Le Show; 2013-04-28

Here it is! From deep inside your radio. As I walk down the street, seems everyone I meet, gives me a friendly hello. I guess I'm just looking so handsome. Well, ladies and gentlemen, from New Orleans, Louisiana and London to England, parts in between, this is Lesho and I've had sort of the simulacrum of a real life this week so I haven't been able to consume enough media to have a really, a plentitude of the so's of the week. I have a couple good ones, including one that just... I have to say is almost mind-boggling in that every single answer by the interview week begins with the word so. So, please enjoy the so's of the week.

Erica Solomon is based in Beirut for the Reuters News Service. What can you tell us about how the fighting has been going of late? So, the past week has seen a bit of an advance for the government. Good morning, Festival. Now, we better start with what anti-matter is, which is something we've been discussing quite fiercely in the office this morning. So, anti-matter is like a mere symmetry of matter. And what have you discovered as a result of the experiments at the Large Headron Collider? So, what we've been looking at is fundamental differences in behaviour of matter and anti-matter. Which means what? That difference is what? So, we look at the ways in which a matter of BSM is on, if you like, and an anti-matter one decay into a particular final set of particles. So, what the argument is if they decay, if it decays at a faster rate, that would explain why there's less around now.

So, if matter and anti-matter, if the matter and anti-matter variance differ in their behaviour, so one decays more often to this final state, or the mere image of this final state, than the other one, then it shows a fundamental difference between matter and anti-matter, so the puzzle still continues. So, the conclusion really is that the way you can define anti-matter is it begins no sentences with a word, so hello, welcome to the show. You are only waiting for this moment to arise. Blackbird singing in the dead of night, take these sunken eyes and learn to see all your life. You are only waiting for this moment to be free. Blackbird flying.

Blackbird flying into the line of a door-black night. Blackbird flying. Into the line of a door-black night. Blackbird singing in the dead of night, take these broken wings and learn to fly all your life.

You are only waiting for this moment to arise. Blackbird singing in the dead of night. Blackbird singing in the dead of night. Blackbird singing in the dead of night, take these sunken eyes and learn to fly all your life.

Blackbird singing in the dead of night. Blackbird singing in the dead of night, take these sunken eyes and learn to fly all your life. Blackbird singing in the dead of night, take these sunken eyes and learn to fly all your life. Wow, Ralph the Talking Computer reading Larry King's things.

It was, in fact, chock full as you predicted, Ralph. This Ralph will have to get into that later broadcast. Ralph the Talking Computer on the noisy line from Los Angeles. Thank you so much for joining us here today. On the show and now ladies and gentlemen, news from outside the bubble. Well, on this week that George W. Bush opened his library in Texas. A lot of talk about the legacy. This from the Times of London. There's been three days of sectarian bloodshed throughout Iraq. It has left dozens dead and caused fears of a return to civil war. The violence brought on by soaring tension between Sunni and Shia communities has raised fears that Iraq could be sliding back towards open conflict, not seen since the height of the insurgency against American lid.

Coalition forces in 2005-07. Prime Minister Maliki's Shia-led administration is accused of stoking the conflict by systematically marginalizing and inciting Iraq's Sunni population. The latest violence comes after an alleged attack by government security forces on a Sunni protest camp. The conflict across the border in Syria has also exacerbated sectarian tensions in Iraq. Sunni tribal areas in Western Iraq have been used by Gulf Arab states to arm rebel groups in Syria. Iraq's summit in autonomous Kurdish region to the north has also been used to funnel weapons to the rebels. Threatening leaflets from Shia militant groups have been appearing on doorsteps in Sunni districts in Baghdad. Local community leaders are struggling to remain calm. Iraq, you are so welcome. A story from the Times of London owned by Rupert Murnaq. I think we can stand that embarrassment.

I think you can stand it all. Now ladies and gentlemen on a related subject, the legacy of the Bush administration, this, a deposition that resurfaced this week, originally given in 2010 by Colonel Lawrence Wilkerson, who was Chief Deputy to then Secretary of State, Colin Powell. This is about Guantanamo. Quoting, Colonel Wilkerson's sworn deposition, quote, a regular theme began to emerge during the updates to the Secretary regarding Guantanamo detainees. At the briefing, Secretary Powell would question senior personnel for information about specific progress in negotiating detainee releases. A number of these conversations arose because Secretary Powell received frequent phone calls from the British Foreign Minister, who consulted with him frequently about repatriating the British Guantanamo detainees. He would call and remind Secretary Powell that the UK as our closest ally was fully capable of detaining terrorists,

