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Category: Mortgage fraud

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Feds: BofA improperly fired employee who exposed Countrywide fraud

Mozilo-van nuys 
Bank of America Corp. wrongly fired an internal investigator who exposed "widespread and pervasive wire, mail and bank fraud"  at Countrywide Financial Corp., according to the U.S. Labor Department.

Finding that the employee was protected by whistle-blower law, the department's Occupational Safety and Health Administration ordered BofA to reinstate and pay the employee $930,000, including back wages, interest, compensatory damages and attorney fees.

Bank of America acquired Calabasas-based Countrywide in July 2008 and fired the whistle-blower shortly thereafter, OSHA said in a news release Wednesday.

In a statement, Bank of America said it would challenge the order. "The bank’s actions to dismiss were solely based on issues with the employee’s management style and in no way related to the employee’s complaints and the allegations made in the complaint," it said.

The federal agency didn't name the employee. It identified the worker only as an L.A.-area person who led internal investigations into Countrywide employees.

"It's clear from our investigation that Bank of America used illegal retaliatory tactics against this employee," OSHA Assistant Secretary David Michaels said in the news release.

"This employee showed great courage reporting potential fraud and standing up for the rights of other employees to do the same."


Jury awards fired Countrywide executive $3.8 million

U.S. drops criminal probe of former Countrywide chief Angelo Mozilo

Investors wonder whether BofA cost-cutting plan is enough

 --E. Scott Reckard

Photo: Countrywide Financial co-founder Angelo Mozilo, center. Credit: Irfan Khan / Los Angeles Times


Bank of America's proposed settlement with mortgage investors comes under fire [Updated]

Bank of America Corp.'s proposed $8.5-billion settlement with 22 major holders of Countrywide Financial Corp. mortgage securities came under fire in Manhattan federal court as a deadline to challenge the deal arrived.

The flurry of objections Monday and Tuesday included filings by the Federal Deposit Insurance Corp., which represents failed banks that lost money on the mortgage bonds, and the Federal Housing Finance Agency, which regulates the government-controlled mortgage giants Freddie Mac and Fannie Mae.

The FDIC and the FHFA described their objections as place holders. They said they needed more time to  fully understand the deal that Bank of America struck with the holders of bonds from Countrywide, the Calabasas mortgage goliath that was near bankruptcy from soured loans when BofA acquired it in 2008.

The settlement is the centerpiece of Bank of America Chief Executive Brian T. Moynihan's efforts to deal with lawsuits accusing Countrywide of deceiving bondholders about the recklessness with which it had funded subprime and other high-risk home loans.

Another defendant hoping to settle the litigation is the Bank of New York Mellon, which was the trustee for 530 pools containing thousands of Countrywide mortgages that had been bundled to back mortgage securities.

In a statement, the FHFA praised certain aspects of the proposed settlement aimed at improving  customer service and correcting bungled foreclosure documents. It said, though, that it wanted "to reserve its capability to voice a substantive objection in the unlikely event that necessity should arise."

"Today was the last day to file and FDIC and FHFA wanted to make sure they have a seat at the table,"  FBR Capital Markets analyst Paul Miller said.

Separately, a group of aggrieved homeowners whose loans are among those backing the securities challenged the settlement and filed a lawsuit seeking class-action status on behalf of borrowers they contended had been severely damaged by botched loan servicing.

One of the named plaintiffs said Bank of America foreclosed on her home even though she never missed a loan payment. She said Bank of America demanded that she repay the bank for making tax and insurance payments on her behalf when she had made them herself.

In another action, US Bank filed a lawsuit in state court in New York seeking to force Bank of America to buy back allegedly misrepresented loans in a separate $1.75-billion mortgage pool for which US Bank is the trustee.

A Bank of America spokesman declined to comment on the litigation.

Concerns over the rising cost of dealing with Countrywide loans put Wall Street in a dither this month, causing a sell-off in Bank of America shares that finally slowed when noted investor Warren Buffett agreed to invest $5 billion in Moynihan's bank.

Bank of America shares closed Tuesday down 27 cents, or 3%, at $8.12.

[Updated 6:45 p.m.: Bank of America spokesman Lawrence Grayson, addressing the borrowers' challenge to the proposed settlement with mortgage investors, said the bank believes the agreement was reached in a "very reasonable" manner and should be approved with no change. He declined to comment on the borrowers' lawsuit.

Bank of America doesn't believe that US Bank has legal standing to demand a repurchase of all the loans for which it is a trustee, Grayson added.]


