Debt Deception - Center for Public Integrity

140 Pages·2011·1.24 MB·English

i W A T C H N E W S B O O K
SHOW CONTENTS
Debt Deception ©2011 Center for Public Integrity 2
Table of Contents
About The Center for Public Integrity and iWatch News 3
Project Credits 3
About the Authors 4
THE GrEAT MOrTGAGE COvEr-UP
Whistleblowers silenced to protect fraudsters, say former 6
Countrywide employees
Mortgage industry tanks, fraud continues at Countrywide 20
Loan underwriter found herself in ‘dangerous territory’ 32
A ‘counseling meeting’ then termination at Countrywide 37
LOOSE LENDING
Payday lending bankrolls auto racer’s fortune 43
Race car driver Scott Tucker drew elaborate facade around 53
his Payday loan businesses
Credit lenders remake themselves in image of Payday lenders 64
Fights over tribal Payday lenders show challenges in financial 74
reform
Buyer beware 82
BOrrOWErS NIGHTMArES
Disabled homeowner alleges broker, bank sold her mortgage 93
she could not afford
Soldiers battle car dealers over inflated prices, loan terms 106
Small town teacher seeks help for big debt 113
$700 dormitory fee costs family Its car 124
Navy pension signed over as collateral for costly quick cash 132
3COvEr CONTENTS ABOUT CPI4
Debt Deception ©2011 Center for Public Integrity 3
About the Center and iWatch News
The Center for Public Integrity is a nonprofit, nonpartisan, and independent
digital news organization specializing in original investigative journalism and
research on significant public policy issues.
Since 1990, the Washington, D.C.-based Center has released more than
475 investigative reports and 17 books to provide greater transparency and
accountability of government and other institutions. It has received the prestigious
George Polk Award and more than 32 other national journalism awards and 18
finalist nominations from national organizations, including PEN USA, Investigative
Reporters and Editors, Society of Environmental Journalists, Overseas Press Club,
and National Press Foundation.
In 2011 the Center launched iWatch News. Visit www.iWatchNews.org
for ongoing coverage of numerous topics, including the stories featured in this
newsbook.
Project Credits
Executive Director: Bill Buzenberg
Editors: Julie Vorman and John Dunbar
Authors: Ben Hallman, David Heath, Michael Hudson, Amy Biegelsen, Shirley Gao,
Jason McLure
iWatch Newsbook Design: Roger Fidler, Donald W. Reynolds Journalism Institute
in Columbia, Missouri. www.rjionline.org
This iWatch Newsbook collects a number of stories published by the Center
between February and October of 2011. Taken together, they provide a look at
how massive corporations and shady lending practices have contributed to the
decay of the financial system. To see the original stories, along with video and
new pieces about the financial collapse and its impact on the country, please visit
www.iWatchNews.org
3 4
COvEr SHOW CONTENTS FIrST ArTICLE
Debt Deception ©2011 Center for Public Integrity 4
About the Authors
Benjamin Hallman covers business and finance for the Center. He joined
in June 2010 after nearly five years as a legal affairs reporter at The American
Lawyer, where he covered the business of law, white collar crime, and regulatory
Washington. Hallman has reported on the accounting fraud prosecutions of
HealthSouth’s Richard Scrushy and Qwest’s Joesph Nacchio; on the massive
Google book search settlement; and, from Iraq, on American-led efforts to
rebuild the Iraqi justice system. His story about the crash of Lehman Brothers
was anthologized in The Best American Legal Writing (2009). He also previously
worked as a reporter for the St. Louis Post-Dispatch. Hallman received a master’s
degree in journalism from the University of Missouri in 2004.
Michael Hudson covers business and finance for the Center. He previously
worked as a reporter for the Wall Street Journal and as an investigator for the
Center for Responsible Lending. Hudson has also written for Forbes, The Big
Money, the New York Times, the Los Angeles Times and Mother Jones. His work
has won many honors, including a George Polk Award for magazine reporting, a
John Hancock Award for business journalism and accolades from the National
Press Club, the White House Correspondents’ Association and the American
Bar Association. He edited the award-winning book Merchants of Misery and
appeared in the documentary film Maxed Out. His latest book, THE MONSTER:
How a Gang of Predatory Lenders and Wall Street Bankers Fleeced America—
and Spawned a Global Crisis, was named 2010 Book of the Year by Baltimore
City Paper and called “essential reading for anyone concerned with the mortgage
crisis” by Library Journal.
David Heath comes from The Seattle Times, where he was three times
a finalist for the Pulitzer Prize. He co-authored an investigation of conflicts of
interest surrounding clinical cancer research at a Seattle hospital. The series won
the Harvard University’s Goldsmith prize for investigative reporting, the George
Polk award for medical reporting, the Gerald Loeb award, the Scripps Howard
Foundation’s public service award, the Associated Press Managing Editors’
public service award and the Newspaper Guild’s Heywood Broun award. Heath’s
recent expose on congressional earmarks was recognized by the National Press
3 4
COvEr SHOW CONTENTS FIrST ArTICLE
Debt Deception ©2011 Center for Public Integrity 5
Foundation with the Everett Dirksen award for best coverage of Congress. He is a
graduate of Grinnell College and was a 2006 Harvard Nieman Fellow.
