Setting the Record Straight One More Time: BofA’s Rebecca Mairone Fined $1Million; BofA Must Pay $1.3Billion

By L. Randall Wray

Now here’s Déjà vu all over again. You might remember the name Rebecca Mairone from a few years ago. She’s back in the news:

“Rebecca Mairone, formerly a top official at Countrywide Financial, has been named in an amended complaint filed earlier this month by Preet Bharara, the U.S. Attorney for the Southern District of New York, against Countrywide and its parent Bank of America. The suit alleges that Mairone, as chief operating officer for Countrywide’s Full Spectrum Lending division in 2007, set up a program dubbed the “High Speed Swim Lane,” or “HSSL,” or “Hustle,” to speed up the origination of mortgage loans, including increasingly shady subprime loans. The government claims the alleged Hustle ultimately cost its sponsored entities Fannie Mae and Freddie Mac more than $1 billion in losses.

The government has recently launched a flurry of lawsuits against major banks alleging mortgage fraud ahead of the crisis, none of the recent major suits have named individuals, making this case unique.

Mairone now works for JPMorgan Chase and is in charge of that bank’s efforts to compensate victims of foreclosure fraud, ProPublica recently reported.” See the HuffPost.

Back in the fall of 2010, Bill Black and I wrote a two part essay for the Huffington Post calling on Washington to go after the Foreclosure Fraudsters. Specifically, we pointed our fingers at the serial fraudsters at Bank of America. See here and here.

We argued it is time to Put Bank of America in Receivership:

First, it is time to stop the foreclosures until the banks and servicers adopt corrective steps, certified as adequate by FDIC, that will prevent all future foreclosure fraud. They must also adopt plans to remedy the injuries their foreclosure frauds have already caused, and assist the FBI, Department of Justice, and legal ethics officials investigations of their officers’ and attorneys’ frauds and ethical violations.

Second, it is time to place the financial institutions that committed widespread fraud in receivership. We should remove the senior leadership of the banks and replace them with experienced bankers with a reputation for integrity and competence, i.e., the honest officers that quit or were fired because they refused to engage in fraud. We should prioritize the receiverships to deal with the worst known “control frauds” among the “systemically dangerous institutions” (SDIs). The SDIs’ frauds and fraudulent leaders endanger the global economy.

We propose Bank of America for the first receivership. In the last few weeks, the SEC has obtained a large (albeit grossly inadequate) settlement of its civil fraud charges against the former senior leaders of Countrywide. (Bank of America acquired Countrywide and is responsible for its frauds.) Fannie and Freddie’s investigations — with their findings reviewed by their regulator, the Federal Housing Finance Agency (FHFA) — have identified many billions of dollars of fraudulent loans originated by Countrywide that were sold fraudulently to Fannie and Freddie through false representations and warranties. The Fed, BlackRock, and Pimco’s investigations have identified many billions of dollars of fraudulent loans provided by Countrywide under false reps and warranties. Ambac’s investigation found that 97% of the Countrywide loans reviewed by Ambac were had false reps and warranties. Countrywide also engaged in widespread foreclosure fraud. This is not surprising, for every aspect of Countrywide’s nonprime mortgage operations that has been examined by a truly independent body has found widespread fraud — in loan origination, loan sales, appraisals, and foreclosures. Fraud begets fraud. Lenders that are control frauds create criminogenic environments that produce “echo” epidemics of control fraud in other professions and industries.

We have been amazed that, as one financially sophisticated entity after another found widespread fraud by Countrywide in the entire gamut of its operations, the administration, the industry, and the financial media act as if this is acceptable. Countrywide made hundreds of thousands of fraudulent loans. It fraudulently sold hundreds of thousands of loans through false reps and warranties. It fraudulently foreclosed on large numbers of loans. It victimized hundreds of thousands of people and hundreds of financial institutions, causing hundreds of billions of dollars of losses. It has defrauded more people, at a greater cost, than any entity in history.

