Appeals Court Throws Out $1.27 Billion Penalty Against Bank of America

[KeepItReal]

Source: The Wall Street Journal

A federal appeals court on Monday reversed a lower court order that Bank of America Corp. pay a $1.27 billion penalty in connection with mortgages sold by its Countrywide unit., a major blow to the government which had won the high-profile financial crisis case at trial.

The U.S. Court of Appeals for the Second Circuit said it agreed with the bank, which argued the government didn’t provide sufficient proof at trial.

The "Hustle" case revolves around a civil lawsuit that the Manhattan U.S. attorney’s office filed against Bank of America in 2012. It alleged that a precrisis Countrywide Financial Corp. program called Hustle had churned out shoddy mortgages with a focus on quantity, not quality, and then misrepresented those loans when selling them to Fannie Mae and Freddie Mac, which had to be propped up by government money in the financial crisis.

The judges’ decision could encourage other companies to push back against government prosecutions, even though most big financial institutions have generally preferred to settle such disputes rather than go through the public scrutiny of a trial. The case, brought under a 1989 law enacted in the wake of the 1980s savings and loan crisis, the Financial Institutions Reform, Recovery, and Enforcement Act (FIRREA), and the favorable verdict for the government helped pave the way for multi-billion dollar settlements with top banks for alleged financial crisis misdeeds under a similar theory.


Read more: http://www.wsj.com/articles/appeals-court-throws-out-1-27-billion-penalty-against-bank-of-america-1464018896

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[PeoViejo]

1. Good Lawyers are worth their weight in Gold

Unfortunately, you and I can't afford them, and, anyway, they're too busy working for the Rich.

[forest444]

29. And "good" judges too.

The value of per$uading them, anyway.

[Sam_Fields]

2. Please don't link to paywall web sites.

Besides the WSJ is the propaganda arm of the 1%.

[KeepItReal]

11. It is WSJ News, not the editorial page

Plus it had more deets than the first source I had.

Feel free to Google a non-paywall, non-Murdoch owned source.

[former9thward]

15. I doubt you have ever read the WSJ.

Its news articles are very even handed and it articles on world events are the best in the U.S.

[Sam_Fields]

20. I have read the WSj. thank You.

[Jackie Wilson Said]

3. Is this court/justices considered conservative?

[branford]

6. The Second Circuit is generally considered a fairly liberal court.

However, sitting in NYC, the judges tend to be very familiar with and sophisticated concerning complicated banking and related matters.

Moreover, even among the liberal Circuits, the composition of a particular three judge panel can still be comparatively more conservative.

[Justice]

4. Appeals courts review the facts? Thought trial court's determination of facts was sacrosant.

"argued the government didn’t provide sufficient proof at trial."


I did not think appellate courts could take a second look at the facts.

[pmorlan1]

9. I didn't either

I thought they only ruled on matters of law. Any attorney's in this thread that can explain this?

[anigbrowl]

13. No, appeals courts rule on legal questions

That facts could remain the same but an appeals court could decide they didn't meet the established legal standard of proof. I haven't read the judgment yet but typically in complex litigation courts talk about needing to have several 'prongs' correct - much like the tines of a fork, if one is no good then the whole thing is useless.

[Jim Lane]

17. It's an in-between situation.

Some decisions before a court are "de novo" review, meaning that the court will make its own determination of the facts. For example, a judge might have appointed a special master to hear testimony on a particular question; the special master makes a report and a recommended finding, but the judge will still make his or her own decision.

Other reviews are on a "sufficiency of the evidence" standard. For example, suppose the witnesses give contradictory accounts of how the collision occurred, and the accident reconstruction experts weigh in with their conclusions based on the skid marks and the damage to the vehicles. The jury will make a finding of fact based on which view of the evidence it thinks is more likely to be true. In that case, whichever way the jury decides will probably be upheld on appeal. The judges of the appellate court, reviewing the whole record, might conclude that the evidence preponderated on the plaintiff's side, but if the jury found for the defendant, the judgment won't be reversed.

Nevertheless, even on that kind of review, the verdict isn't sacrosanct. The losing party may still argue on appeal that the evidence was insufficient to support the verdict. It's a tough appeal to make but it can be won. The standard is worded along the lines of "there's no rational view of the evidence by which the jury could have come to that conclusion."

The link that askeptic gave for the story contains this explanation:

The government “presented no evidence” that the executives involved in the alleged scheme were “involved in the negotiation or execution of these contracts,” the panel said.

That's not very much detail, so let me speculate. Maybe the prosecution showed that the contracts were signed and that certain defendants were at the time high-ranking officers of the bank. The jury (if it was a jury trial) would have been drawn from Manhattan and the Bronx, both heavily Democratic counties, so maybe the jurors were predisposed to believe ill of banksters. For that reason, they decided that the individuals had probably been involved. The appellate court looked at the record (i.e., the trial transcript and the exhibits introduced into evidence) and saw nothing that directly linked the individuals to the transactions in question. Because there was no such evidence, the appellate court agreed with the bank that the verdict wasn't supported by sufficient evidence.

