The State of Nevada has acted ahead of a proposed settlement agreement allowing crooked bankers to get off with a slap on their wrists and a timeout by broadening its suit against bank of America. BoA bought Countrywide Financial as the financial meltdown of 2008 took institution after institution to the cleaners. Unfortunately for BoA it couldn’t cleanse itself of the toxicity of Countrywide’s massive fraud (or its own).
I’ll give you a basic breakdown of some of what was happening in the wild and crazy mortgage market left unregulated. Countrywide’s mortgage brokers were paid according to how much business they generated. The toxic mortgage derivative securities developed by investment banks like Goldman Sachs, Morgan Stanley, Lehman Brothers and Merrill Lynch were desperate for more mortgages to package into securities for hungry investors. Since rating agencies (Standard & Poors and Moody’s) told investors these were AAA buys pension funds seeking higher gains were flooding their portfolios with them. The banks knew they were toxic and hedged their bets by buying insurance against their collapse with AIG. Unfortunately AIG didn’t reserve any of the cash they were collecting as premiums to pay off potential losses.
So say, for example, you were purchasing a home. You went to a Countrywide office and filled out an application. You had good credit and qualified for a prime rate mortgage. The Countrywide broker got paid a commission based on selling you a higher rate mortgage and one with flexible terms instead of a fixed rate. He may have forged your application to inflate your credit credentials (changing your annual income for example, very commonly done) and thereby qualify you for more house.
When you went to closing thinking you had a 30 year fixed rate mortgage for 5.75% interest you signed the papers and got your keys. Later you discovered you had an adjustable rate mortgage at 5.75% but which increased suddenly to 8% then 10%. As your mortgage payment kept increasing you could no longer afford your home. Unable to sell it because it had now lost 30% of its value you chose to walk away. Then BoA foreclosed on you by filing fraudulent documents at your county courthouse.
This is how the mortgage boom rose and fell. It was fraught with fraud from start to finish. Now the major banks involved are negotiating to settle all civil and criminal claims for a measley $20 billion. That doesn’t even qualify as chump change for these people. They already gutted all the major reforms from the Dodd-Frank bill and now are using their thousands of lobbyists to walk away from any harm.
It is time to fully prosecute these criminals for the damage they caused through their fraud. Homeowners cheated by fraudulent mortgages, collapsed pension funds, lost jobs and lost homes deserve justice.