equally capable of trying them in its courts, and that he should push the repatriations ahead. I also know that several other foreign ministers spoke with Secretary Powell urging him to repatriate their country citizens. During these morning briefing, Secretary Powell would express frustration that more progress had not been made with detainee releases. It became apparent to me as early as August 2002 that many of the prisoners detained at Guantanamo had been taken into custody without regard to whether they were truly enemy combatants or whether, in fact, many of them were enemies at all. I soon realized from my conversations with military colleagues as well as foreign service officers in the field that many of the detainees were, in fact, victims of incompetent battlefield vetting. There was no meaningful way to determine whether they were terrorists, Taliban or simply innocent citizens, innocent civilians, picked up at a very confused battlefield or in the territory of another state such as Pakistan. The vetting problem, in my opinion, was directly related to the initial decision not to send sufficient regular army troops at the outset of the war in Afghanistan,

and instead to rely on the forces of the Northern Alliance and the extremely few U.S. special forces who did not have the necessary training or personnel to deal with battle-field detention questions or even the inclination to want to deal with the issue. A related problem with the initial detention was that predominantly U.S. forces were not the ones who were taking the prisoners in the first place. We relied upon Afghans, such as General Dostom's forces and upon Pakistanis to hand over prisoners, whom they'd apprehended, or who had been turned over to them for bounties, sometimes as much as $5,000 per head. Some of the Guantanamo detainees had been turned to U.S. forces in order to settle local scores for travel reasons or just as a method of making money. I recall conversations with serving military officers at the time who told me that many detainees were turned over for the wrong reasons, particularly for bounties. By August, late August of 2002, I found that of the initial 742 detainees that had arrived at Guantanamo, the majority of them had never seen a U.S. soldier in the process of their initial detention

and their captivity had not been subjected to any meaningful review. Often, absolutely no evidence relating to the detainee was turned over, there was no real method of knowing why the prisoner had been detained in the first place. It was also becoming more and more clear that many of the men were innocent or at minimum their guilt was impossible to determine, let alone prove in any court of law, civilian, or military. If there were any evidence, the chain protecting it had been completely ignored. I came to understand, Colonel Wilkesson concludes, that there were several different reasons for the refusal to release detainees in Guantanamo, even those who were likely innocent. At least part of the problem was it was politically impossible to release them. The leadership of the Defense Department would be left without any plausible explanation to the American people, whether the released detainee was subsequently found to be innocent by the receiving country or whether detainee was truly a terrorist and upon release would return to the war. Another concern with the detention efforts in Guantanamo would be revealed as the incredibly confused operation that they were,

such results were not acceptable to the administration that would have been severely detrimental to the leadership at the Defense Department. Another part of the political dilemma originated in the office of the Vice President, whose position could be summed up as, quote, the end justifies the means, unquote, and it would absolutely no concern that the vast majority of Guantanamo detainees were innocent or that there was a lack of any usable evidence for the great majority. I learned it was the Vice President's view, that it was not just him in Rumsfeld, but also President Bush, who was involved in all the Guantanamo decision making. By exploiting what Secretary Powell called the President's, quote, cowboy instincts, unquote, President Cheney could more often than not gain the President's acquiescence. Unquote, Colonel Lawrence Wilkerson, chief deputy to Secretary of State, Colin Powell, sworn deposition, that it until this week, when it was rediscovered by the Atlantic,

had been outside the bubble. A copyrighted feature of this broadcast. This is Lesho, and today I'm welcoming back a familiar voice to these microphones, always with useful information today, I think, even probably more so than usual because she's just been doing some spectacular reporting on a subject that has been largely ignored, strangely enough by the national media. The subject is the ongoing F-Bomb, the foreclosure crisis, the foreclosure mess, and specifically the independent foreclosure review, and the guest is the author editor, owner, proprietor, entrepreneur of nakedcapitalism.com, Eve Smith, Eve, welcome back to Lesho. Harry, thanks so much. Great to talk to you again. You too. On the broadcast week or two ago, we had a clip of Elizabeth Warren from the first set of hearings on the independent foreclosure review, Brown beating the representative of the Office of Control of the Currency and the Federal Reserve,

about their apparent inability or unwillingness to release any of the information they gathered in this review to the public or to possible homeowners filing suit, which was a good little brow beating, but let's get the larger picture. What was the independent foreclosure review? Who started it and why? Okay, it was officially entered into in April of 2011, and even the backstory sort of explains why it came out, well, a part of at least, why it came out the way it came out, which is that in, if you recall, in the fall of 2010, the RoboSigning scandal became national news. Now that, if you'd been following the story in local courtrooms, there had actually been a lot of foreclosure defense attorneys trying to mount defenses based on the fact that the mortgage securitization actually had not been done correctly, and separately, the borrowers would be trying to get modifications from their bank.

