Big business plays the kind of blame game that makes four year-olds crying “He made me do it!” seemingly mature. So, I’m not surprised that yesterday before the US Senate Committee on Banking, House & Urban Affairs, Bank of America’s Barbara Desoer blamed investors for the financial institution’s inability to modify more mortgages. It’s not her fault!—she claims. She makes a strange distinction between investors and shareholders, in the process casting blame as misdirection from a much larger problem: Banks and other lenders mishandling mortgage/foreclosure paperwork.
I’m a longstanding critic of public companies, because of conflicting ethical objectives. It’s the great American contradiction: U.S. law treats businesses like people, but the organizations don’t share the same moral objectives as the human beings they represent. The “good of all” is the shareholder, not humankind. This moral difference is one of the major reasons some businesses egregiously act against the common good of all people—some of whom are their customers.
There is in business no moral high ground. The high ground is quagmire, because all public companies share a single, moral objective—to make profits for stockholders. By that measure, any action that undermines making money for shareholders is immoral. Similarly, investment banks and other Wall Street entities represent investors with the same moral objective and another: For those individuals servicing investments to make as much money as possible. Their self-serving objective often puts individual gain ahead of the good of investor customers.
I’m making a distinction between company shareholders and investors with broader portfolios, because Desoer does. From her prepared testimony:
Many investors limit Bank of America’s discretion to take certain actions. When working with delinquent customers, we aim to achieve an outcome that meets customer and investor interests, consistent with whatever contractual obligations we have to the investor. Duties to investors add complexities to the execution of modification programs and can result in confusion for customers.
Desoer isn’t talking about casual investors but the U.S. government. She explains that BoA only owns 23 percent of the loans it services. Of the remaining 77 percent, “Fannie Mae and Freddie Mac are the investors on 60 percent of these loans,” she blithely asserts, adding:
Treasury, investors and other constituencies often change the requirements of their modification programs. HAMP [Home Affordable Modification Program] alone has had nearly 100 major program changes in the past 20 months. Fannie and Freddie, as investors, have layered on additional requirements, conditions and restrictions for HAMP processing. When these changes occur, we and other servicers have to change our process, train our staff and update technology. These changes can also affect what is required of the customer, for example the need for new or different documentation.
Talk about playing the blame game. Desoer basically blames the government, creator of the HAMP program, for BoA’s inability to modify more mortgages. In making such audacious claim she shifts the focus away from the reason for the Congressional hearings—industrywide, pervasive mishandling of mortgage and foreclosure paperwork. Asserting that “changes” necessitate customers providing “new or different documentation” distracts from Bank of America’s mishandling of foreclosure paperwork, which by far is the greater problem.
Mortgage holders and servicers are sitting on a powder keg of toxic mortgages, potentially much greater than already revealed. Some of the mangled paperwork reveals that somebody awarded mortgages that home owners weren’t qualified to receive, such as “liar’s loans“. These risky mortgages were later bundled together as investment packages given AAA-ratings. That’s fraud, by several legal measures, securities and/or tax fraud depending on how the mortgages were packaged as investments.
[box type="info"][color="secondary"]According to RealtyTrac, one in 389 U.S. housing units received a foreclosure notice in October 2010.[/color][/box]
In making such accusation and misdirection, Desoer is acting on behalf of BoA shareholders and their short-term interests. There’s the distinction between investors and shareholders—the latter being in Bank of America. Her first moral objective is to her shareholders, by using tactics to minimize risks that BoA’s mortgage portfolio will explode into financial hardship if not disaster. She has no incentive to be truthful or forthcoming.
That’s the problem unraveling foreclosure fallout resulting from the housing bubble collapse. Government agencies, Congress, aggrieved mortgage holders and many other outsiders expect one kind of behavior when they’re confronted by another. The highest moral objective of these investment banks and other mortgage holders or servicers is money—if not making it then not losing it. Journalist Matt Taibbi has recognized much of the behavior for what it is: Scamming. I highly recommend his book Griftopia: Bubble Machines, Vampire Squids, and the Long Con That Is Breaking America and regular writings for Rolling Stone.
By the way, Desoer’s investor accusation/misdirection is itself a scam. A lie. A cheat. From a story yesterday by Karen Weise in ProPublica:
Desoer’s testimony echoes what homeowners have long heard, that investors are frequently denying them help from federal program created to foster loan modifications. But as ProPublica has reported, that’s simply not the case. Investors rarely have a say in loan modifications or block such modifications.
Something else revealing in Desoer’s testimony: “Of the nearly 14 million loans in our servicing portfolio, 23 percent of the portfolio is owned by Bank of America.” That’s a stunning figure. More than three quarters of the loans being serviced by BoA belong to some other organization. That’s another context from which to look at her investors accusation/misdirection, as it’s essentially the 77 percent she uses to protect 23 percent obligation to her shareholders.
The investor blame game is but one tactic. Another is to blame homeowners for not paying their bills. Blame, blame, blame is meant to distract from the real problem. The mangled paperwork. In the latest Rolling Stone, issue 1118, Matt Taibbi writes in “Courts Helping Banks Screw Over Homeowners“:
Why don’t the banks want us to see the paperwork on all these mortgages? Because the documents represent a death sentence for them. According to the rules of the mortgage trusts, a lender like Bank of America, which controls all the Countrywide loans, is required by law to buy back from investors every faulty loan the crooks at Countrywide ever issued. Think about what that would do to Bank of America’s bottom line the next time you wonder why they’re trying so hard to rush these loans into someone else’s hands…
That’s why one banker CEO after another keeps going on TV to explain that despite their own deceptive loans and fraudulent paperwork, the real problem is these deadbeat homeowners who won’t pay their fucking bills. And that’s why most people in this country are so ready to buy that explanation. Because in America, it’s far more shameful to owe money than it is to steal it.
[Photo Credit: Jeff Turner]
Do you have a mortgage or foreclosure story that you’d like told? Please email Joe Wilcox: joewilcox at gmail dot com.