Tag: fraud

  • Foreclosure Fraud Settlement: The Empire Strikes Back (or Why Are Republicans So Obsessed with Backdoor Cramdown?)

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    Adam Levitin

    It's not surprising to see the banks and their supporters on the Hill pushing back on the proposed Foreclosure Fraud settlement term sheet. (See here and here and here).  There seem to be three major lines coming out of the banks:

     (1) It's "backdoor cramdown," and the agencies shouldn't be pursuing a policy rejected by Congress.  

    Thus, House Republicans wrote to Treasury Secretary Geithner that "The settlement agreement not only legislates new standards and practices for the servicing industry, it also resuscitates programs and policies [namely bankruptcy cramdown] that have not worked or that Congress has explicitly rejected."  These House Republicans want to know:  "What specific legal authority grants federal and state regulators and agencies the power to require mortgage principal reductions when the House and Senate have voted down such proposals?"  .  Similarly a coterie of bank-friendly pundits chimed in calling this sub rosa cramdown.  

    (2) CFPB has no business being involved given that it doesn't have a director.  

    This has to be read between the lines as a thinly veiled Elizabeth Warren witch hunt.  At least one commentator was upfront about that in the American Banker.   

    (3) The settlement could negatively affect the safety and soundness of the banks.  

    Let me address all of these points.  There's a lot of willful confusion about this term sheet and what it is.  

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  • The Lack of Evidentiary Foundations Fosters Fraud

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    O. Max Gardner III

    The expanding market for that buying, selling and securitization of consumer debts has resulted in a serious problem regarding the “quality and admissibility” of the computer data that is being tendered to the United States Bankruptcy Courts to prove the nature and extent of consumer debt obligations. The same thing can be said with respect to the quality of the evidence that is being offered by Mortgage Servicers with respect to the nature and extent of the mortgage obligations of homeowners in bankruptcy cases. The analysis of these records by the attorneys for the debtors and by the Court has tended to overlook the underlying evidentiary foundations necessary to authenticate the same in order to create admissible and competent evidence. Also, since none of these records are generated in the normal course of business of an entity other than the proponent of the evidence in court, the business record foundation has also been either ignored or overlooked by the litigants and the courts. These are all important concepts in a consumer bankruptcy practice since the evidence presented in a proof of claim and in support of motion for relief from stay normally consist exclusively of “electronic evidence.”

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  • Bailout Bill Executive Compensation Provision: Lipstick on a Pig

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    Adam Levitin

    The bailout bill as defeated in the House today was some 110 pages. But there was little that made it substantively different from the two and a half page bailout plan originally proposed by Secretary Paulson. So what was all that other stuff? Lots of window dressing. Lots and lots of it to pretend that there were serious conflicts of interest provisions or help for consumers or limits on executive compensation.

    Let me just illustrate what a fraud the executive compensation limits proposed are. Currently, businesses may deduct all salaries under $1 million from their corporate income. The proposed bailout bill would lower that deduction to $500,000 for certain executives at certain companies. Already, not a real big penalty for excessive executive compensation–the tax deduction gets limited by $500K/executive. But here’s the catch: the deduction cap only applies to the top 3 executives at companies that have over $300MM in dealings with the Treasury under the bailout program, excluding direct sales.

    In other words, the bailout bill’s cap on executive compensation only applies to 3 people at really big financial institutions that enter into guarantee arrangements with Treasury. At worst, this means that an addition $1.5MM is not deductible from some very large financial institutions corporate income. $1.5MM is a rounding error for big institutions. The lost deduction on the salaries between $500,000 and $1MM will just come out of shareholders’ dividends which won’t be changed by so much as a penny. And for smaller institutions, e.g., hedge funds…probably won’t apply to them. Given that these institutions are reporting losses for the current year, this is pretty much a throw away anyhow. But for Congress to pretend that it did anything about executive compensation is laughable. I guess they were hoping that no one would look at the tax provisions (rather than the executive compensation provisions) that were buried on page 101 of a 110 page bill.

    And the golden parachute limitations? First, it only applies to the top 5 executives, not others. Second, there are already strict limits on executive compensation for troubled banks. The universe of people affected by the executive compensation provisions in the failed bailout proposal would have been very small indeed. (I would be surprised if there are other twists that make this ineffective: tax folks, what am I missing?)

    And guess what the executive comp provisions don’t cover? The big gedile…stock options. If you’re an exec whose options are out of the money now, guess what, the board can issue you more (at no cost to the company really), and there’s nothing in the bailout bill that will stop that.

    So what did Congressional leadership do with this bailout bill? Put lipstick on a pig. I wonder how many Congressmen who voted for the bill know just how impotent the executive compensation, oversight, and homeowner protection provisions are. There’s a reasonable bailout bill that could be passed. But this wasn’t it.