They think that they were good candidates for modifications, and historically, if a borrower got in trouble, you'd always be better off settling for half a loaf rather than none, but instead foreclosure attorneys started looking, increasingly looking at whether the party that showed up that the court was actually the right party to be foreclosing. Then you had the RoboSigning scandal break, then you had a big scramble among federal regulators, frankly, to try to pretend this was not a problem. You had a big review by 11 regulators that implausibly claimed there were no problems in November, December 2010. Nevertheless, a bunch of state attorney generals started getting troubled by this informed a group that started negotiating with the banks around this issue, a number of federal regulators joined, and again, it all goes back to Elizabeth Warren. Elizabeth Warren was sort of invited into this group and began just using fairly straightforward arguments

to basically say that banks pay a lot of money merely based on how much they'd saved through bad servicing, not even looking at the harm they had done to borrowers. Well, the office of the currency was part of these discussions and they didn't like the way they were going, so they broke from those negotiations and put this settlement in place in an attempt to torpedo the other negotiations. This is why this whole discussion of settlements becomes very confusing because there actually have been two going on. There's this OCC one that's created this big brew-ha-ha, and then the big state attorney general, federal one, the rest of the regulators, was concluded a little bit more than a year later in January 2012. That was the one that had the banks paying supposedly $25 billion. That's correct. That's why they all started from the same place, but the OCC split off with this one, and that one, people who had been watching it closely, knew that the OCC, not just from its history, but from the consent order itself,

was really not a good faith effort. One part of the consent order was basically that the bank should service the loans better, except better was really just an affirmation of existing law. There really was nothing really new in the servicing provisions at all, so you're going to have, you're just going to tell them again, to obey the law when you've not enforced this in the past, why would we take this seriously? Let me just break in for a second. Servicing in the current usage means the agency, which may be owned by the bank or may not be, which collects the money month to month on a mortgage and does other things that, in the old days, would have been done by the bank that made the loan. That's right. That's the problem we have now is that the roles are all split up. And fortunately, you know, finance should not be complicated. The fact that it's not become complicated is a bad sign.

You now have, when a mortgage is securitized, meaning it's been eventually sold to investors that you have a split of roles. So the bank that originates the loan may or may not be the one that services a loan, which, as you say, is collects the payments, deals with the investors, and also is the one that handles the foreclosure. And the whole problem goes back to the fact that when they set up these securitizations, they provide it for ways for the banks to be paid if they foreclose. They don't provide for them to be paid if they modify a loan and a modification is actually much more work. So, of course, the banks foreclose. And even though foreclosures are worse for the borrower and worse for the investor, the only party that wins out of this is the bank. Nobody else. Everybody else comes out much worse off. So we'll dial back to the 2011 consent order. So one part was the servicing guidelines, which said, you guys obey the law, basically. The second part was that they were going to provide for these, again, what you correctly call the independent foreclosure reviews, but they were independent as a bit or well-earned.

The banks were directed to hire independent, quote, independent consultants, except these independent consultants were hired by and paid for by the banks. And people, for example, like Sheila Bairn, her book, she's got a book called Bull by the Horns, where she talks about her experiences at the FDIC. And she had one experience with, you know, where she was sort of forced in a regulatory process with the Fed and Treasury to have a bank use and independent consultant. And she describes, you know, rather colorfully, how gregiously, you know, appallingly bank favorable the report was. It just was incredible. And so the FDIC has a very dim view of these independent consultants. The OCC by contrast is a very bank cronistic regulator. The most bank cronistic regulator. So you could see this whole thing was baked in to basically be a cover-up. The thing that turned out to be rather strange was that when the consultants basically appeared to have viewed this as a fee gouging opportunity. And the OCC didn't give very clear, first thing didn't really understand the task. This, you know, there were 4.3 million borrowers that were potentially eligible for review.

The OCC strangely defined the objectives as to find all the borrower harm. I mean, which is, you know, no honest review could do that, particularly for so many mortgages. And they set up a very confused process where they had one track where borrowers would write in and ask for their loan to be reviewed. And there was a second track where the servicers and their consultants were supposed to come up with a statistical sample. And somehow they were, they were to sample in a way that went unearth all of the borrowers that hadn't sent in letters. I mean, I can go through the long form statistical part of it, but that's just basically no way to do that. You've got sort of two object, two conflicting objectives in statistical part, because if you wanted to find all the harm, that's really not a statistical process. And then the way they went out to try to find the patterns of harm led to sampling that wasn't random. You know, for instance, every state's got different foreclosure laws that meant your sample, you know, your sampling would have to cover all 50 states.

Well, let's face it, most of the foreclosures, particularly most of the really bad loans were originated heavily in a handful of states. I mean, if you'd want to do 80, 20 nearly all the bad foreclosures, not nearly all, but just vastly disproportionate proportion of the bad foreclosure activity took place in, you know, Florida, California, Arizona, Nevada. Right. So, you know, if you're going to have 50 states, if you've had 50 states, that's going to overweight the states that the subprime letters flew over like Iowa. And there's no question that this I would suspect the consultants understood full well the implications of some of the way the OCC structure disrequest and went along. And then the OCC began finding problems as they went along with how they were doing it. Their guidance wasn't clear. They had wanted this to at least be consistent across all the servicers or appear to be consistent. They're having consistency issues, so they kept revising their standards with the consultants. So the whole thing just led to this explosion of cost.

