The day after Jonathan Marrero’s federal stimulus payment landed in his bank account, he took his 5-year-old twins out for lunch at an Applebee’s near where he lives in New Jersey. When he went to pay, his only means of payment, a debit card issued by the hot financial technology startup Chime, was declined.

He didn’t understand why. Marrero had checked his account earlier that day and saw a balance of nearly $10,000. With the Applebee’s server standing next to him, he quickly pulled out his phone to check his Chime app, just as he had hundreds of times since he signed up in January.

Marrero couldn’t log in. He immediately checked his email and found a message from Chime that read, “We regret to inform you that we have made the decision to end our relationship with you at this time. Your spending account will be closed on March 18, 2021.”

He had no choice but to call his parents and have them pay the lunch bill. “I was so embarrassed,” said Marrero, a 32-year-old motorcycle technician. “I’m a grown man, and I was tearing up and everything.” Speaking of the $10,000 that he was suddenly locked out of, he added, “If it was $100, I wouldn’t sweat it. But it was everything I had for my kids.”

Marrero’s grievance is not unusual. Chime, which provides app-based banking services to an estimated 12 million customers, has according to experts been generating a high rate of complaints, with 920 filed at the Consumer Financial Protection Bureau since April 15, 2020. “For a company that most people have never heard of, I think that’s a lot of complaints,” said Lauren Saunders of the National Consumer Law Center.

Many customers have told the CFPB that they can’t access their money or accounts, and that, among other things, Chime is slow to resolve problems. Of the 920 complaints filed about Chime, 197 were tagged as involving a “closed account.” The CFPB’s complaints are labeled inconsistently, and many of the other 723 also detail problems involving accounts that were closed against customers’ will. By comparison, Wells Fargo, a bank with six times as many customers and a lengthy recent history of misbehavior in its consumer bank, has 317 CFPB complaints tagged for closed accounts over the same time period. Marcus, the new online bank created by Goldman Sachs, with 4 million customers, has generated seven such complaints.

Customers have also filed 4,439 complaints against Chime at the Better Business Bureau, compared to 3,281 for Wells Fargo.

Wall Street Praises Kamala Harris as Joe Biden’s VP: ‘What’s Not to Like?’

AP Photo/Richard Drew

JOHN BINDER

13 Aug 2020996

4:20

Wall Street executives are praising Democrat presidential nominee Joe Biden’s choosing Sen. Kamala Harris (D-CA) as his running mate against President Trump, feeling they dodged a bullet from a progressive insurgency.

In interviews with the Wall Street Journal, CNBC, and Bloomberg, executives on Wall Street expressed relief that Biden picked Harris for vice president on the Democrat ticket, calling her a “normal Democrat” who is a “safe” choice for the financial industry.

Morgan Stanley Vice Chairman Tom Nides told Bloomberg that across Wall Street, Harris joining Biden “was exceptionally well-received.”

“How damn cool is it that a Black woman is considered the safe and conventional candidate,” Nides said.

Peter Soloman, the founder of a multinational investment banking firm, told Bloomberg he believes Harris is “a great pick” because she is “safe, balanced, a woman, diverse, what’s not to like?”

As the Journal notes, many on Wall Street see Harris is another conscious decision by the Democrat establishment to stave off populist priorities to reform Wall Street:

To some Wall Street executives, Ms. Harris’s selection signals a more moderate shift for the Democratic Party, which its progressive flank has pushed to the left in recent years. [Emphasis added]

“While Kamala is a forceful, passionate and eloquent standard-bearer for the aspirations of all Americans, regardless of their race, gender or age, she is not doctrinaire or rigid,” said Brad Karp, chairman of law firm Paul Weiss, who co-led a committee of lawyers across the country who supported Ms. Harris during the primary. [Emphasis added]

Marc Lasry, CEO of Avenue Capital Group, called Harris a “great” pick for Biden. “She’s going to help Joe immensely. He picked the perfect partner,” Lasry told CNBC.

Executives at Citigroup and Centerview Partners made similar comments about Harris to CNBC and the Journal, calling her a “great choice” and “direct but constructive.”

Founder of financial consulting firm Kynikos Associates Jim Chanos was elated in an interview with Bloomberg over Harris joining Biden on the Democrat ticket:

“She’s terrific,” said Chanos, founder of Kynikos Associates. “She’s got force of personality in a good way. She takes over a room. She certainly has a charisma and a presence which will be an asset on the campaign.” [Emphasis added]

Harris is no stranger to praise from Wall Street executives. In the 2019 Democrat presidential primary, Harris won over a number of financial industry donors, even holding a fundraiser in Iowa that was backed by Goldman Sachs Group, Inc.

While criticizing “the people who have the most” in Democrat primary debates, Harris raked in thousands in campaign cash from financial executives from firms such as the Blackstone Group, Morgan Stanley, Bank of America, Goldman Sachs, and Wells Fargo.

This month, the New York Times admitted the “wallets of Wall Street are with Joe Biden” in a gushing headline about the financial industry’s opposition to Trump:

Financial industry cash flowing to Mr. Biden and outside groups supporting him shows him dramatically out-raising the president, with $44 million compared with Mr. Trump’s $9 million.