Bank of America chose to purchase Countrywide at a point when it — and its senior leaders — were infamous. Bank of America made some of these Countrywide leaders its senior leaders. Yet, Bank of America is not treated as a criminal entity. President Obama, Attorney General Eric Holder, Donovan, and Barr cannot even bring themselves to use the “f” word — fraud. They substitute euphemisms designed to trivialize elite criminality. The administration officials do not call for Bank of America to be the subject of a criminal investigation. They do not demand that Fannie, Freddie, Ambac, the FHFA, and Pimco file criminal referrals about Countrywide’s frauds. They do not demand that Fannie, Freddie, and the Fed refuse to purchase or take as collateral any mortgage instrument from Bank of America. No one at the Harvard Club in New York moves to kick Bank of America’s officers out of their club! The financial media treats Bank of America as if it were a legitimate bank rather than a “vector” spreading the mortgage fraud epidemic throughout much of the Western world.

Predictably, we got the usual attacks by trolls. Whenever you write a piece that argues that the biggest banks need to be held accountable for their frauds, they roll out the trolls. Usually, the trolls will not sign their defense of fraud with their real names.

However, that time, BofA tasked one Rebecca Mairone, Default Servicing Executive of Bank of America Home Loans, with writing an article to counter our piece. You can read her piece here.

In it she proposed to Set the Record Straight on Bank of America Foreclosures. Instead, she offered nothing but obfuscation:

Foreclosure is a wrenching personal situation for too many people. In their recent post, “Foreclose on the Fraudsters”, William K. Black and L. Randall Wray do nothing to illuminate the challenges they face. When they aren’t being merely misleading, the authors are just flat out wrong in discussing Bank of America’s actions to help keep the economy moving forward, keep people in their homes, or ensure a fair and consistent foreclosure process if it comes to that. Missing from their presentation are some essential facts, including:

•We stepped up to purchase Countrywide at a time when failure of that company would have been devastating to the economy, the markets, and millions of homeowners.

 •Our priority remains to keep people in their homes.

 •The vast majority of our portfolio — 86% — is current and performing.

 •Modification solutions are intensely focused on the 1.3 million customers who are more than 60 days delinquent — 85% of which are Countrywide originated loans.

•Bank of America has completed nearly 700,000 permanent modifications including more than 85,000 under the government’s HAMP program — the most of any servicer.

Sure, BofA feels your pain, poor homeowner, as Mairone continued to oversee theft of homes, throwing the owners out onto the street. Now she’s at JP Morgan, supposedly reducing the pain of those who’ve lost their homes to her thieving banksters.

Our response at that time to her is here.

We pointed out that:

Rebecca Mairone replied on behalf of Bank of America to our two-part post. Step back for a moment and consider the context of Bank of America’s response. We cite evidence that the bank has committed massive fraud, explain that this provides a legal basis for placing it in receivership, and call on the FDIC to do so. Bank of America chooses to respond publicly, but its response never contests its massive fraud or our demonstration that there is a legal basis for placing it in receivership.

Instead, Bank of America complains that we “do nothing to illuminate the challenges [BofA’s home mortgagees] face.” This is not our task; nevertheless, the claim is incorrect. We illuminate the problems posed by the fact that nonprime borrowers were frequently victims of mortgage fraud perpetrated by lenders as well as many other operatives in the unprecedented criminal lending and securities fraud of the past decade. This problem is typically ignored — at least by the financial sector and the mainstream media — so we did “illuminate” the problem and the cause of action borrowers could bring for “fraud in the inducement.”

We showed that the fraudulent senior officers that controlled home mortgage lenders created “liars,” and NINJA loan programs designed to induce millions of Americans to take out loans they could not afford to repay. The endemic underlying fraud in the origination and sale of nonprime loans is critical to understanding why loan defaults are massive, why borrowers were typically the victims of the fraud and lost their meager savings due to the frauds, why loan modifications typically fail, and why foreclosure fraud has been so common. The endemic fraud also hyper-inflated the bubble and helped cause the economic crisis and severe loss of employment. Over a million Bank of America borrowers face these “challenges” that we “illuminated.”

