they won’t be using all of their share of the $25 billion allocated in Thursday’s historic foreclosure settlement to pay its intended recipients — the homeowners and borrowers who saw the housing market collapse beneath their feet.

Instead, in some areas, a share of those dollars is likely to be diverted to state budgets, in a bid to offset some of the massive deficits that states have been struggling with since the economic downturn, according to reports.

In Wisconsin, Governor Scott Walker and state Attorney General J.B. Van Hollen have announced plans to use $25.6 million of the settlement money — about 18 percent of the $140 million Wisconsin will get in total — to plug holes in the state’s budget, according to the Milwaukee Journal Sentinel. As the MJS notes, this is a reversal of Walker’s previous opposition to using legal settlements to close budget gaps.

And, in a bombshell announcement, investigators charged Walker appointees Tim Russell and Kevin Kavanaugh with embezzling $60,000 intended for a veterans support organization called Operation Freedom.

(Russell’s attorney, Michael Maistelman, had no comment.) The staffers used the money to pay for vacations to Hawaii and the Caribbean, wedding parties, and pro-Walker campaign websites. In a strange twist, Russell’s boyfriend, Brian Pierick,

was also caught by John Doe investigators and charged  for the crime of sending sexually-explicit text messages to a then-17-year-old high school student, among other things. I guess he got confused about which holes to plug. His attorney did not respond to a request for comment. What a bunch of freaking creeps.

Meanwhile, in Missouri, state Attorney General Chris Koster has said that he plans to put $40 million of Missouri’s settlement money — about 20 percent of the total $196 million — into the general state fund, apparently in response to Governor Jay Nixon‘s call for a stronger college and university budget, Stateline reported. I don’t understand how we can structure such a deal without conditions on its use, but we do it every time; the TARP bailout, the AIG save, the Banking bailout, and now this. One can only conclude that this whole affair is a very private club and only bankers, private equity, hedge funds and politicians can belong.

In the wake of Missouri and Wisconsin’s announcements to use the settlement funds for purposes other than directly assisting borrowers — and with similar announcements possibly forthcoming from other states — critics have begun comparing Thursday’s deal to the 1998 tobacco settlement that saw some of the country’s largest tobacco companies agree to pay $246 billion over the next 25 years to fund public-health initiatives.

Much of that money has since been spent on other things, according to the Campaign for Tobacco-Free Kids, which estimates that states will receive $25.6 billion from the tobacco settlement this year, but only use 1.8 percent of it to combat tobacco use.

If the news that some of the money from the foreclosure settlement won’t end up in borrowers’ hands is disappointing to some, it won’t be the first time this week that the deal has let someone down.

While the settlement involves five of the country’s largest banks — Citigroup, JPMorgan Chase, Ally Financial, Wells Fargo and Bank of America — and an amount of money that has been called one of the largest mortgage settlements in history, most borrowers stand to realize practical benefits that are marginal at best.

Some 1 million homeowners will receive material mortgage relief that may help them stave off a default, but another 775,000 borrowers who have lost their homes to foreclosure will receive payments of no more than $2,000.

And the settlement excludes mortgages owned by Fannie Mae and Freddie Mac, the massive mortgage agencies currently in government conservatorship, which means about half the country’s mortgages aren’t covered at all by the deal. So, its like, huh … what was THAT about?


The Mortgage Settlement is Great — for Politicians and Banks!

The settlement mostly requires mortgage lenders and servicers to comply with what I would have thought was already the law, which prohibits, you know, criminal fraud.

Atty. Gen. Kamala D. HarrisCalifornia Atty. Gen. Kamala D. Harris retains the right to pursue the banks under state fraud laws. But the settlement narrows the breadth of a promising Massachusetts investigation and may entirely shut down cases brought against BofA by the Arizona and Nevada attorneys general. (Bob Chamberlin, Los Angeles Times)
I hate a parade. And the parade of rosy self-congratulation staged last week by the creators of the $25-billion mortgage fraud settlement with five big banks is the kind of parade I really hate.There certainly are some big winners in the deal, which has the approval of 49 of the 50 state attorneys general. Start with its godfathers. President Obama took to the podium a couple of hours after the deal’s announcement to declare that it will “speed relief to the hardest-hit homeowners.”

