Economy Watch: States Sue Over Modifications
- Dec 20, 2010
December 20, 2010
By Dees Stribling, Contributing Editor
Two states–Arizona and Nevade–are hauling Bank of America to court, accusing the mortgage giant of routinely (and presumably unashamedly, though that might not be actionable) lying to consumers about mortgage modifications. That is, promising action on modifying mortgages but not quite getting around to it, leaving thousands of borrowers in an unenviable state of limbo.
“Because of Bank of America’s false promises, many Nevada consumers continued to make mortgage payments they could not afford… consumers deferred short-sales and passed on other attempts to mitigate their losses,” Nevada Attorney General Catherine Cortez Masto said in a statement on Friday. “And they waited anxiously, month after month, calling Bank of America and submitting their paperwork again and again, not knowing whether or when they would lose their homes.”
In his statement, Arizona Attorney General Terry Goodard said that the bank violated the Consumer Fraud Act in all kinds of ways, including making misleading statements about whether homeowners must be delinquent on their mortgage payments to be considered for a loan modification; how much time it would take to receive a decision from the bank on a modification or short-sale request; or even whether loan modifications had been approved.
SEC Probes Banks About Mortgage Securitization
Meanwhile, on the federal level, the Securities and Exchange Commission sent out a blitz of subpoenas last week to such banks as Bank of America Corp., Citigroup Inc., JPMorgan Chase & Co., Goldman Sachs Group Inc. and Wells Fargo & Co., according to a Reuters report. The move represents a broadening of the agency’s inquiry into the mortgage industry.
According to unnamed “sources familiar with the probe,” the SEC is looking into the packaging of mortgages for sale to investors back when that was a major product of the banking industry. The SEC is probably trying to uncover smoking guns that will indicate that whether banks lied about the toxicity of many of the mortgages that went into the sausage-making process that was once mortgage securitization.
More specifically, the SEC is looking into role of master servicers, the specialists who oversaw the selection of mortgages for the pool. The master services, often closely affiliated with major banks, were also responsible for transferring mortgages to the trusts that issued mortgage-backed securities.
Conference Board Leading Economic Index Waxes Positive
The Conference Board said on Friday that things are looking up economically speaking, with the latest Leading Economic Index (LEI) by the organization trending postive. The index increased 1.1 percent to 112.4 in November from October, which itself saw an increase of 0.6 percent.
“November’s sharp increase in the LEI, the fifth consecutive gain, is an early sign that the expansion is gaining momentum and spreading,” noted Ataman Ozyildirim, an economist at the Conference Board, in a statement. “Nearly all components rose in November. Continuing strength in financial indicators is now joined by gains in manufacturing and consumer expectations, but housing remains weak.”
Wall Street managed to turn in a mixed day on Friday, with the Dow Jones Industrial Average edging down 7.34 points, or 0.06 percent. The S&P 500 and the Nasdaq, however, were up 0.08 percent and 0.21 percent, respectively.