Bank of America’s response is guilty of what it criticizes; it ignores the fraud by nonprime lenders and sellers, particularly Bank of America’s frauds in both capacities. It does not seek to “illuminate” the frauds or the problems that arise from endemic mortgage fraud. We did not invent the “epidemic” of mortgage fraud. The FBI began testifying about that in 2004. The FBI predicted that it would cause a “crisis” if it were not stopped — and no one claims it was stopped. The mortgage industry’s own fraud experts opined publicly in 2006 that the type of loans that Countrywide decided to elevate to its favored product was an “open invitation to fraudsters” and fully deserved the phrase that the lenders used to describe the product: “liars’ loans”. (Bank of America chose to purchase Countrywide at a time when it was notorious for the awful quality of its mortgage loans.) It is the lenders and their agents, the loan brokers, that directed the lies in these liar’s loans and appraisals and it was the lenders that made fraudulent “reps and warranties” in order to sell the fraudulent loans on to others in the form of securities. Economists and white-collar criminologists share a belief in “revealed preferences.” The senior officers that control lenders provide an “open invitation to fraudsters” in the midst of an “epidemic” of fraud because they intend to profit from those frauds.

Instead of contesting its issuance and sale of massive numbers of fraudulent loans, Bank of America writes to provide data on delinquencies and foreclosures in support of its claim that it is the victim of Countrywide’s deadbeat borrowers who it tries in vain to help. Bank of America’s data, however, add support for the evidence of widespread mortgage fraud, particularly by Countrywide. Accounting control frauds maximize their (fictional) reported income by lending routinely to those who cannot afford to repay their loans. It is this aspect of the fraud scheme that is most counter-intuitive to those that do not study fraud, but to criminologists it provides the most distinctive markers of fraud. The senior officers that control fraudulent lenders maximize the bank’s reported short-term income, in order to maximize their compensation, by growing extremely rapidly through making loans at a premium yield. This strategy creates a “sure thing” (Akerlof & Romer 1993). The lender is sure to report record (fictional) profits in the short term and suffer enormous (real) losses in the longer term.

Irony of Irony. Guess what, folks. Mairone was outed as a fraudster a year ago. Read here.

She and her bank have been found liable for fraud in the types of activities that we had outlined.

A federal jury in Manhattan on Wednesday found Bank of America liable for fraud because of thousands of defective mortgages sold by its Countrywide Financial unit, handing the government a victory in one of the few major trials rooted in the financial crisis. Government efforts to hold Wall Street accountable for crisis-era sins have primarily been resolved through settlements, leading to criticism that financial firms were given an easy way out, albeit an expensive one. Taking the Bank of America case to trial and winning the judgment could start to change that perception.

On Wednesday, after a four-week trial, a jury of four men and six women said Bank of America and former Countrywide executive Rebecca Mairone were liable for one count of civil fraud. Prosecutors accused the bank and Countrywide of stripping safeguards designed to catch mortgage fraud and then peddling the loans to government-backed Fannie Mae and Freddie Mac. The mortgage finance twins were on the hook for more than $1 billion in losses once the housing market crashed, according to the complaint. The Justice Department wants Bank of America to pay up to $848.2 million, the gross loss that it claims Fannie Mae and Freddie Mac suffered on the loans. U.S. District Judge Jed Rakoff must decide on the penalty.

Now she, personally, has to cough up a cool million bucks. That’s nice. It should be a lot more. And she should be doing prison time.

It is not a surprise to us that the fraud was found. Fraud is everywhere at the biggest banks. Their business model was, and remains, fraud. Fraud can be found everywhere you look. All you have to do is look. Up to now, Washington has turned a blind eye to fraud at the nation’s biggest fraudsters. While it is nice that they are finally going after some of the small fry fraudsters, like Mairone, it is time to go after the top fraudsters—those who oversaw and rewarded (and were rewarded for) fraud.

The illegal foreclosures continue. Every day people are still losing their homes. Lives and entire communities are being destroyed. People are literally dying because their homes are being stolen from them. Mairone was an executive at Countrywide before she went to BofA. She knew the fraudster’s mode of operation very well—Countrywide was the most notorious originator of fraudulent mortgages in the country. Countrywide has directly caused countless deaths across the country.

Mairone’s bank specialized in making mortgages with terms that the loan officers and executives like Mairone knew the borrowers could not possibly service. Fraud was the business model. Foreclosure was the expected result.