Harris’s views on trade and immigration, two of the most consequential issues to Wall Street, are in lockstep with financial executives’ objective to grow profit margins and add consumers to the market.

On trade, Harris has balked at Trump’s imposition of tariffs on foreign imports from China, Mexico, Canada, and Europe — using the neoliberal argument that tariffs should not be used to pressure foreign countries to buy more American-made goods and serve as only a tax on taxpayers.

Likewise, the Biden-Harris plan for national immigration policy — which seeks to drive up legal and illegal immigration levels to their highest levels in decades — offers a flooded labor market with low wages for U.S. workers and increased bargaining power for big business that has long been supported by Wall Street.

John Binder is a reporter for Breitbart News. Follow him on Twitter at @JxhnBinder.

 

Senator Dianne Feinstein

· Website

· SF Office
(415) 393-0707

· DC Office
(202) 224-3841

· Los Angeles Office
(310) 914-7300

 

In her effort to stave off foreclosure by Wells Fargo, and win back her home from Colony Capital, King wrote to Senator Feinstein’s office last year. According to King, Feinstein’s staff were responsive and helpful, but ultimately nothing has come of her attempt to bring the California Senator’s attention to the problem of continuing bank foreclosures, dual tracking, and the investors like Colony Capital taking advantage of this situation.

Now that Feinstein is a business partner with one of the largest foreclosure investors in the nation, Colony Capital, will there be a push for more meaningful oversight of the banks that are creating the inventory of empty homes for buyers like Barrack to buy up?

 

FEINSTEIN’S STATE OF CALIFORNIA WAS GROUND ZERO FOR THE BANKSTER CAUSED MORTGAGE MELTDOWN CAUSED BY HER BRIBSTERS WELLS FARGO AND BANK OF AMERICA. BOTH ARE CRIMINAL ENTERPRISES WHICH HAVE PLUNDERED AMERICAN WITH FEINSTEIN RIGHT THEIR SUCKING OFF THEIR BRIBES AND VOTING FOR ANY AND ALL NO STRINGS INTEREST FREE BAILOUTS!

 

WAR PROFITEER DIANNE FEINSTEIN SUCKS OFF BRIBES AND DEALS SIPHONED THROUGH HER PIMP-HUSBAND RICHARD BLUM FROM THE FOLLOWING:

https://twitter.com/philosophrob/status/1099103180552654848


1. Wells Fargo (Banking)

2. Northrop Grumman (Defense)

 3. Bank of America (Banking)

 4. General Atomics (Defense)

5. General Dynamics (Defense)

 

IN THE November 2006 election, the voters demanded congressional ethics reform. And so, the newly appointed chairman of the Senate Rules Committee, Dianne Feinstein, D-Calif., is now duly in charge of regulating the ethical behavior of her colleagues. But for many years, Feinstein has been beset by her own ethical conflict of interest, say congressional ethics experts.

 

 

Politicians vow to return campaign cash to Wells Fargo

 

WASHINGTON, DC - SEPTEMBER 20: John Stumpf, chairman and CEO of the Wells Fargo & Company, arrives for testimony before the Senate Banking, Housing and Urban Affairs Committee September 20, 2016 in Washington, DC. The committee heard testimony on the topic of "An Examination of Wells Fargo's Unauthorized Accounts and the Regulatory Response." (Photo by Win McNamee/Getty Images)

Photo: Win McNamee, Getty Images

WASHINGTON — One member of Congress from the Bay Area says he will give back the campaign contribution Wells Fargo sent to him and another says he’ll donate his to a nonprofit.

But while several others, including House Minority Leader Nancy Pelosi, expressed dismay at revelations that the storied San Francisco-based banking giant opened as many as 2 million fake customer accounts to boost its sales numbers, they didn’t say what they planned to do with any contributions they received.

Rep. Mark DeSaulnier, D-Concord, said he’s completely done doing business with the bank.

“I used to be a Wells Fargo customer, and I have one credit card left, and I intend to chop it all in pieces and send it back to the CEO,” he said. About the $1,000 contribution he received from Wells Fargo during the current election cycle, DeSaulnier said, “I’ll send that back too. I don’t want to deal with them.”

At her weekly news conference Thursday, Pelosi, D-San Francisco, called Wells Fargo’s actions “appalling,” and said she favored a criminal investigation while noting that prosecutors have already opened several, in Los Angeles as well as in New York and North Carolina.

She received $7,500 from the bank’s political action committee, according to OpenSecrets.org, a website that tracks campaign money. But the San Francisco Democrat, who has raised more than $100 million for her party this election cycle, said Thursday she wasn’t aware of it. “I don’t know if I even have any,” Pelosi said.

BLOG: FEINSTEIN KNEW THERE WOULD NEVER BE ANY ‘CONSEQUENCES’ FOR BANKSTER CRIMES. THE OBAMA BANKSTER REGIME LET THEM ALL OFF THE HOOK WITH ONY PALTRY FINES. FORMER CALIFORNIA ATTORNEY GENERAL KAMALA HARRIS, NOW A CALIFORNIA SENATORS ASSIDUOUSLY AVOIDED PROSECUTING WELLS FARGO BANKSTER FOR THEIR CRIMES THAT CREATED THE ECONOMIC MELTDOWN IN 2008. WELLS FARGO HAS PUMPED BIG MONEY INTO KAMALA HARRIS AS THANKS!