California Atty. Gen. Kamala D. Harris went before the cameras soon after that, taking credit for “a tremendous victory for California,” which has been perhaps the hardest-hit state in the foreclosure crisis.

Then there are the banks. The signatories to the deal are Bank of AmericaCitibankWells Fargo & Co., JPMorgan Chase and Ally Financial (formerly GMAC), which handle payments on more than half the nation’s outstanding 27 million home loans and therefore have been at the center of the servicing and foreclosure abuses the settlement is supposed to end.

        

If you don’t listen too closely, it sounds as if they’re putting up the $25 billion. Not so. The only cold cash the banks are paying is a combined $5 billion, including $1.5 billion to compensate borrowers whose homes were foreclosed on from 2008 through the end of last year, with the rest going to the federal and state governments to pay for regulatory programs.

Most of the balance is in mortgage relief for stressed or underwater mortgage holders, including principal reductions, refinancings and other modifications.

How much of this will translate into an outlay of cash by the five banks? Not much, if any.

For one thing, even the government acknowledges that a lender typically benefits when ways are found to keep a home out of foreclosure — a lender loses an average $60,000 on every foreclosure, according to figures the federal government disclosed in connection with the settlement announcement. It’s been institutional resistance and legal entanglements, not economics, that have kept more modifications from going forward.

Many of the loans destined to be modified under the settlement aren’t even owned by the banks, but rather by investors — the banks just collect the checks.

Consequently, as mortgage expert Adam Levitin of Georgetown Law School observes, most of the settlement “is being financed on the dime of MBS [mortgage-backed securities] investors such as pension funds, 401(k) plans, insurance companies and the like — parties that did not themselves engage in any of the wrongdoing covered by the settlement.”

What about homeowners? They don’t get much, especially in relation to the scale of the housing crisis. More than 2 million owners have lost their homes to foreclosure during the last four years; this deal will provide 750,000 with a payment of $2,000 each.

Some 11 million homeowners are underwater by about $700 billion combined, or an average of nearly $65,000 each. In a transport of optimism, federal officials are projecting that this deal will help 2 million of them, to the tune of perhaps $20,000 each. By the way, loans owned by the government-sponsored firms Fannie Mae and Freddie Mac aren’t eligible for this relief. Since they own or control the majority of all outstanding mortgages, that’s a rather large black hole.

Supposedly a big part of the deal is the implementation of new foreclosure standards to end the abuses that made the deal necessary. These standards require banks seeking to foreclose henceforth to submit sworn affidavits that are accurate about the amounts owed and the legal right of the servicer to proceed, and require that the bank officers who sign them to actually examine the documents they swear to have examined.

In other words, no more “robo-signing.” Assertions the banks make in court will have to be “accurate.” Banks will have to give borrowers complete and accurate information about their loans, suspend foreclosure proceedings once they start working on a loan modification, apply mortgage payments promptly, keep accurate loan records and communicate effectively with borrowers.

I believe the technical term for all this is “big whoop.” The provisions mostly require mortgage lenders and servicers to comply with what I would have thought was already the law, which prohibits, you know, criminal fraud. The rest is pretty much out of the best-practices manual of customer service, which benefits both the customer and the institution.

What the standards do accomplish is to expose how sad our enforcement of the law has been up to now, and how hard it will be to enforce it in the future if this is the best we can do in the face of manifestly illegal behavior. The lesson is: Break the law, and the full weight of the state and federal governments will come down on your head to make you agree not to break the law — in the future.

It may not be long before the euphoria over the settlement evaporates in the realization that the banks that made a travesty of the mortgage market are still getting a pass — not only on their cupidity in making loans to unqualified buyers, but in magnifying their cupidity through forgery, lies and the other building blocks of foreclosure fraud.

In the words of business consultant Susan Webber, who blogs expertly on financial matters under the pen name Yves Smith, We’ve now set a price for forgeries and fabricating documents. It’s $2,000 per loan.” She observes, quite properly, that the payoff is a minuscule fraction of the costs these practices have imposed on borrowers, the court system and the economy.