By the time they got done, they had only viewed 100,000 loans at a cost of $2 billion. That's $20,000 per loan. And a contributor to your blog, Michael Lennox said in a recent posting that with software he had devised and with the knowledge that he had of how to do such this kind of work, adding layer upon layer of profit and overcharging. He could only figure out how to spend about I think his figure was 250, roughly 250 million on something that the consultants ended up spending $2 billion on. Is that right? Well, that's correct. And that was one thing that we found in our, I had nine whistleblowers come forward. And one thing that they described was just the incredible managerial incompetence that, for example, at one of the smaller servicers, PNC, when you think a smaller should make it mean it was more manageable, they literally had one person from prometory, 140 to 150 consultants, you can't have one person supervise 140 to 150 people, particularly with sort of a novel set of tasks.

And they would literally sit around in a room for months waiting for instructions for what to do. So that's part of how they got here that they hired people and then had them do nothing. And then it was also, at least on PNC and I suspect this happened on some of the other banks, is there were increasingly, there were leaks on the prometory set, and a prometory to back a prometory is one of the independent consultants, they handled two of the largest reviews, they handled Bank of America, and they handled Wells Fargo, and they also handled PNC, which is the third one I mentioned, the small one. And they're believed to have pulled out the overwhelming majority of the fees because they went and hired outside staff, they had never, they didn't have a history of running big projects like this, they're only 400 person firm. And the other big consultants in this were Deloitte Tush and Pricewater House Coopers, they're both big accounting firms, they at least know something about securitizations, they're regularly used on securitization.

I mean, they are not expert in this part of securitization servicing, but they know the space generally. And accounting firms get hauled cold into do genormous projects on a much more regular basis, so they weren't as incompetent at this as prometory was. And what happened with prometory was they were increasingly leaks, ProPublica had a story in October, the first one, they did several, but the first was in October 2010, where they basically questioned, correctly questioned, the independence of the reviews at Bank of America, because at Bank of America, they were already described two tracks. The one track where they reviews the borrowers letters was being done by temps on Bank of America site, under the direction of Bank of America, prometory, all prometory did was provide the software that the answers were logged into. And when that leaked out, there was apparently a huge scramble at the OCC because they had been exposed as not being sufficiently concerned about independence.

And apparently at PNC, they threw out all of the work that had been done through October. These reviews had, this had started in September, now this is September 2000, from September 2011 to October 2012, all that work was thrown out. So that's how you got to such big bills. You know, most of the work was not even used. A prometory is an independent consultant, increasingly in the news, and I think one of the things that you've spotlighted is that the revolving door doesn't begin to describe the number of former high ranking members of the supposed regulatory establishment in Washington who have left government and shown up as high ranking officials at prometory, is that correct? That's correct. I mean, most recently, Mary Shapiro, who was head of the last head of the SEC, has joined prometory. A bit sus-looking is that the last general counsel, sorry, they call them chief counsel, general counsel's a corporate term.

The last chief counsel at the OCC is a woman named Julie Williams. She had been the, she was hired by Jean Ludwig, who is the head of prometory. When he was controller of the currency, they have particularly deep relationships at the OCC because of Ludwig's tenure there. So Ludwig had hired Julie Williams. She was clearly key in negotiating these consent orders with all of the banks, and then she went to prometory. Ellen Blender, a former, I believe, is a former vice chairman of the Fed. Is it an advisor to prometory? So they've got very senior people, as well as a lot of people at the next layer from pretty much all of the regulators. I mean, if you read, you know, there are a lot of, for example, people, the treasury who involved in the tarp negotiation. So about, prometory has roughly 400 professionals, and I think it's something like 400 of them, or 100 of them, of the 400, roughly 100 are ex-regulators. Wow. Now let's talk about your whistleblowers. The reporting based on the whistleblowers evidence that you've gathered into an e-book, and we'll tell listeners how they can get the book at the end of the broadcast.

But highlight for us some of the, of what they reported about how they went about this, this work of reviewing these mortgage files. I mean, what's going to ironic about the whole thing is that the Bank of America actually, on some level, was far more serious about having people look at this. I mean, they actually, they got 18, ultimately, it was roughly 1800 people in multiple locations going through files based on the borrower letters. And they hired, through various temp agencies, people who were pretty well qualified, at least initially, they started downgrading it as it went on, and hiring lower and lower skilled people who were less capable. But the initial people they hired, for example, the people I spoke to who all worked in Tampa Bay, the least experienced one, had been paralegal for five years at a foreclosure defense firm. So these were all, you know, and they all were very knowledgeable mortgage documentation and mortgage procedures.

And they were told by the temp agency that their job was to find borrower arms. So they thought their job was to find borrower arm. And they were, they, you know, they were trained to use the computer systems. They went and dug through stuff, you know, and then what, of course, and then the weird part was they would find harm. And then there'd be layers above them, for example, they called it quality assurance, another or really in term, but they had a quality assurance department, which would then look at what the reviewers found, and basically they would undo their work. They would say no harm. They would say no harm, but then the, then the reviewers were given the opportunity to rebut it, then it would go to promontory, which would inevitably find no harm. So there was this whole like, you know, the whole thing was like this bizarre ex-costly charade. I mean, I'm not, you know, so they, but the point was that because they set these temps who ultimately obviously have no loyalty to Bank of America, because their temps loose on these files, who knew something, they found a lot of stuff. The most disturbing thing is they found what, again, foreclosure defense attorneys have claimed has been going on just because they've seen it so frequently it can't be an accident.