Countrywide agrees to pay $600 million to settle shareholder lawsuits

Lender proves to be a costly buy for Bank of America

Warren Buffett tosses Bank of America a $5-billion lifeline

-- E. Scott Reckard

Photo: Brian T. Moynihan, Bank of America's embattled CEO. Credit: Bloomberg / Jeff Kowalsky

Former Bank of America employee sentenced in mortgage fraud scheme

A North Hollywood man has been sentenced to 15 months in federal prison for his role in a scheme that used stolen identities to “purchase” homes that were not for sale, according to the U.S. attorney's office in L.A.

Federal authorities said Venedie Roberto Valencia, 27, worked at Bank of America at the time of the offense. In a guilty plea, Valencia admitted that he forged a document related to nonexistent bank accounts, prosecutors said.

In addition to the prison sentence, U.S. District Judge Dale S. Fischer in Los Angeles ordered Valencia to pay $51,688 in restitution, said a statement issued by Thom Mrozek, a spokesman for the U.S attorney's office in Los Angeles.

Two co-conspirators were previously convicted, the statement said. Felix Pichardo, 29, a licensed real estate agent from Lancaster, was sentenced to eight years in federal prison in 2009. Latrice Shaunte Borders, 31, of Long Beach, was sentenced to two years in federal prison in 2010.

According to court documents, Pichardo used false identities on loan applications to obtain mortgages on real estate that was not for sale.


California creating mortgage fraud task force

An old mortgage scam aims to hijack a payment or two

U.S. sues Deutsche Bank over mortgage fraud

-- E. Scott Reckard

Photo: U.S. Atty. André Birotte Jr. of Los Angeles. Credit: Los Angeles Times / Al Seib


Feds sue Goldman Sachs over credit union losses

Federal regulators have filed the fourth in a series of about 10 planned lawsuits against banks that sold questionable mortgage-related securities to big credit unions that subsequently failed.

The latest target is Goldman Sachs & Co. A $401-million lawsuit, filed Tuesday in U.S. District Court in Los Angeles, accuses the giant Wall Street firm of misrepresenting the soundness of mortgage bonds that were purchased by the now-failed U.S. Central and Western Corporate federal credit unions.

Goldman Sachs Goldman Sachs spokesman Stephen Cohen declined to comment, saying the firm prefers not to litigate disputes in the media.

Lenexa, Kan.-based U.S. Central and San Dimas-based Western Corporate are so-called wholesale credit unions, which handle transaction processing and investments for the smaller retail credit unions that deal directly with the public.

Shocks from the mortgage meltdown and financial crisis caused five of these wholesale credit unions to fail, and the National Credit Union Administration is now suing to recoup some of the losses on $50 billion worth of bonds that plunged in value.

The other defendants so far are the Royal Bank of Scotland and JPMorgan Chase & Co., with the NCUA seeking a total of about $2 billion in damages.

The lawsuits illustrate how federal authorities, largely stymied in attempts to mount major criminal prosecutions related to the mortgage crisis, are targeting financial firms and their executives in civil lawsuits.

Among the federal agencies pursuing this course is the U.S. attorney's office in Manhattan, which is seeking $1 billion from Deutsche Bank, Germany's largest bank, related to mortgages backed by the Federal Housing Administration.

Another example is the Federal Deposit Insurance Fund, which is demanding that former officers of Washington Mutual, IndyMac and other failed banks cough up hundreds of millions of dollars to cover losses to the nation’s deposit insurance fund.

Goldman shares closed up $5.07 to $122.73, boosted by the late market rally. The stock fell as low as $111.60 earlier in the session.

For the Record, 8:50 p.m. Aug. 9: A previous version of this post said Goldman Sachs Group Inc. was being sued for $401 million. In fact, regulators are suing the firm for $491 million.


Royal Bank of Scotland sued by regulators over credit union losses

JPMorgan Chase accused in mortgage securities cases 

Credit unions aren't immune

-- E. Scott Reckard

Photo: Goldman Sachs' New York headquarters. Credit: Mark Lennihan / Associated Press

Wells Fargo, KPMG reach $627-million settlement of lending suit

The legal fallout from high-risk, boom-era mortgage lending never stops, it seems -- the latest example being Wells Fargo & Co.'s $590-million proposed settlement of a class-action lawsuit centering on controversial "Pick-a-Pay" loans issued by Oakland's World Savings.

The San Francisco bank disclosed the deal Friday in its quarterly report to the Securities and Exchange Commission. It would settle claims brought against Wachovia Corp., the big bank Wells took over during the financial crisis, which, in turn, had acquired World Savings' parent, Golden West Financial, in 2006.

Wells branch-credit Paul Sakuma AP Wells said its financial reporting would not be affected because it already had set aside funds to cover the gigantic settlement.

Wells admitted no liability or wrongdoing by Wachovia in settling with the plaintiffs, mainly pension funds, who had bought bonds and preferred stock from Wachovia in 2007 and 2008.