The settlement, meanwhile, provides cover for other stealth bailouts. On Thursday, the day of the big parade, the U.S. Office of the Controller of the Currency quietly settled claims against BofA, Wells Fargo, Citibank and JPMorgan Chase related to cease-and-desist orders the agency issued last year over the banks’ crooked mortgage servicing and foreclosure activities.

The agency says it settled those claims for $394 million. The actual figure is zero. That’s because the agency won’t ask for any of the money as long as the banks meet their obligations under the mortgage settlement. This is the kind of fun with math that helped get us into the housing crisis in the first place.

The settlement’s proponents have praised it for preserving the right of prosecutors to continue their investigations into the banks’ misbehavior; California’s Harris crowed that she retains the right to pursue the banks under state fraud laws. But it also narrows the breadth of a promising Massachusetts investigation and may entirely shut down cases brought against BofA by the Arizona and Nevada attorneys general.

Most troubling, compliance with the settlement terms will be overseen by an independent monitor who must rely on the banks’ own figures. If we know anything about these banks, it’s that they’ve moved heaven and earth to evade their past promises to help troubled homeowners. Time and again their loan relief programs have fallen short of their promises. Why should this time be different, when the consequence of their past misbehavior is, when you come down to it, a slap on the wrist?

Prosecutors coast to coast had the mortgage industry dead to rights this time around. That’s why the banks came to the table. The states and the feds were in a position to achieve real homeowner relief and a lasting change in the way Wall Street banks do business. But that fading sound you hear? That’s the parade passing by, leaving Main Street behind.


25 People to Blame for the Financial Crisis.

A Series. First Up: #25.

Angelo Mozillo

The son of a butcher, Mozilo co-founded Countrywide in 1969 and built it into the largest mortgage lender in the U.S. Countrywide wasn’t the first to offer exotic mortgages to borrowers with a questionable ability to repay them. In its all-out embrace of such sales, however, it did legitimize the notion that practically any adult could handle a big fat mortgage. In the wake of the housing bust, which toppled Countrywide and IndyMac Bank (another company Mozilo started), the executive’s lavish pay package was criticized by many, including Congress. Mozilo left Countrywide last summer after its rescue-sale to Bank of America. A few months later, BofA said it would spend up to $8.7 billion to settle predatory lending charges against Countrywide filed by 11 state attorneys general.


Analysis: Banks Expect to Spend Less on Bad Mortgages. But I Don’t.

Even as President Barack Obama is calling for more assistance for struggling mortgage borrowers, major banks are looking forward to spending less to handle problem home loans.

The chief executives of JPMorgan Chase & Co and Bank of America Corp, the two biggest U.S. banks, said this month their rate of spending to handle troubled mortgages had topped out and should begin to decline soon with falling delinquency rates. Wells Fargo & Co, the fourth-biggest bank, also is counting on lower mortgage expenses this year.

With fewer problem loans to process, the banks could reduce the army of back-office staffers who handle the paperwork and phone calls required by foreclosures.

Bank executives are under pressure from investors to reduce expenses to improve profits amid weak demand for loans in the slow economy. If the three big banks are right in anticipating that the wave of mortgage defaults will subside, their bottom lines will get a lift — and property values will firm up, to the benefit of neighborhoods across the country.

Others are not so optimistic. Executives of Citigroup Inc, the third-biggest bank, continue to caution that mortgage issues, including legal liability for alleged abuses, remain the biggest single threat to the U.S. banking industry. And some consumer advocates worry that the banks could scale back too quickly on their mortgage workout staff.

Obama, who said in his State of the Union address on Tuesday that he intends to ease the mortgage burdens of “millions of innocent Americans,” is sending Congress a plan to allow homeowners to refinance at lower rates even when they owe more than their homes are worth. Also under discussion: a multistate settlement in which banks could pay up to $25 billion in exchange for protection from future lawsuits about improper foreclosures and lending and servicing abuses.

After the bust in house prices, the banks built up armies of staff to handle problem loans, said Guy Cecala, publisher of industry trade journal Inside Mortgage Finance.

“I’m not passing judgment on how well it works or how efficient it is,” he said. “But they have adequate staffing.”