They saw patterns of systematic abuse, you know, things that could not be accidents because they happen so often, for instance, when people would get modifications, they would, they would typically have all of the expenses. They've gotten late, typically, typically people don't get them on modifications unless they've been late, so they would get a modification. They would have all of the late fees and other charges that were due on the account wrapped into the principal balance. So let's say, you know, they had a hunt, you know, the balance had been 150,000. The bank says you have, you know, X in, you know, what's your behind, you know, plus other fees we've incurred. So now your balance is 150,000 plus X. The problem is the X, at least half of the time, was an amount that just wasn't legitimate. They would often show attorneys fees of more than $5,000. And there are state guidelines. There are, you know, Fannie and Freddie, the two big investors and mortgages guidelines that limit, you know, in a completed foreclosure, you're not supposed to get to 5,000 unless it's contested in most states. And in a foreclosure that wasn't completed, this is a number that's just not plausible. And yet again and again and again, they'd see numbers like that.

Similarly, in bankruptcy, if somebody goes into bankruptcy, the whole idea of bankruptcy is a chapter 13 bankruptcy, is that the court figures out how much you the borrower can pay to your creditors if you live basically very austerely for 60 months. And you make your payments and you emerge from the bankruptcy clean. And during that period, any payment that is made through the court process is on time. So let's say your mortgage originally said you were supposed to pay on the 10th if the bankruptcy trustee, a lot of times in a lot of states, they paid the bankruptcy trustee rather than writing a whole bunch of checks and the bankruptcy trustee then pays the bank. Whenever the bankruptcy trustee pays the bank, that's on time. Well, that's not how it was done. The banks, Bank of America would accumulate late fees during the bankruptcy. They might also include pre-bankruptcy fees that should have been reported to the court, they're supposed to report all of the, anything they think they're owed to the court during the bankruptcy process, they'd wrap all that stuff and then hit the borrower as soon as they emerged from bankruptcy.

But the borrower is broke by definition. The borrower is supposed to emerge from bankruptcy debt clean with basically no spare cash. So the borrower has got no money to fight the bank at that point. And a lot of people lose their houses that way. I mean, at that point, if you've got no money, two, three, four, five thousand of charges post bankruptcy is going to kill most borrowers. Another one was forced placed insurance. Countrywide was notorious for this. They were the biggest player in this game. Forced placed insurance is where a bank will find that a borrower has, and oftentimes not validly, but they'll claim that the borrower has either insufficient insurance or the policy has lapsed and they'll put their own policy in place, which is five to ten times what it should cost in the marketplace. And typically, they'll have some kind of kickback arrangement with the broker so that they skim an extra fee off of this.

With the insurance broker. In this case, Countrywide had its own captive insurer, so it was even worse. So in any event, if somebody applied for modification, they would be required to take what is called forced escrow, whether or not their mortgage actually required escrow, and that escrow would include forced placed insurance. And they asked that forced escrow would stay in place, whether or not they got the modification. And there's more. I mean, this is just a partial list. Yeah. I think we probably have to go back for another helping, but let's bring this up to date. This process then was called to a halt by the office of a comptroller of the currency, the OCC, what late last year or early this year. Right. They started negotiating it appeared in December and they shut it down at the beginning of January. And they said, we're not going forward with this review because it was faulty and costly. And then what happens? Well, and then they negotiated a settlement without knowing who was harmed, but wanted to pay the borrowers money.

So some money, some token of the excuse was, oh, you know, this was taking too long. We needed to get money faster. Well, what is good of getting money if you have no idea as Elizabeth Warren, in particular pointed out, if you have no idea if it was enough money because you never finished the work or never did enough work to have an idea of what an adequate amount was. Now, of course, this gets back to that's assuming these guys had good intention, which I sincerely doubt. But in any event, so you basically conclude that either they were incompetent or corrupt, so you can pick your poison on this one. But in any event, the point was they got this pot of money and 3.2 billion, is that right? It started out with the number sort of increase. They got three point initially was 3.3, but then a couple of other servicers joined the settlement later. So it ultimately was 3.6 billion. And there's another portion that's sort of non cash goodies. So sometimes you'll see a number that's 9 billionish reported. Forget about the 9 billion number. I mean, it's all smoke that is smoking mirrors. In fact, in the hearings yesterday, there was a separate set of hearings yesterday.