AS FAR AS FEINSTEIN’S ‘CONSEQUENCES’ WELLS FARGO HAD ALREADY LOST THEIR CALIFORNIA MORTGAGE LICENSE PRIOR TO THE MORTGAGE MELTDOWN THEY CAUSED WHEN FEINSTEIN FRONT FOR THEM IN THE BANKSTERS’ BANKRUPTCY ‘REFORM’ THAT PRECLUDES VICTIMS OF WELLS FARGO’S TOXIC MORTGAGES FROM WRITING THEM OFF IN BANKRUPTCY COURT.

THERE IS NO GREATER WHORE FOR BIG BANKSTERS THAN FEINSTEIN, WITH THE POSSIBLE EXCEPTION BEING HILLARY CLINTON AND BARACK OBAMA.

Sen. Dianne Feinstein, D-Calif., said in a statement through her spokesman that she also expected Wells Fargo’s top executives to face consequences.

“Executives responsible for creating a culture where 2 million fake accounts were created, resulting in the firing of 5,300 workers and $185 million in penalties, must be held accountable,” Feinstein said. Her campaign office did not immediately respond to an inquiry about whether she would return the $3,000 contribution she received from the bank.

OpenSecrets does not list Sen. Barbara Boxer, D-Calif., as having received contributions from the bank.

Wells Fargo is under fire for a practice called cross-selling that appears to have begun as early as 2009. Under pressure by top executives to increase sales of additional bank services, employees allegedly created accounts for existing customers without their knowledge, leading to late fees and other charges in some cases.

On Tuesday, Wells Fargo CEO John Stumpf took a bipartisan grilling before the Senate Banking Committee, which called for a criminal investigation of the illegal practices. In a particularly harsh line of questioning, committee member Sen. Elizabeth Warren, D-Mass., tore into Stumpf for failing to fire the top executives responsible for the scandal or surrender any of his own enormous earnings, even as the bank fired 5,300 of its lowest-paid workers for their role in it.

While its rivals were mired in mortgage and trading scandals, Wells Fargo stayed to its community banking roots, but now its chief executive John Stumpf will have his own Wall Street moment when he faces questions from the Senate Banking

“You squeezed your employees to the breaking point so you could cheat customers and drive up the value of your stock,” she told him. “And when it all blew up, you kept your job, your multimillion-dollar bonuses, and went on TV and blamed thousands of $12-an-hour employees trying to meet cross-sell quotas. You should resign. You should be criminally investigated by the Department of Justice and Securities and Exchange Commission.”

Thursday, Reps. Barbara Lee, D-Oakland, and Eric Swalwell, D-Dublin, said criminal charges should be considered for the top executives responsible for the banks’ alleged misconduct.

“An investigation is absolutely needed to find those responsible, hold them accountable and prevent this insanity from happening again,” Lee said through a spokesman.

Lee’s campaign office did not immediately respond to whether she would return her $2,000 contribution from Wells Fargo.

But Swalwell said he will donate the $4,000 in campaign contributions he has received from Wells Fargo to a local nonprofit. His spokesman, Josh Richman, said Swalwell is “in the process of choosing which one.”

Outside of the Bay Area, House Majority Leader Kevin McCarthy, R-Bakersfield, received $10,000 from Wells Fargo. His office did not respond to requests for comment.

WAR PROFITEER’S SECOND LARGEST BRIBSTERS ARE BANKSTERS WELLS FARGO AND BANK OF AMERICA. SHE HAS FOR DECADES COLLUDED IN THEIR WHOLESALE PLUNDER OF THE AMERICAN PEOPLE AND VOTED FOR ANY AND ALL THAT WOULD PUT MORE MONEY AND POWER INTO THESE CRIMINAL ENTERPRISES’ POCKETS

 

Whistleblower: Wall Street Has Engaged in Widespread Manipulation of Mortgage Funds

Securities that contain loans for properties like hotels and office buildings have inflated profits, the whistleblower claims. As the pandemic hammers the economy, that could increase the chances of another mortgage collapse.

by Heather Vogell

 May 15,

A whistleblower complaint accuses 14 major lenders, including Wells Fargo, one of the country’s biggest CMBS issuers, of widespread manipulation of mortgage funds. (Noam Galai/Getty Images)

Among the toxic contributors to the financial crisis of 2008, few caused as much havoc as mortgages with dodgy numbers and inflated values. Huge quantities of them were assembled into securities that crashed and burned, damaging homeowners and investors alike. Afterward, reforms were promised. Never again, regulators vowed, would real estate financiers be able to fudge numbers and threaten the entire economy.

Twelve years later, there’s evidence something similar is happening again.

Some of the world’s biggest banks — including Wells Fargo and Deutsche Bank — as well as other lenders have engaged in a systematic fraud that allowed them to award borrowers bigger loans than were supported by their true financials, according to a previously unreported whistleblower complaint submitted to the Securities and Exchange Commission last year.