Amy Biegelsen won the Virginia Press Association’s 2009 and 2011 Best in
Show Award for a feature portfolio, and a collection of health and environmental
stories. She is the recipient of the Virginia Trial Lawyers Association’s Excellence
in Journalism prize for a story on children’s mental health issues and is a two-time
finalist for the Livingston Award for Young Journalists. She earned a bachelor’s
degree from the University of Chicago.
Jason McLure is a New Hampshire-based correspondent for Thomson
Reuters covering the 2012 primary and regional news. Previously, he worked in
Africa as a correspondent for Bloomberg News and Newsweek, and his reporting
has appeared in The Economist, New York Times, National Law Journal and other
publications. A former Peace Corps volunteer in Niger, he is a graduate of the
University of Missouri.
Shirley Gao, a former intern with the Center, is a junior at Princeton
University majoring in public policy. Her academic interests include global health,
conflict resolution, and civil society. On campus, she writes for The Ink at www.
universitypressclub.com.
Support the Center: Donate Today
CLICK
The Center for Public Integrity would cease to exist if not for the
HERE
generous support of individuals like you. Help keep transparency
and accountability alive and thriving by becoming a new or
recurring member to support investigations like Debt Deception.
To make a recurring (monthly, quarterly, semi-annual, or annual) gift click here
when you are online or visit http://www.iWatchNews.org/.
Our work could not be completed without your generous support. Donors
of $500 or more in a 12-month period will be acknowledged on our website
and in publications.
3 4
COvEr SHOW CONTENTS FIrST ArTICLE
Debt Deception | Mortgage Cover-Up ©2011 Center for Public Integrity 6
Whistleblowers silenced to
protect fraudsters, say former
Countrywide employees
iWatch News investigative series reveals legacy of corruption
that still plagues Bank of America
By Michael Hudson
Published Online | September 22, 2011
IN THE sUMMER of 2007, a
team of corporate investigators
sifted through mounds of paper
pulled from shred bins at Coun-
trywide Financial Corp. mortgage
shops in and around Boston.
By intercepting the documents
before they were sliced by the
shredder, the investigators were THE GrEAT MOrTGAGE
able to uncover what they believed
COvEr-UP
was evidence that branch employ-
ees had used scissors, tape and pletely different piece of property.
Wite-Out to create fake bank state- Eileen Foster, the company’s
ments, inflated property appraisals new fraud investigations chief, had
and other phony paperwork. Inside seen a lot of slippery behavior in
the heaps of paper, for example, her two-plus decades in the bank-
they found mock-ups that indicated ing business. But she’d never seen
to investigators that workers had, anything like this.
as a matter of routine, literally cut “You’re looking at it and you’re
and pasted the address for one going, Oh my God, how did it get to
home onto an appraisal for a com- this point?” Foster recalls. “How do
3 4
PrEvIOUS ArTICLE SHOW CONTENTS NEXT ArTICLE
Debt Deception | Mortgage Cover-Up ©2011 Center for Public Integrity 7
Todd Wawrychuk/Image Group LA
Eileen Foster was mortgage fraud investigations chief for Countrywide
Financial Corp., which eventually became Bank of America.
you get people to go to work every used against them. Another, she
day and do these things and think says, called her and growled into
it’s okay?” the phone: “I’m g--d---ed sick and
More surprises followed. She tired of these witch hunts.”
began to get pushback, she claims, Her team was not allowed to in-
from company officials who were terview a senior manager who over-
unhappy with the investigation. saw the branches. Instead, she says,
One executive, Foster says, sent Countrywide’s Employee Relations
an email to dozens of workers in Department did the interview and
the Boston region, warning them then let the manager’s boss vet the
the fraud unit was on the case and transcript before it was provided to
not to put anything in their emails Foster and the fraud unit.
or instant messages that might be In the end, dozens of employ-
3 4
PrEvIOUS ArTICLE SHOW CONTENTS NEXT ArTICLE
Debt Deception | Mortgage Cover-Up ©2011 Center for Public Integrity 8
ees were let go and six branches Bank of America denies Foster’s
were shut down. But Foster wor- allegations and stands behind its
ried some of the worst actors had decision to fire her. Foster sees the
escaped unscathed. She suspected, ruling as a vindication of her deci-
she says, that something wasn’t sion to keep fighting.
right with Countrywide’s culture — “I don’t let people bully me, in-
and that it was going to be rough timidate me and coerce me,” Foster
going for her as she and her team told iWatch News during a series of
dug into the methods used by Coun- interviews. “And it’s just not right
trywide’s sales machine. that people don’t know what hap-
By early 2008, she claims, she’d pened here and how it happened.”