Incidentally, this isn't limited to appeals. If a jury comes back with a verdict on a record that could go either way, the trial judge will enter judgment on that verdict even if he or she would, as a juror, have voted differently. If, however, the judge concludes that the record simply doesn't support the verdict, on any rational view, he or she can grant a motion for a "judgment non obstante veredicto" (judgment notwithstanding the verdict, always called in the trade a JNOV), meaning a judgment in favor of the party that lost the jury vote.

[floriduck]

5. Just how much of that $1.27 billion would have gone to those borrowers impacted? Likely none.

That's what pisses me off most. Then there's the people responsible who got their bonuses and walk free.

[metalbot]

21. Borrowers impacted?

This actually has nothing to do with the borrowers impacted, and it shouldn't. Borrowers aren't the victims here, and aren't being treated as the victims in the case.

The fact that BOA is willing to lend you money for something that you can't afford isn't BOA's fault, any more than it's Sony's problem if you decide to use a credit card to buy a $3000 TV that you can't afford.

What BOA is getting fined for here is the fact that they then resold the mortgages and misrepresented the quality of those mortgages during the resale process. So if anyone would be compensated using the $1.27 billion, it would actually be the companies (FM) that bought those mortgages who then lost out on them.

[floriduck]

22. Just how do loans get made without borrowers?

"The fact that BOA is willing to lend you money for something that you can't afford isn't BOA's fault," sounds just like Hillarys previous comments. But you are certainly mistaken. The bank has a fiduciary obligation to make loans to qualified borrowers that will generate income for their shareholders.

Stated income loans, no doc loans and other niche products were the riskiest but the banks, including BofA never bat an eyelash at it. Their acceptance of these loans was indicative of loosening guidelines for the purpose of packaging pools and getting them out to investors. That's where the misrepresentation charges came from. They sold high risk loans in pools of lower risk at the low risk pricing. Then came the default swaps as protection.

The rating agencies were the worst actors but the banks encouraged it by their increased appetite for these loans. I had responsibility for providing lending and fraud prevention policies to BofA, Greenwich Capital, Lehman, Moody's, Fitch, Standard and Poors and many others. They were less interested in what our policies were than how could we increase our production.

[metalbot]

24. You make my point here

You suggest that the borrowers are the victims in the post I was responding to.

You then argue that:

"Stated income loans, no doc loans and other niche products were the riskiest but the banks, including BofA never bat an eyelash at it. Their acceptance of these loans was indicative of loosening guidelines for the purpose of packaging pools and getting them out to investors. That's where the misrepresentation charges came from. They sold high risk loans in pools of lower risk at the low risk pricing. Then came the default swaps as protection."

Which is exactly my point. The people who were defrauded here were the investors who bought bad loans, not the borrowers who took personally risky loans. If that is the case, then there is a greater argument in favor of using penalties to compensate investors who were mislead, rather than individuals who took risky loans.

[floriduck]

25. Wrong again.

The products I mentioned were not created by borrowers. They were done by the lenders and investment bankers. You see, at the time, real estate values were artificially increasing. And people wanted a chance at the American Dream. Loan brokers were telling borrowers they could get a piece of the action and too many fell for it.

So participating banks with an insatiable appetite bought these loans hoping for instant gratification. As soon as they started defaulting, banks began betting against their own interests to hedge their losses.

If you honestly think a small percentage of borrowers brought our economy to our knees because they borrowed when they couldn't afford it, you are beyond help. Try reading the book, The Monster, by Michael Hudson, a friend of mine. You might change your view.

[askeptic]

7. Here's the same story on Marketwatch (not paywall but still WSJ)

http://www.marketwatch.com/story/appeals-court-throws-out-127-billion-penalty-against-bank-of-america-2016-05-23-121034020

[AntiBank]

8. Bank of America paid Clintons speaking fees, too – more than $1M worth

http://www.charlotteobserver.com/news/business/banking/bank-watch-blog/article65533957.html

Hillary Clinton’s paid speeches to Goldman Sachs Group have drawn criticism on the campaign trail, but they’re not the only talks she’s given to big banks.

Bank of America has also paid the Democratic presidential candidate and her husband more than $1 million combined to deliver talks to the Charlotte-based bank and its Merrill Lynch unit.

The Clintons collected the combined figure from Bank of America over four appearances from 2011 to 2014, according to financial disclosures posted by the nonpartisan Center for Responsive Politics. Former President Bill Clinton was the speaker on three of those occasions, once taking in $500,000 for a 2014 gathering in London.

The large fees raise concerns about potential conflicts of interest and are likely to remain a hot topic on the campaign trail, said Eric Heberlig, a political science professor at UNC Charlotte.

“Taking fees like this, particularly from banks that have been bailed out by the taxpayers, it’s certainly hard to argue to the public that you’re not acting in a self-serving way,” Heberlig said.

snip

[askeptic]

10. Panel of judges overrides jury decision, saying didn't prove case

Well, the jury seems to have thought so. My own view is that there is a payoff in the background somewhere.
CNBC

The ruling overturns a 2013 jury verdict in a lawsuit by the Justice Department against Bank of America, which bought Countrywide in July 2008, and Rebecca Mairone, a former midlevel Countrywide executive.