Whereas the fraud during the last crisis was in residential mortgages, the complaint claims this time it’s happening in commercial properties like office buildings, apartment complexes and retail centers. The complaint focuses on the loans that are gathered into pools whose worth can exceed $1 billion and turned into bonds sold to investors, known as CMBS (for commercial mortgage-backed securities).

Lenders and securities issuers have regularly altered financial data for commercial properties “without justification,” the complaint asserts, in ways that make the properties appear more valuable, and borrowers more creditworthy, than they actually are. As a result, it alleges, borrowers have qualified for commercial loans they normally would not have, with the investors who bought securities birthed from those loans none the wiser.

ProPublica closely examined six loans that were part of CMBS in recent years to see if their data resembles the pattern described by the whistleblower. What we found matched the allegations: The historical profits reported for some buildings were listed as much as 30% higher than the profits previously reported for the same buildings and same years when the property was part of an earlier CMBS. As a rough analogy, imagine a homeowner having stated in a mortgage application that his 2017 income was $100,000 only to claim during a later refinancing that his 2017 income was $130,000 — without acknowledging or explaining the change.

It’s “highly questionable” to alter past profits with no apparent explanation, said John Coffee, a professor at Columbia Law School and an expert in securities regulation. “I don’t understand why you can do that.”

In theory, CMBS are supposed to undergo a rigorous multistage vetting process. A property owner seeking a loan on, say, an office building would have its finances scrutinized by a bank or other lender. After that loan is made, it would be subjected to another round of due diligence, this time by an investment bank that assembles 60 to 120 loans to form a CMBS. Somewhere along the line, according to John Flynn, a veteran of the CMBS industry who filed the whistleblower complaint, numbers are being adjusted — inevitably to make properties, and therefore the entire CMBS, look more financially robust.

The complaint suggests widespread efforts to make adjustments. Some expenses were erased from the ledger, for example, when a new loan was issued. Most changes were small; but a minor increase in profits can lead to approval for a significantly higher mortgage.

The result: Many properties may have borrowed more than they could afford to pay back — even before the pandemic rocked their businesses — making a CMBS crash both more likely and more damaging. “It’s a higher cliff from which they are falling,” Flynn said. “So the loss severity is going to be greater and the probability of default is going to be greater.”

With the economy being pounded and trillions of dollars already committed to bailouts, potential overvaluations in commercial real estate loom much larger than they would have even a few months ago. Data from early April showed a sharp spike in missed payments to bondholders for CMBS that hold loans from hotels and retail stores, according to Trepp, a data provider whose specialties include CMBS. The default rate is expected to climb as large swaths of the nation remain locked down.

After lobbying by commercial real estate organizations and advocacy by real estate investor and Trump ally Tom Barrack — who warned of a looming commercial mortgage crash — the Federal Reserve pledged in early April to prop up CMBS by loaning money to investors and letting them use their CMBS as collateral. The goal is to stabilize the market at a time when investors may be tempted to dump their securities, and also to support banks in issuing new bonds. (Barrack’s company, Colony Capital, has since defaulted on $3.2 billion in debt backed by hotel and health care properties, according to the Financial Times.)

The Fed didn’t specify how much it’s willing to spend to support the CMBS, and it is allowing only those with the highest credit ratings to be used as collateral. But if some ratings are based on misleading data, as the complaint alleges, taxpayers could be on the hook for a riskier-than-anticipated portfolio of loans.

The SEC, which has not taken public action on the whistleblower complaint, declined to comment.

Some lenders interviewed for this article maintain they’re permitted to alter properties’ historical profits under some circumstances. Others in the industry offered a different view. Adam DeSanctis, a spokesperson for the Mortgage Bankers Association, which has helped set guidelines for financial reporting in CMBS, said he reached out to members of the group’s commercial real estate team and none had heard of a practice of inflating profits. “We aren’t aware of this occurring and really don’t have anything to add,” he said.

The notion that profit figures for some buildings are pumped up is surprising, said Kevin Riordan, a finance professor at Montclair State University. It raises questions about whether the proper disclosures are being made.

Investors don’t comb through financial statements, added Riordan, who used to manage the CMBS portfolio for retirement fund giant TIAA-CREF. Instead, he said, they rely on summaries from investment banks and the credit ratings agencies that analyze the securities. To make wise decisions, investors’ information “out of the gate has to be pretty close to being right,” he said. “Otherwise you’re dealing with garbage. Garbage in, garbage out.”

________________________________________

The whistleblower complaint has its origins in the kinds of obsessions that keep wonkish investors up at night. Flynn wondered what was going to happen when some of the most ill-conceived commercial loans — those made in the lax, freewheeling days before the financial crisis of 2008 — matured a decade later. He imagined an impending disaster of mass defaults. But as 2015, then 2017, passed, the defaults didn’t come. It didn’t make sense to him.

Flynn, 55, has deep experience in commercial real estate, banking and CMBS. After growing up on a dairy farm in Minnesota, the youngest of 14 children, and graduating from college — the first in his family to do so, he said — Flynn moved to Tokyo to work, first in real estate, then in finance. Jobs with banks and ratings agencies took him to Belgium, Chicago and Australia. These days, he advises owners whose loans are sold into CMBS and helps them resolve disputes and restructure or modify problem loans.