Senator Murkley demonstrated that they could basically satisfy the rest of, if they really wanted to gain the system, they could satisfy the rest of that 6 billion obligation with basically 12 million, M with a million of mortgage modifications. That's how badly the other part was structured. It's a throw away the other 6 billion. The 3.6 billion across 14 servicers, they had to distribute, and there were specific numbers for each servicer. Every servicer had their piece. But they had to figure out how to distribute this money with no idea, with no, with not enough information to do this in any sensible way. So they basically it emerged in the hearings, the second round of hearings, that effectively the way they did it was they just took the borrowers who were the furthest along the process and gave them the most money. So basically if you were early through the gate, you got more. Wow. So it's a reward for either sending a letter in quickly or having a bank or a servicer respond to you quickly.

Yeah. That's right. So the whole thing is just it was going to be arbitrary no matter what. And on top of that, the amounts and who got them were determined strictly by the OCC and the banks. So again, as Elizabeth Warren pointed out, this was basically letting, you know, the guys who caused the problem decide who was going to get the money. I think the representative from the GAO who testified at the second set of hearings said that the data are incomplete. The data does not allow us to render any conclusions about error rates at a particular servicer and make comparisons between or among servicers despite what's been reported at the press. So this, this, the result of this process is sending money to whom based on what? Well, no, that's what I'm saying. I mean, there's a very tidy looking schedule that divides people into categories of harm. But, you know, basically just think about it. You have a fixed pot of money that you're going to have to figure out how to distribute not even knowing who was heard.

So any, any process, I mean, any process is going to be arbitrary. I mean, that's just inherent. So, so they produced this pretty looking schedule. And then, and then a member, and I think that maybe what the GAO person is reacting to, whenever people looked at the schedule and said, gee, they're claiming that so many people were harmed. No, this is just made up. You know, I mean, this should not be just because people put numbers on a page does not mean the process had any dignity. You have to understand the process was baloney. And they just came up with some arbitrary way to hand out the money. That's what this amounts to. And the one, the only thing that I believe probably happened is that the banks have been very sensitive to violations under the service member civil relief act. And that's where, and that's longstanding law where basically active duty service members are not supposed to have to be foreclosed on. And there were also additional provisions where they were supposed to have interest rates lowered to if they were in a high interest on it, the ceiling was 6%. And there were, there were a lot of SCRA violations. And the banks don't want to, you know, it's a real media problem for them if they beat up, you know, if they mean to, you know,

plus the veterans affairs committee, you know, the banks don't spend money on those senators. They're like, you know, so they're all so they're not. They're not captives. They're not captives. So they're really afraid of blowback from there. So I would say it's possible that the abused service members may have gotten something approaching adequate relief. Any other category. We heard numbers, I think, in the, in the bit of media coverage of this settlement that the relief would average out to about, and I think Elizabeth Warren used these figures as well, like $5 to $600 for somebody who had lost their house. Right. Yeah. And the other thing is you've got people, you know, like I had one person show up on my blog who said, you remember this again, because it's arbitrary, you've got people getting money. Who actually should have been foreclosed on, I mean, who really were behind, who, you know, knew they couldn't save their house, who, you know, they just threw it in and left, you know, threw it in and left or threw it in and got it didn't lose or whatever. I mean, I had one of those show up on my blog said, yeah, I got it, you know, I got it, you know, clearly somebody who was expecting not, you know, didn't think they deserved any money. I think he got a $500 check.

And most recently you reported that some of the first recipients of checks from this process reported that the checks bounced. That's correct. Is that insult to injury? Is it? Yeah, well, and it also looks like, you know, there's also this disconnect in that it looks like, again, like they're not making good faith efforts because, and this is the GAO criticized the first time around. The GAO said, when they were sending out the mailings, the same firm that's handling the payments is the one that handled sending the letters, trying to find people who, who had been, who were eligible for review. And so what was the first thing they tried doing? I'm not making this up. They sent letters to the dresses where people have been foreclosed on. Now, so nobody home. So the GAO sort of got all over them and told them that they had to do, embarrass them enough that they started doing more outreach, like, you know, advertising in certain communities, so forth and so on.

But they're still, but even then, even then when the letters were sent out, they were written at a, at basically a second year college level when the federal guidelines for sending out any kind of official communication is that you'd be written at the sixth to eighth grade level. So, you know, again, you know, is, is this incompetence or is this bad, I mean, I'm inclined to bad faith, but you can argue in competence. But either way, you go back to this firm rust consulting. So this is the second time they've had a settlement where they haven't had the cash in the bank. They had one in 2006, ironically, in fourth place, forced placed insurance where they didn't have the money all there before they started sending checks out. You know, that's a lot of play, you know, I thought check-cutting was a crime, you know, I don't understand why this is, why they aren't being finder sanctioned for this. And, you know, then there's all sorts of stuff like, for example, the letters, the checks have to be cashed in 90 days.