concluded that many in Country-
wide’s chain of command were
‘Greedy people’
working to cover up massive fraud
within the company — outing and This is the story of Eileen Foster’s
then firing whistleblowers who fight against the nation’s largest
tried to report forgery and other bank and what was once the na-
misconduct. People who spoke up, tion’s largest mortgage lender. It
she says, were “taken out.” is also the story of other former
By the fall of 2008, she was out of Countrywide workers who claim
a job too. Countrywide’s new own- they, too, fought against a culture
er, Bank of America Corp., told her of corruption that protected fraud-
it was firing her for “unprofessional sters, abused borrowers and helped
conduct.” land Bank of America in a quagmire
Foster began a three-year battle of legal and financial woes.
to clear her name and establish that In government records and in in-
she and other employees had been terviews with iWatch News, 30 for-
punished for doing the right thing. mer employees charge that Coun-
Last week, the U.S. Department of trywide executives encouraged or
Labor ruled that Bank of America condoned fraud. The misconduct,
had illegally fired her as payback they say, included falsified income
for exposing fraud and retaliation documentation and other tactics
against whistleblowers. It ordered that helped steer borrowers into
the bank to reinstate her and pay bad mortgages.
her some $930,000. Eighteen of these ex-employ-
3 4
PrEvIOUS ArTICLE SHOW CONTENTS NEXT ArTICLE
Debt Deception | Mortgage Cover-Up ©2011 Center for Public Integrity 9
ees, including Foster,
claim they were demoted
or fired for questioning
fraud. They say sales man-
agers, personnel execu-
tives and other company
officials used intimidation
and firings to silence whis-
tleblowers.
A former loan-under-
writing manager in north-
ern California, for exam-
ple, claimed Countrywide
Susan Walsh/AP
retaliated against her after
Countrywide Financial Corp. former
she sent an email to the CEO Angelo Mozilo is sworn in during a
company’s founder and House Oversight and Government Reform
chief executive, Angelo Committee hearing in 2008.
Mozilo, about questionable
lending practices. The ex-
manager, Enid Thompson, warned fired. Her lawsuit was resolved last
Mozilo in March 2007 that “greedy year. The terms were not disclosed.
unethical people” were pressuring Bank of America officials deny
workers to approve loans without Countrywide or Bank of America
regard for borrowers’ ability to pay, retaliated against Foster, Thomp-
according to a lawsuit in Contra son or others who reported fraud.
Costa Superior Court. The bank says Foster’s firing was
Within 12 hours, Thompson based only on her “management
claimed, Countrywide executives style.” It says it takes fraud seri-
began a campaign of reprisal, reduc- ously and never punishes workers
ing her duties and transferring staff- who report wrongdoing up the cor-
ers off her team. Corporate minions, porate ladder.
she charged, ransacked her desk, When fraud happens, Bank of
broke her computer and removed America spokesman Rick Simon
her printer and personal things. says, “the lender is almost always
Soon after, she said, she was a victim, even if the fraud is per-
3 4
PrEvIOUS ArTICLE SHOW CONTENTS NEXT ArTICLE
Debt Deception | Mortgage Cover-Up ©2011 Center for Public Integrity 10
petrated by individual employees. email about a fraudster within the
Fraud is costly, so lenders neces- ranks, she says, he would hit “reply
sarily invest heavily in both pre- all” and type, “Track the bastard
venting and investigating it.” down and fire him.”
When it uncovers fraud, Simon She says, though, that others
says, the bank takes “appropriate within the company often screened
actions,” including firing the em- his emails, and it’s likely Mozilo
ployees involved and cooperating never saw Thompson’s email or
with law-enforcement authorities many other messages about fraud.
in criminal investigations. “My sense is they kept things
Mozilo’s attorney, David Siegel, from Angelo,” she says.
told iWatch News it was “unlikely
that Mr. Mozilo either would have
‘An old matter’
had a direct role with, or would re-
call, specific employee grievances, When Bank of America announced
and it would be inappropriate for in January 2008 that it was going
him to comment on individual em- to buy Countrywide at a fire-sale
ployment issues in any event.” Sie- price, some analysts thought it was
gel added that “any implication that a great move, one that would leave
he ever would have tolerated much the bank well positioned once the
less condoned to any extent mis- home-loan market recovered.
conduct or fraudulent activity in Almost three years later, defaults
loan production and underwriting on loans originated by Countrywide
… is utterly baseless.” have soared and Bank of America’s
In closed-door testimony a year stock price has plunged as inves-
ago, the ex-CEO defended his com- tors and government agencies have
pany, telling the federal Financial pursued mortgage-related claims
Crisis Inquiry Commission that totaling tens of billions of dollars.
Countrywide “probably made more Federal and state officials are
difference in society, in the integri- pressing Bank of America and oth-
ty of our society, than any company er big players to settle charges they
in the history of America.” used falsified documents to speed
Foster says that, in her experi- homeowners through foreclosure.
ence, Mozilo urged managers to Lawsuits filed on behalf of inves-
crack down on fraud. If he saw an tors claim Countrywide lied about
3 4
PrEvIOUS ArTICLE SHOW CONTENTS NEXT ArTICLE