Burr’s resignation comes after the FBI seized his cellphone Wednesday. The Republican from North Carolina is being investigated for selling stock ahead of the market crash due to coronavirus fears.

He began poring over the fine print in CMBS filings and noticed curious anomalies. For example, many properties changed their names, and even their addresses, from one CMBS to another. That made it harder to recognize a specific property and compare its financial details in two filings. As Flynn read more and more, he began to wonder whether the alterations were attempts to obscure discrepancies: These same properties were typically reporting higher net operating incomes in the new CMBS than they did for the same year in a previous CMBS.

Flynn ultimately collected and analyzed data for huge numbers of commercial mortgages. He began to see patterns and what he calls a massive problem: Flynn has amassed “materials identifying about $150 billion in inflated CMBS issued between 2013 and today,” according to the complaint.

The higher reported profits helped the properties qualify for loans they might not have otherwise obtained, he surmised. They also paved the way for bigger fees for banks. “Inflating historical cash flows creates a misperception of lower current and historical cash flow volatility, enables higher underwritten [net operating income/net cash flow], and higher collateral values,” the complaint states, “and thereby enables higher debt.”

Flynn eventually found a lawyer and, in February 2019, he filed the whistleblower complaint. The complaint accuses 14 major lenders — including three of the country’s biggest CMBS issuers, Deutsche Bank, Wells Fargo and Ladder Capital — and seven servicers of inflating historical cash flows, failing to report misrepresentations, changing names and addresses of properties and “deceptively and inaccurately” describing mortgage-loan representations. It doesn’t identify which companies allegedly manipulated each specific number. (Spokespeople for Deutsche Bank and Wells Fargo declined to comment on the record. The complaint does not mention Barrack or his company. )

The SEC has the power to fine companies and their executives if fraud is established. If the SEC recovers more than $1 million based on Flynn’s claim, he could be entitled to a portion of it.

When Flynn filed the complaint, the skies looked clear for the commercial mortgage market. Indeed, last year was a boom year for CMBS, with private lenders in the U.S. issuing roughly $96.7 billion in commercial mortgage-backed securities — a 27% increase over 2018, which made it the most successful year since the last financial crisis, according to Trepp. Overall, investors hold CMBS worth $592 billion.

Flynn’s assertions raise questions about the efficacy of post-crisis reforms that Congress and the SEC instituted that sought to place new restrictions on banks and other lenders, increase transparency and protect consumers and investors. The regulations that were retooled included the one that governs CMBS, known as Regulation AB. The goal was to make disclosures clearer and more complete for investors, so they would be less reliant on ratings agencies, which were widely criticized during the financial crisis for lax practices.

Still, the opinion of the credit-ratings agencies remains crucial today, a point reinforced by the Fed’s decision to hinge its bailout decisions on those ratings. That’s a problem, in the view of Neil Barofsky, who served as the U.S. Treasury’s inspector general for the Troubled Assets Relief Program from 2008 to 2011. “Practically nothing” was done to reform the ratings agencies, Barofsky said, which could lead to the sorts of problems that emerged in the bailout a decade ago. If things truly turn bad for the commercial real estate industry or if fraud is discovered, he added, the Fed could end up taking possession of properties that default.

________________________________________

CMBS can be something of a last resort for borrowers whose projects are unlikely to qualify for a loan with a desirable interest rate from a bank or other lender (because they are too big, too risky or some other reason), according to experts. Underwriting practices — the due diligence lenders do before extending a loan — for CMBS have gained a reputation for being less strict than for loans that banks keep on their balance sheets. Government watchdogs found serious deficiencies in the underwriting for securitized commercial mortgages during the financial crisis, just as they did in the subprime residential market.

The due diligence process broke down, Flynn maintains, in precisely the mortgages he was worried about: the 10-year loans obtained before the financial crisis. What Flynn discovered, he said, was that rather than lowering the values for properties that had taken on bigger loans than they could pay off, their owners instead obtained new loans. “Someone should have taken the losses,” he said. “Instead, they papered over it, inflated the cash flow and sold it on.”

For commercial borrowers, small bumps in a property’s profits can qualify the borrower for millions more in loans. Shaving expenses by about a third to boost profit, for instance, can sometimes allow a borrower to increase a loan’s size by a third as well — even if the expenses run only in the thousands, and the loan runs in the millions.

Some executives for lenders acknowledged to ProPublica that they made changes to borrowers’ past financials — scrubbing expenses from prior years they deemed irrelevant for the new loan — but maintained that it is appropriate to do so. Accounting firms review financial data before the loans are assembled into CMBS, they added.

The financial data that ProPublica examined — a sample of six loans among the thousands Flynn identified as having inflated net operating income — revealed potential weaknesses not readily apparent to the average investor. For those six loans, the profits for a given year were listed as 9% to 30% higher in new securities than in the old. After they were issued, half of those loans ended up on watch lists for problem debt, meaning the properties were considered at heightened risk for default.

In each of the six loans, the profit inflation seemed to be explained by decreases in the costs reported. Expenses reported for a particular year in one CMBS simply vanished in disclosures for the same year in a new CMBS.