JPMorgan nearly tripled its staff over three years to 20,000 people. “That number has probably peaked, and I think you will see it coming down over the next couple years,” JPMorgan Chief Executive Jamie Dimon told analysts who questioned him about expenses after the company reported lower fourth-quarter profits. Meaning:  higher unemployment. (add a colon after meaning)

Dimon forecasts that two-thirds of the $925 million of expenses JPMorgan incurred to service mortgages in the quarter will go away. (forecast should be plural)

JPMorgan’s mortgage delinquencies are down sharply from 18 months ago, and the bank charged off less than half as much money for problem home loans in the fourth quarter as it did a year earlier.

Bank of America is working off a mountain of mortgage problems left from its 2008 purchase of subprime lender Countrywide Financial. It now has about 32,000 workers handling delinquent or other at-risk mortgage loans, more than six times the staff it had in 2008. The bank spent $2 billion in the fourth quarter, excluding litigation costs, on the issue.

Chief Executive Brian Moynihan said that over time that spending will be reduced to $300 million per quarter, even taking into account stricter servicing regulations faced by banks. (delete second ‘that’)

Moynihan noted that total loans more than 60 days past due declined more than 20 percent from a year earlier to about 1.1 million in the fourth quarter. He said the bank expects costs to decline in 2012 but that it could take up to two years for expenses to return to normal levels.

The resolution of problem loans will depend on how fast the economy improves and the unemployment rate declines, Bank of America spokesman Dan Frahm said. The bank will continue to make “investments necessary to meet the needs of our customers,” he added.

San Francisco-based Wells Fargo told analysts it expects to reduce its quarterly expenses for troubled mortgages and foreclosures to as low as $600 million, compared with $718 million in the fourth quarter.

“We do believe that there are some cyclically high mortgage costs that are going to roll off,” CEO John Stumpf told analysts.

Dan Alpert, managing partner with investment bank Westwood Capital LLC, said, “If the expectation is that the economy is strengthening and new defaults will start to slack off, then yes, expenses should go down.”

But Alpert cautioned that if the economy is doing “a head fake, like in the first and second quarters of last year, then defaults will start going up again.”

Diane Thompson, an attorney with the not-for-profit National Consumer Law Center, said it is premature for banks to say their operations are ready to be scaled back.

Banks continue to lose documents, give bad information to customers and take too long to resolve loan modification applications, said Thompson, whose organization assists struggling borrowers.

Banks could also have additional costs if they agree to new servicing standards to reach a settlement with federal officials and state attorneys general investigating alleged foreclosure abuses.

Some statistics suggest the foreclosure crisis is far from over. A study last fall by the Center for Responsible Lending estimated that while more than 2.7 million homeowners who received loans between 2004 and 2008 had already lost their homes to foreclosure, another 3.6 million were still at serious risk of ending up in the same boat.

Citigroup executives cautioned last week, for the second time in three months, that overall delinquency rates had stopped falling recently because some borrowers, who previously defaulted and had their mortgages modified, had defaulted again. Citigroup also said its servicing costs increased in the fourth quarter because it spent more to comply with a settlement banks reached last year with some regulators over the handling of mortgages.

“We continue to believe mortgage-related issues are the single largest source of risk facing the U.S. banking industry,” Citigroup Chief Financial Officer John Gerspach told analysts.

Alongside servicing costs for existing mortgages and potential losses on the loans, banks also still face allegations that they broke laws during the housing boom by giving loans to unqualified borrowers and then fraudulently packaged and sold mortgage-backed bonds. Obama pledged Tuesday to ramp up government investigations of those allegations, which could lead to billions of dollars of litigation expenses and penalties for banks.

But Citigroup executives also noted that repeat defaults are not as frequent as it had expected and that early-stage delinquencies were less common in the fourth quarter than in the third quarter.

Paul Miller, a bank analyst at FBR Capital Markets, said big banks’ servicing expenses are likely to fall from current levels. But he cautioned that significant relief will not come as quickly as the banks would like.

“I would think 2012 is probably the year it peaks,” Miller said, “but it’s not like it’s going down by 50 percent.” No, it isn’t.