You know, why is that? You know, I mean, I'm most checks, my understanding is they're normally good for, you know, 180 days to a year minimum. I mean, so they're putting, you know, and then flipside isn't the hearings, you, you know, sounds like you looked at some of the hearing testimony. But in the hearings, the rust, the rust guy sort of went on and on and stressed the lengths and the processes they used to find if they, you know, the letter came back or they couldn't find the right address. Well, again, I had somebody show up, you know, and how many readers do I have? I mean, you know, I don't have that enormous readership base. I mean, it's pretty good, but it's not, you know, it's certainly not like the New York Times or, you know, major media. You know, somebody shows up on my blog today and says, you know, a couple days ago and says, oh, hi, you know, our law firm doesn't do anything in the mortgage and foreclosure space. And rust consulting sent us a check on behalf of a woman we never heard of. And according to rust consulting process, it's not conceivable that if they had used the process they described for finding people who were hard to find that he would have gotten this law firm would have gotten the check. Just to find out what to do. He got, you know, they got the enormous run around.

Let's talk a little bit more about the specifics of what these, these people were doing during the review process itself. I mean, you did a five day series of very detailed reports from these people. And it seemed that a lot of the problems were definitional. A harm was defined away. Can you, can you get into that a little bit? Well, they were doing their best to narrow the scope of the reviews. So for instance, they had different teams handling different aspects. And one, so one group of reviewers would handle modifications only. And modifications were ones where there were some of the biggest problems. So the reviewers would go in and one thing that happened quite often at least at countrywide in Bank of America was somebody applied for a modification and then got a trial modification. Well, actually two bad things would typically happen. One would be, and this one was reported frequently in the media that they were supposed to send in documentation of their status, their financials.

And the bank would keep saying, we didn't get it. You know, and they would make them fax it and again and again and again and again and again to different numbers. And they kept claiming they didn't get it and then would not give them the permanent modification. Well, of course, these temps would find in fact that the bar head sent the paperwork in. They would find these scanned images of the paperwork in the system. It was just an out and out live. They didn't have the paperwork, which isn't surprising. But that's what happened. But the second bit was that, you know, when somebody had a trial modification, they would be told to send in, you know, obviously a trial modification payment is smaller than the original payment. Those payments would be sent in and instead of being credited to the borrower's account, they wouldn't know where to put them. They somehow hadn't set up the systems for what to do with these smaller payment amounts. And they would be put in something called suspense, so not credited to the account and then the bar would be treated late and late views would start being accumulated and then they'd be, you know, rejected for the modification and then they'd be foreclosed on. And they would and they came on just sort of numerous examples of this sort of activity happening.

The other case would be just would be just a computer screw up area, not on sort of the hand models, which are the most probably multiple modification programs. But there are also cases where just where the mod wasn't as a term of art is boarded somehow, even though the borrower had sent back a sign, the bank had sent the letter out, the bar had sent the letter back with the first payment. Somehow it wasn't boarded, it wasn't loaded into the system as being modified, even though the, again, the reviewer could see the scanned borrower document that they had signed it. And in those case, there was one case, which was particularly charming back to your defining away harm, where the bank to send the check back. They would send the checks, you know, they had an improved mod, the bank would just send the checks back and say, oh, they're not sending a sufficient payment amount because the mod hadn't been boarded, right? They thought the old payment amount was in place. And of course, the reviewer flagged that as being harm that was sent up the line and the quality assurance rejected it. You know, they tried sending it back and prometory said, well, the payments were being returned because the borrower wasn't making any.

That's literally what the notes said. So this is the kind of stuff you saw. I mean, this was kind of normal in terms of the way the crazy ways things would get rejected. And then there were other things would just sort of, you know, sort of more scandalous and troubling. I mean, for instance, one of the things that they were asked to, this is a different test, but they were asked to check on whether the bar had been in the term of art is breached properly. That the first step in a foreclosure is to send it, what is called a breach letter, which says, you're in trouble, you're behind, you know, we're going to start a foreclosure action. Unless, but there is a way you can get yourself out of the hot soup, if you send us this amount of money by this day to this address, you'll be okay. So, and so there are specific things that have to be in a breach letter for it to be a legal breach letter. Well, for a whole class of bar, you know, there was a whole set of borrowers where the breach letters were missing. Then suddenly, all at once, these missing breach letters appeared. They were on, they had the wrong Bank of America, they were country-wide loans.

Not only did they have a Bank of America logo for loans that were country-wide loans, it was the 2011 Bank of America logo when there was a different letter in logo in 2009 and. Meaning so it's been manufactured after the fact. They've been manufactured after the fact and they weren't even proper breach letters. Okay, because a proper breach letter should say, dear, you know, it should have the borrow name and address, you know, it should, you know, it should have, as I said, you know, the pay off amount and a pay off address and a mailing address. And these letters would be, dear customer, no address, no name. And they wouldn't have the pay off amount. And one of the attempts, you know, went and brought it to one of the better managers and said, you said, this just doesn't even wash. And the manager looked at it and said, yeah, you're right. And then all those breach letters disappeared. So there was evidence, what's very troubling is that there's evidence, and this may be another reason why the cost escalated. You know, I question how, whether there was, you know, there's evidence at Bank of America that there was basically document fabrication going on.