Such a pattern appeared in a $36.7 million loan by Ladder Capital in 2015 to a team that purchased the Doubletree San Diego, a half-century-old hotel that struggled for years to bring in enough income to satisfy loan servicers, even under a previous, smaller loan.

The hotel’s new loan saddled it with far greater debt, increasing its main loan by 60% — even though the property had landed on a watchlist in 2010 because of declining revenue. Analysts at Moody’s pegged the hotel’s new loan as exceeding the value of the property by 40.5% (meaning a loan-to-value ratio of 140.5%).

Filings for the new loan claimed much higher profits than what the old loan had cited for the same years: The hotel’s net operating income for two years magically jumped from what had previously been reported: 21% and 16% larger for 2013 and 2014, respectively.

Such figures are supposed to be pulled from a property’s “most recent operating statement,” according to the regulation governing CMBS disclosures.

But, in response to questions from ProPublica, lender Ladder Capital said it altered the expense numbers it provided in the Doubletree’s historical financials. Ladder said it wiped lease payments —$700,608 and $592,823 in those two years — from the historical financials, because the new owner would not make lease payments in the future. (The previous owner had leased the building from an affiliated company.)

Ladder, a publicly traded commercial real estate investment trust that reports more than $6 billion in assets, said in a statement, “These differences are due to items that were considered by Ladder Capital during the due diligence process and reported appropriately in all relevant disclosures.”

Yet when ProPublica asked Ladder to share its disclosures about the changes, the firm pointed to a section of the pool’s prospectus that didn’t mention lease payments, or explain or acknowledge the change in income.

The Doubletree did not fare well under its new debt package. Revenues and occupancy declined after 2015 and by 2017, the hotel’s loan was back on the watch list. The hotel missed franchise fee payments. Ladder foreclosed in December 2019, after problems with an additional $5.8 million loan the lender had extended the property.

The Doubletree loan was not the only loan in its CMBS pool, issued by Deutsche Bank in 2015, with apparently inflated profits. Flynn said he was able to track down previous loan information for loans representing nearly 40% of the pool, and all had inflated income figures at some point in their historical financial data.

There was also a noticeable profit increase in two loans Ladder issued for a strip mall in suburban Pennsylvania. The mall’s past results improved when they appeared in a new CMBS. Its 2016 net operating income, previously listed as $1,101,207 in one CMBS, now appeared as $1,352,353 in another, data from Trepp shows — an increase of 23%. The prospectus for the latter does not explain or acknowledge the change in income. The mall owner received a $14 million loan.

Less than a year after it was placed into a CMBS, the loan ran into trouble. It landed on a watchlist after one of its major tenants, a department store, declared bankruptcy.

Ladder said it excluded $203,787 in expenses from the new loan because they stemmed from one-time costs for environmental remediation of pollution by a dry cleaner and a roof repair. Ladder did not explain why the previous lender did not exclude the expense also.

The pattern can be seen in loans made by other lenders, too. In a CMBS issued by Wells Fargo, a 1950s-era trailer park at the base of a steep bluff along the coast in Los Angeles reported sharply higher profits — for the same years — than it previously had.

The Pacific Palisades Bowl Park received a $12.9 million loan from the bank in 2016. The park reported expenses that were about a third lower in its new loan disclosures when compared with earlier ones. As a result, the $1.2 million in net operating income for 2014 rose 28% above what had been reported for the same year under the old loan. A similar jump occurred in 2013. (Edward Biggs, the owner of the park, said he gave Wells Fargo the park’s financials when refinancing its loan and wasn’t aware of discrepancies in what was reported to investors. “I don’t know anything about that,” he said.)

Flynn said he found that for the $575 million Wells Fargo CMBS that contained the Palisades debt, about half of the loan pool appeared to have reported inflated profits at some point, when comparing the same years in different securities.

Another of the loans ProPublica examined with apparently inflated profits was for a building in downtown Philadelphia. When the owner refinanced through Wells Fargo, the property’s 2015 profit appeared 23% higher than it had in reports under the old loan. Wells bundled the debt into a mortgage-backed security in 2016.

The building, One Penn Center, is a historic Art Deco office high-rise with ornate black marble and gold-plated fixtures, and a transit station underneath. One of the primary tenants, leasing 45,000 square feet for one of its regional headquarters, happens to be the SEC. The agency declined to comment.

Tag Archives: Colony Capital

 

https://darwinbondgraham.wordpress.com/tag/colony-capital/

FEINSTEIN’S STATE OF CALIFORNIA WAS GROUND ZERO FOR THE MORTGAGE MELTDOWN CAUSED BY HER BRIBSTERS WELLS FARGO AND BANK OF AMERICA.

Now that Feinstein is a business partner with one of the largest foreclosure investors in the nation, Colony Capital, will there be a push for more meaningful oversight of the banks that are creating the inventory of empty homes for buyers like Barrack to buy up?

Dianne Feinstein Mixes Money With Oakland Foreclosure Investor

 

Richard C. Blum and Dianne Feinstein enjoying a chuckle.

Last month I published an investigation examining the big corporate investors that have bought up the East Bay’s foreclosed homes, turning thousands of them into rental properties. Featured in the story was Cheri King, an Oakland resident who lost her house due to predatory bank lending and the foreclosure crisis. Now her home in East Oakland is owned by Colony Capital, a private equity firm from Santa Monica run by billionaire Thomas Barrack, Jr.