It doesn’t have to be this way. Stop the fraudsters. Stop the foreclosures. There should be an immediate 5 year Country-Wide moratorium on foreclosures. Investigate the fraud. Jail the fraudsters. Put the biggest banks into receivership. Begin to clean-up the document mess created by the banks and MERS (the banks lost or destroyed all the records of property ownership). Our economy will not recover until this is done.

15 responses to “Setting the Record Straight One More Time: BofA’s Rebecca Mairone Fined $1Million; BofA Must Pay $1.3Billion

  1. Yes. What Rebecca Mairone did qualifies as fraud. But lame excuse you hear from SEC is that you must prove intent on her part. Hey, she was only designing a selling strategy to give her company bigger profits and everybody more bonuses. Oh yea! the judge in this case is allowing her to pay her fine in installments so as not treat her too harshly. I am sure that she is giving all J P Morgan’s foreclosure borrowers the same option.

    They really should stop calling these judgments/settlements “fines” but “penalities” for getting caught. Certainly none of accumulated fines have deterred anyone on Wall Street. These fines are more like fouls committed in pro basketball games. Pro players know what the rules/penalities are and still at times commit them on purpose. The players know that they can get away with not being caught most of the time.

    These lenders clearly knew what the risk of making such fraudlent loans were and still when ahead and made them. Why should they lose out on some great bonuses? And now SEC, Dept. of Justice and Obama Admin. have decided that large $$$ fines are fair penalities for fraud forgetting millions of workers who lost their homes and jobs over these financial shenanigans.

  2. Dr. Wray, terrific post, appreciate the history and accessibility. Thank you.

  3. Fascinating information about this subject. These fines are better than no action at all. But they are such a tiny and infrequent cost, in comparison to the dollar amount and duration of the fraudulent business dealings committed. Thanks for opening our eyes to this situation here with Bank of America and Countrywide.
    I’d be surprised if the U.S. government put Bank of A and other banks that operate similarly in receivership any time soon, although that’s a good idea. Things will have to hit the fan again before people will consider doing that unfortunately. But that could easily happen within a few years.

  4. It is a pleasure to read someone who writes with fire in his belly! I like the use of the word “fraud” which, unfortunately, you never see used by the politicians and regulators when they talk about the cause of The Great Recession.

  5. Robert Lavergne

    The line between criminality and everyday business practice has, over a period of at least 100 years, become very blurred indeed and under successive governments, both democrat and republican. And there is no talk of “scroungers” from the Gingriches or the Obamas on this one, as with the savings and loan scandals. Unstilted by the dead hand of government interference, and guided solely by the profit motive, the theory has been that banks lend funds for industry to invest, while in practice pure speculation, with virtual money and computers, increasingly characterizes what is going on.

    Surely many remember Nick Leeson and the Barings Bank scandal, involving derivatives. In these scandals, few are charged and any director unlucky enough to be convicted seems to serve a year in an open prison where his cell becomes a small office through which business is conducted on a slightly smaller scale than before. For these people, the crime is to be caught.

  6. Here’s an article I just read that offers an explanation of how Bank of America and other big banks, which ought to know better, let the economic crisis of 2008 happen, and how they might do it once again within the coming years. Here is the web site and the title of the particular blog post.
    Sunday, August 03, 2014
    The Slide to Collapse Is Greased with Self-Interest
    Self-interest is intrinsically self-liquidating on a systemic level.

    Do folks here agree? Or not?

    • Hi Jill,

      My lack of expertise precludes me from even trying to answer, but I will say that Charles Hugh Smith is a great writer. Unfortunately, he’s a federal debt hawk.

    • how Bank of America and other big banks, which ought to know better, let the economic crisis of 2008 happen
      Huh? Who ought to know better? Just let it happen?
      No offense, but you still reside in the clueless zone. It wasn’t by accident that JPMorgan Chase, Goldman Sachs, Citigroup and Bank of America founded the Markit Group, first to officially price their credit derivatives for the market, then to act as an exchange.

      The banking cartel created shadow banking and most assuredly profited from it to the max!

      JPMorgan Chase created the “fraudclosure model” (creating the mortgages, tranching into various CDO instruments, selling off said mortgages, and foreclosing on those, especially federally financed mortgages (where they automatically recover 90% from the government, then have the houses/land to auction off once again), before offering any traiditional way outs for the home purchaser, then selling them once again.