The jury found the bank liable for Countrywide's sale of shoddy loans originated by its "High Speed Swim Lane" program, also called HSSL or Hustle. The loans were sold to mortgage finance giants Fannie Mae and Freddie Mac

The Justice Department contended the program rewarded staff for generating more mortgages and emphasizing speed over quality, and resulted in Fannie Mae and Freddie Mac being lied to about the quality of loans they bought.

WSJ

The appeals panel said the government didn’t prove the bank had intended to commit fraud when it signed deals with the housing entities, which it said was necessary in order to sustain the case.

[anigbrowl]

14. Entirely appropriate

Juries are not expert lawyers and are only as good as the guidance given to them at trial by the trial judge. If jury instructions are in error or an incorrect standard was used to determine legal admissibility or liability by the trial court, then the appeals court is authorized and indeed obliged to reverse. I didn't look at the judgement yet to see what the appeal court ordered but often in cases like this a retrial ensues.

[Jim Lane]

18. I doubt there'll be a retrial.

You're right that a judgment can be reversed if the appellate court finds legal error in something like the jury instructions or an evidentiary ruling, in which case there would normally be a retrial. Here, however, the snippets of information we have seem to indicate that the appellate decision was based on the sufficiency of the evidence. In that event, the normal course would be to remand the case with instructions to enter judgment for the defendants. The plaintiff wouldn't get a second bite at the apple. Present sufficient evidence the first time around or you lose.

[liberal_at_heart]

12. There's a big surprise.

[Hassin Bin Sober]

16. I worked in a mortgage office with a woman who left us for a short stay at Wells Fargo.

She openly talked about loan fraud in front of her Wells Frgo branch manager so he fired her.

She moved over to Countrywide where they eventually gave her her own branch. Meaning she was the branch. She had her own underwriters, processors and closing team.

Her business with us was about $30 million per year. At Countrywide, she went over the $100 million mark.

By the time she was fired and investigated by the FBI, she left the Countrywide branch with, literally, a room full of fucked up fraudulent loans that had to be "fixed". I knew people that were left to clean up her mess.

She abused the Countrywide "Fast and Easy" program. Yeah, it was fast and easy alright. She created jobs for people out of thin air. She verified non existent employers and income verification out of thin air. Investors were buying two and three "owner occupied" units in development projects. Fannie Mae condo project approvals were forged. Etc etc.

$100 million in sales probably meant an income around $3 million dollars. She must have had a good lawyer because I still see her mug plastered on the local real estate magazines.

I think we all did some shady stuff. I did some things I'm not overly proud of but it was baby shit compared to what some people were doing. We might call an appraiser to squeeze a few thousand dollars out of a value to make a refi work. But other people had appraisers appraising vacant lots as million dollar buildings.

Like they say, "if they're not stealing a little, they're stealing a lot"

It was a crazy time. We had Senior VPs of lenders in our office schooling us how to make "stated income" loans look believable.

[dixiegrrrrl]

30. I suspect she and more than a few of her ilk are now working for my mortgage servicer.

Green Tree/Dictech, Ocwen, etc, ended up servicing the notes after the Feds made new rules and the big banks got out of the servicing biz.
Now I read these current servicers, who are also collection agencies with an attitude to match, are going into the mortgage origination biz.
The game begins again.

[Hassin Bin Sober]

31. Servicing is a dirty ram and jam volume business.

Do the least possible for the pennies they get paid off the top.

[dixiegrrrrl]

34. Elizabeth Warren's laws are having a noticeable impact.

Ditech's monthly statements are changing, making information easier to see, and have language included about payer's rights.

Plus they have to send out the bills earlier, whereas before they sending them out later and later, risking that a payment would be late.

They are also including rather loud notices about HAMP, seems to be quite a rush to get people to sign up for it if they qualify.
Dunno if this is yet another run at screwing the people who tried to get it in the past.

[warrprayer]

19. Why isn't this on the front page

And being held up as a perfect example of how the game is fixed against the 99%?

Oh, wait.....

[AngryAmish]

23. The Feds forced Bank of America to buy Countryside, then sued BOA.

That kinda sucks.

[dixiegrrrrl]

28. I am glad someone caught that point.

Much as I hate those involved in the mortgage fraud, it was Countrywide who falsified the documents, for years, long before 2008.

the problem was that those shitty loans were sold to huge buyers like pension systems, state and city investment agencies, and to erase all of that debt would have been a bigger crash than the one that did happen.
So the Feds tried to get the healthier banks to buy out the bad players.

Tis true, however, that BOA and other banks were also issuing their own mortgages and selling them off, and not all of those were "good".

[Hassin Bin Sober]

32. What's worse is BofA was a lot more picky in the loans they wrote.

They had their own layers of qualifications they laid over Fannie Mae guidelines. They didn't just swallow what the Fannie automated underwriting system said was a good loan. BofA had higher credit score requirements.

I always shook my head at that whole deal.

[nitpicker]

27. Link to The Hill article

http://thehill.com/policy/finance/banking-financial-institutions/280981-bank-of-america-wins-reprieve-on-127-penalty

[HuckleB]

33. Grrrr.