Last Friday it was announced that a hotel chain owned by Barrack, FRHI Hotels & Resorts, purchased Oakland’s Claremont Hotel. Joining Barrack in buying the Claremont is Richard Blum, husband of U.S. Senator Dianne Feinstein.

Here’s what the company’s press release said:

“FRHI Hotels & Resorts (FRHI), the parent company of luxury and upper upscale hotel brands Raffles Hotels & Resorts, Fairmont Hotels & Resorts and Swissôtel Hotels & Resorts, together with California financier Richard C. Blum and his family, have purchased the historic Claremont Hotel Club & Spa in Berkeley, California, it was announced today. FRHI and the Blum family are equal partners and terms were not disclosed.”

Whatever the specific terms were, the general gist is that Blum and Feinstein are now business partners with Barrack.

What does this mean for victims of the foreclosure crisis like Cheri King, and homeowners currently fighting to stop foreclosure? In her effort to stave off foreclosure by Wells Fargo, and win back her home from Colony Capital, King wrote to Senator Feinstein’s office last year. According to King, Feinstein’s staff were responsive and helpful, but ultimately nothing has come of her attempt to bring the California Senator’s attention to the problem of continuing bank foreclosures, dual tracking, and the investors like Colony Capital taking advantage of this situation.

Now that Feinstein is a business partner with one of the largest foreclosure investors in the nation, Colony Capital, will there be a push for more meaningful oversight of the banks that are creating the inventory of empty homes for buyers like Barrack to buy up?

 

 

 

‎Steven Greenleaf‎ to Occupy Democrats

May 17, 2016 · 

This from Sen. Dianne Feinstein, "I think it would be most regretful if there becomes a schism," Feinstein said. "That's what Donald Trump should want: a schism in our party. ... It's the responsibility particularly of Sen. Sanders to see that that doesn't happen."
There has been a "schism," in the Democratic party since the convention of 1968 when Hubert Humphrey was the nominee, beginning the move to the right and the wholesale selling out of the Democratic Party to the moneyed interests. Regardless which candidate one supports, it does no good (particularly from a "Democrat," who has been bought and paid for for her entire political career, starting with her time as a San Francisco Supervisor and greasing the skids of approvals for her husband, Richard Blum's real estate development deals through to today when she is in every meaningful way a paid lobbyist for Wells Fargo, Bank of America, Genentech, Monsanto etc) to be doling out this absurdly revisionist history.
The Democrats have been in a schism of their own creation by abandoning their core - plain, simple selling out. The results of the idiotic political strategy of the so called leaders of the party like Feinstein, Boxer, Gephardt, Nunn, Clinton, Mondale etc? Losing to some of the weakest Republican candidates in American political history - Nixon, Bush I, Bush II, and now conceivably Trump, probably the weakest presidential candidate in our history. Losing Congress over and over, even in years of a strong economy and a relatively popular President in the White House. Now blame it all on Bernie? On a one year old campaign that has attracted millions of disinterested and disenfranchised voters back to the party? I am sickened by her outright lies and hubris. The Democratic party has done a great job of losing for decades now, and Dianne Feinstein and her ilk are a perfect example of why that is the case. She is a dammed disgrace. The party has been driven into the ditch for more than 40 years now, deal with the ramifications of your greed and dishonesty.

 

Glazer rips Wells Fargo, calls it an ‘outlaw institution’

 

 

STATE SENATE | 7TH DISTRICT |
State Sen. Steve Glazer tore into Wells Fargo for misconduct involving millions of falsified customer accounts. But, Wells Fargo Chief Executive Steve Sloan wasn’t there to take the thumping.

Sloan never said he would attend Monday’s State Senate Banking Committee Oversight Hearing, said Glazer, its chairperson, but he also never declined the invitation.

The State Senate’s historian said it is the first time a corporation skipped an oversight hearing since disgraced energy provider Enron in the late 1990s.

“It’s sad to see Wells Fargo join this elite Hall of Shame,” said Glazer, who represents  Contra Costa County and the Tri Valley in Alameda County. “Who could imagine that the bank that represented the values of honesty and fair-dealings for more than 160 years in California would now become an outlaw institution?”

Wells Fargo’s wrongdoing involved 2 million bank accounts, including 900,00 in California alone. Following a congressional hearing in October, Wells Fargo Chief Executive John Stumpf resigned.

A portion of Glazer’s intent through Monday’s hearing was to established how high up the chain of command knowledge of the bank’s illegal behavior had reached. Beforehand, correspondences and a meeting six weeks ago between Wells Fargo officials and Glazer, yielded no new information, he said, but more obfuscation.

“I remain unsatisfied on every material question,” said Glazer.

The senate banking committee, however, found evidence that 480 Wells Fargo branch managers were fired in last 5 years due to sales practice violations. Glazer asserted the number of firings suggests company executives should have been aware that problems existed. “This appears to be a company culture, an atmosphere of greed pushed from the top,” said Glazer.

Glazer said he hopes Wells Fargo provides in the near future a blueprint for how it intends to clean up its corporate culture.