In several lawsuits consolidated before a federal judge in New York, they alleged that Wachovia had been negligent in failing to disclose the risks embedded in the portfolio of Pick-a-Pay loans, which gave borrowers the option of paying so little that the amount they owed went up instead of down.

The accounting firm KPMG, which audited Wachovia's books, has agreed to provide an additional $37 million as part of the settlement, bringing the total to $627 million, said Darren Robbins, a San Diego attorney representing the plaintiffs.

That would be the largest total settlement so far of any securities class-action claims stemming from the credit crisis, Robbins said.  The runner-up: a $624-million settlement by Bank of America and KPMG in federal court in Los Angeles of a shareholder class action alleging that Countrywide Financial Corp. of Calabasas, now part of B of A, misled investors about its financial condition and lending practices.

On a related legal front, Bank of America recently agreed to pay a far greater amount -- $8.5 billion -- to settle demands by a group of big investors that it buy back soured Countrywide loans that had been bundled up to back mortgage securities. Many big banks, including Wells Fargo, are facing similar demands by investors in bonds backed by subprime and other high-risk mortgages.

A Wells Fargo spokeswoman, Mary Eshet, said the bank agreed to the settlement "to avoid the distraction, risk and expense of on-going litigation."

Wells Fargo’s shares were down 63 cents, or 2.4%, at $25.11 in midday trading. The stock has fallen more than 13% since its recent high of $29.01 on July 22, before the big sell-off in the stock market.


Wachovia to Buy Golden West S&L

Wells Fargo suffering from weight of Wachovia's mortgage losses

CEO says B of A is turning the corner on its Countrywide woes

-- E. Scott Reckard 

Photo: A branch of Wells Fargo, which said it already had set aside funds to cover its $590-million lawsuit settlement announced Friday. Credit: Paul Sakuma / Associated Press

California attorney general subpoenas CitiGroup over mortgage practices

CitiBank California State Atty. Gen. Kamala D. Harris has 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. and JPMorgan 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.


California may join probe of Wall Street's role in mortgage meltdown

California creating mortgage fraud task force

Freddie Mac: Mortgage rates down in the basement again

-- 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.


BofA's legal woes from Countrywide worse than expected

BofA gets 5 billion more reasons to regret acquiring Countrywide

Countrywide deal will pay off, BofA's top exec says

Ken Lewis' BofA exit kitty: $68.8 million

-- 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.


Chase lowers ATM fees

More banks ease business loan terms, but few do for home mortgages

-- 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

Wall Street Roundup: Bank of America misses. Bribery in Hong Kong.

Gold: Trading now at $1,486 per ounce, up 0.9% from Thursday. Dow Jones industrial average: Trading now at 12,337.20, up 0.3% from Thursday.

Bank of America misses. The nation's largest bank announced Friday morning that it turned a profit in the first quarter, but it was below what analysts expected in part due to mortgage losses.

Nasdaq shannonstapleton reuters Goldman misses. Many of the biggest Wall Street banks are in on the enormous initial public offering of Swiss commodities firm Glencore, but one name is conspicuously missing: Goldman Sachs.

Another settlement coming. After a mortgage servicing settlement earlier this week, banks appear ready to settle with regulators on accusations that they created bad mortgage backed bonds.

More on Madoff. A new court filing names the JPMorgan banker who raised concerns about Bernie Madoff back in 2007.

Bribery in Hong Kong. A few days after a Senate report criticized Deutsche Bank's behavior during the financial crisis, two of the bank's traders were arrested in Hong Kong on bribery charges.

Joe Battipaglia. Trusted Wall Street analyst Joe Battipaglia died unexpectedly on Thursday.

-- Nathaniel Popper

Photo: Shannon Stapleton / Reuters 


Wall Street Roundup: Morgan Stanley's turn. Goldman's opportunism.

Gold: Trading now at $1,418 per ounce, down 0.7% from Friday. Dow Jones industrial average: Trading now at 12,252.70, up 0.3% from Friday.

Morgan Stanley's turn. After last week's focus on Goldman Sachs Chief Executive Lloyd Blankfein, the insider trading trial of Raj Rajaratnam is expected to turn to tips from Goldman's main Wall Street rival, Morgan Stanley.

Goldman emblem Goldman's opportunism. Goldman Sachs has ticked off the Internet provider Clearwire by dumping the company as a client so that it could start working for the company that Clearwire was in negotiations with, Sprint.

Wrong on Japan. A successful European hedge fund manager made all the wrong moves on Japan, buying just before the earthquake, and selling after the earthquake, but before the market rebounded, resulting in $300 million in losses.

The smallest culprit. No Wall Street executives have gone to jail for the mortgage crisis that crippled the economy, but Joe Nocera found one rather ordinary marathon runner who received a 21-month jail sentence for his minuscule role in the mortgage meltdown.

-- Nathaniel Popper



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