      Individuals within and owners of the top banks made fortunes many times over, or added to their pre-existing fortunes, with the securitization/credit securities/ultra-leveraging/ultra-leveraged speculation/ultra-leveraged-insurance swindles like the Abacus CDO, Timberwolf CDO, Point Pleasant CDOs, the Magnetar Capital deals, etc., etc.

      It was quite well designed over a period of years, with the passage of the Private Securities Litigation Reform Act, the founding of the Derivatives Research Group (by the Wall Street banksters) to lobby for the passage of Gramm-Leach-Bliley Act, the REIT Modernization Act, the Commodity Futures Moderization Act to allow this to happen.

      This stuff didn’t just happen, the credit default swap (CDS or naked swap) didn’t just come about one day, all this was created and developed to allow John Paulson (and his hedge fund) to get together with Goldman Sachs and other banksters to create junk CDOs and then purchase credit default swaps (at $1.4 million a pop, with the payout of $100 million per pop) to “earn” billions of dollars — pure financial scams to the max!

      To fully understand, try reading Satyajit Das’ book, Extreme Money, Matt Taibbi’s book, The Divide, Broken Markets, by Sal Arnuk, and a bunch of others.

  7. An outstanding post, Dr. Wray, truly informative and enlightening.

    Not to sound like a broken record, but again I believe this emphasizes the need for one and all to understand the ownership of the banks, there is always a majority share owner and a minority share owner, and it would be most interesting to know who the owers of the BofA, Citi, JPMorgan Chase, Goldman Sachs, Morgan Stanley, etc., are.

    We are always battling monolithic corporations, without realizing what a truly mega-monopoly exists today with the concentration ownership of the top corporations by the banks, and those corporations owning stock in the banks in a cross-stock ownership and interlocking structure, thus revealing zilch about actual ownership.

  8. Pingback: Randy Wray: Setting the Record Straight One More Time: BofA’s Rebecca Mairone Fined $1Million; BofA Must Pay $1.3Billion | naked capitalism

  9. Yes, it is very satisfying to see justice done, and well done for correctly identifying Mairone’s role in the scandal before it was decided to put her on trial. You may even have had a role in encouraging the courts to put her on the public wringer.
    I think it might be unrealistic to try and ban all foreclosures, as banks and mortgage originators need a way to keep their balance sheets clean to avoid a major threat to wider systemic stability. Perhaps the local or federal government needs to step up its provision for the homeless, to avoid those widely-reported scenes of third-world or Depression-era destitution in the ‘shanty-towns’ of Silicon Valley.

    I think broke the story.
    But helping the homeless seems to involve the same class stratification you criticised in your post about ‘congestion pricing’

    Solutions on a postcard

  10. Sorry for some reason the link to the shanty-town in Silicon Valley failed to post – here it is again

  11. Great stuff.
    Finally, a smidgeon of light on the acts of the dastardly bankers.
    But, what happens with the next crash…any hope for the rapidly going underwater homeowners?

  12. Anyone else who has time, please take a look at this article here that I cited before.
    Sunday, August 03, 2014
    The Slide to Collapse Is Greased with Self-Interest
    Self-interest is intrinsically self-liquidating on a systemic level.

    Do folks here agree? Or not? That “Self-interest is intrinsically self-liquidating on a systemic level”? I think it is.
    I will ignore “replies” that are insulting(the only reasonable way to proceed on an Internet message board), but will be happy to hear from anyone who will give me their opinion, or information, on this question.

    Thanks, Tyler, for the comment that Smith is a federal debt hawk. I didn’t realize that.

  13. JMarco, Sgt Doom; Robert; Jill: Spot on. Agree with what you say.
    The crisis was no accident. It was foreseen, even desired. Billions were made. Now they pay cents on the dollar fines. Wall St has absolutely no regrets and is looking forward to the next crisis.
    Jessica: Bansters will not like a moratorium on foreclosures. They love foreclosures. They planned for them. They created them. It was always part of the plan. Certainly. Jimmy Stewart thrifts hated them. They much preferred to work things out; they were patient; they understood that time makes all things better. 5 years with no foreclosures would turn the country around. But yes I agree, we need to help low income homeowners and low income renters and low income homeless.