So was the reason that some of these costs got so high is that the consultants were helping the banks fabricate documents on the side. I mean, that's frankly, the evidence at Bank of America says that was at least some of the activity. And the cost of the promontory reviews looked to be out of line with the ones by the accounting firms was promontory doing this sort of thing at the other banks too, that it was reviewing. Now you have probably legally astute readers, people in the in the in the law business has anybody weighed in with the analysis that this rises to the level of fraud. No one has said that yet because we don't quite have a smoking gun. This certainly looks like fraud because it was, well, I, the flip side is I've got their, I'm in contact with a fair number of foreclosure defense attorneys and they have been saying fraud for very long time. So the problem is they're actually at me even before this, there have been people saying fraud again to your point about the national media, the national media doesn't want to hear this because the implications for the banks would be too devastating.

You know, one firm that I really hoped would get busted was one called lender processing services, which does a large portion of the mechanical activities is the best way to they call themselves a software platform. But one of the things they do is that they manage the relationship with the attorneys. And about 60% of the servicers use the bank of America uses them. One of the things that one of the consultants at PNC said was very clear was the OCC in the later stage is said that they wanted backup for the third party charges, which would be the attorney fees. They said that lender processing services could not deliver any support for the attorneys fees and lender processing services got paid by basically getting kickbacks from the attorneys. So again, LPS would have a huge incentive to inflate the attorneys fees in order to inflate their compensation.

So processing services, not the firm of one of whose subsidiaries was Doc X, a business now out of business whose business model was document fabrication. That's correct. So yeah, and and and attorney general masto in Nevada was going after them fairly systematically. She launched a criminal case against some lower level employees, and she was clearly hoping to sort of roll that up to more senior employees. And that's just, you know, that was basically abandoned when the big federal state attorney general general settlement I mentioned was entered into that was you just drop that. So we have very detailed reporting by you on the activities of these whistleblowers inside the independent foreclosure review. How can listeners, it's in the form of an ebook. How can people access it? What's the where they go? The easiest way would be to Google naked capitalism in quotes and ebook.

Okay, that's your only ebook. That's my only book. Yes, so far. Yes, you so far. So that's so that way you will find it. And it's free and it and it's free. Okay, and it's when you find it, it's got a little it's got a little sad piggy on broken broken piggy bank. Oh, no, sad pig. Yeah, how could you? It's I read the whole series. It's stunning. You've given us just a glimpse of the horrors inside the the places where these reviews were going forward. And it is even for people who think themselves unshokable, which I think you and I both do. It's pretty shocking stuff. Yeah, I was I was really stunned with when the whistleblowers came forward. I mean, even when you know it's bad when you hear just the detail and the extent of it, it's really frankly nauseating. One more point, which I think I recall from your series were certain reviewers even told that we are not it's not in our mandate to look at what's illegal, what's been illegally done to these people.

Oh, yeah, there was there was there were several points where the reviewers at Tampa Bay would find things and there, for example, be told we're not looking at that. That's federal law federal laws, not our response. You know, for example, you know, for example, in the bankruptcy violations when again, the consent order specifically said they were supposed to review state and federal violations. I mean, the instructions were just completely inconsistent with what the what was claimed was being done. All right, then the new F bomb continues to spread its its particles among us. Eve Smith, the mistress of naked capitalism dot com. Incredible job of reporting on this story. Thank you for sharing it with us today and hope to talk to you again. I hope it's not necessary to talk to you again soon, but I think it probably will be.

Fortunately, I'm I'm afraid yes, this is as as we discussed before that we started to taping that this is a target rich environment. And it's and it's sad finance should not be should should not be complicated and certainly shouldn't be criminal. Right, that town that sounds hopelessly naive, but all right, we'll buy it for the moment. Eves, thank you again. Thank you. Take care. You too. That's going to do it for this edition of the show. The program returns next week. At the same time, over these same stations over NPR worldwide throughout Europe on the USN 440 cable system in Japan around the world through the facilities of the American forces network up and down the east coast of North America by the shortwave giant WBCQ, the planet on the mighty 104 in Berlin around the world by the Internet at two different locations live and archive whenever you want it. Harry Sheerer.com and KCRW.com available for your smartphone through Stitcher.com and available as a free podcast through iTunes, Side Show Network and KCRW.com. It would be just like the banks planned by the rules if you'd agree to join with me then.

All right, thank you very much. A typical a show, shout-out to the San Diego Pittsburgh Chicago and exile and Hawaii desks. Thanks as always to Pam Hallstead. Thanks to Steven Dixon at POP in Santa Monica and Paul Roost at Argos Studios in New York for engineering help with today's broadcast. The email address for this broadcast and where you can find the playlist of the music featured here on, it's all at Harry Sheerer.com. And I'll see you at Twitter if you like. Join the more than 85,000 suckers who follow this program at the Harry Sheerer. The show comes to you from Century of Progress Productions and comes to you over the Changes Hard Radio Network.