This does not appear to be the last time Wells Fargo will be raked over the coals by state lawmakers. Glazer’s hearing followed a similar Assembly oversight hearing last month.

Whistleblower: Wall Street Has Engaged in Widespread Manipulation of Mortgage Funds

Securities that contain loans for properties like hotels and office buildings have inflated profits, the whistleblower claims. As the pandemic hammers the economy, that could increase the chances of another mortgage collapse.

by Heather Vogell

 May 15, 7 a.m. EDT

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A whistleblower complaint accuses 14 major lenders, including Wells Fargo, one of the country’s biggest CMBS issuers, of widespread manipulation of mortgage funds. (Noam Galai/Getty Images)

ProPublica is a nonprofit newsroom that investigates abuses of power. Sign up to receive our biggest stories as soon as they’re published.

Among the toxic contributors to the financial crisis of 2008, few caused as much havoc as mortgages with dodgy numbers and inflated values. Huge quantities of them were assembled into securities that crashed and burned, damaging homeowners and investors alike. Afterward, reforms were promised. Never again, regulators vowed, would real estate financiers be able to fudge numbers and threaten the entire economy.

Twelve years later, there’s evidence something similar is happening again.

Some of the world’s biggest banks — including Wells Fargo and Deutsche Bank — as well as other lenders have engaged in a systematic fraud that allowed them to award borrowers bigger loans than were supported by their true financials, according to a previously unreported whistleblower complaint submitted to the Securities and Exchange Commission last year.

Whereas the fraud during the last crisis was in residential mortgages, the complaint claims this time it’s happening in commercial properties like office buildings, apartment complexes and retail centers. The complaint focuses on the loans that are gathered into pools whose worth can exceed $1 billion and turned into bonds sold to investors, known as CMBS (for commercial mortgage-backed securities).

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Lenders and securities issuers have regularly altered financial data for commercial properties “without justification,” the complaint asserts, in ways that make the properties appear more valuable, and borrowers more creditworthy, than they actually are. As a result, it alleges, borrowers have qualified for commercial loans they normally would not have, with the investors who bought securities birthed from those loans none the wiser.

ProPublica closely examined six loans that were part of CMBS in recent years to see if their data resembles the pattern described by the whistleblower. What we found matched the allegations: The historical profits reported for some buildings were listed as much as 30% higher than the profits previously reported for the same buildings and same years when the property was part of an earlier CMBS. As a rough analogy, imagine a homeowner having stated in a mortgage application that his 2017 income was $100,000 only to claim during a later refinancing that his 2017 income was $130,000 — without acknowledging or explaining the change.

It’s “highly questionable” to alter past profits with no apparent explanation, said John Coffee, a professor at Columbia Law School and an expert in securities regulation. “I don’t understand why you can do that.”

In theory, CMBS are supposed to undergo a rigorous multistage vetting process. A property owner seeking a loan on, say, an office building would have its finances scrutinized by a bank or other lender. After that loan is made, it would be subjected to another round of due diligence, this time by an investment bank that assembles 60 to 120 loans to form a CMBS. Somewhere along the line, according to John Flynn, a veteran of the CMBS industry who filed the whistleblower complaint, numbers are being adjusted — inevitably to make properties, and therefore the entire CMBS, look more financially robust.

The complaint suggests widespread efforts to make adjustments. Some expenses were erased from the ledger, for example, when a new loan was issued. Most changes were small; but a minor increase in profits can lead to approval for a significantly higher mortgage.

The result: Many properties may have borrowed more than they could afford to pay back — even before the pandemic rocked their businesses — making a CMBS crash both more likely and more damaging. “It’s a higher cliff from which they are falling,” Flynn said. “So the loss severity is going to be greater and the probability of default is going to be greater.”

With the economy being pounded and trillions of dollars already committed to bailouts, potential overvaluations in commercial real estate loom much larger than they would have even a few months ago. Data from early April showed a sharp spike in missed payments to bondholders for CMBS that hold loans from hotels and retail stores, according to Trepp, a data provider whose specialties include CMBS. The default rate is expected to climb as large swaths of the nation remain locked down.

After lobbying by commercial real estate organizations and advocacy by real estate investor and Trump ally Tom Barrack — who warned of a looming commercial mortgage crash — the Federal Reserve pledged in early April to prop up CMBS by loaning money to investors and letting them use their CMBS as collateral. The goal is to stabilize the market at a time when investors may be tempted to dump their securities, and also to support banks in issuing new bonds. (Barrack’s company, Colony Capital, has since defaulted on $3.2 billion in debt backed by hotel and health care properties, according to the Financial Times.)

The Fed didn’t specify how much it’s willing to spend to support the CMBS, and it is allowing only those with the highest credit ratings to be used as collateral. But if some ratings are based on misleading data, as the complaint alleges, taxpayers could be on the hook for a riskier-than-anticipated portfolio of loans.

The SEC, which has not taken public action on the whistleblower complaint, declined to comment.

Some lenders interviewed for this article maintain they’re permitted to alter properties’ historical profits under some circumstances. Others in the industry offered a different view. Adam DeSanctis, a spokesperson for the Mortgage Bankers Association, which has helped set guidelines for financial reporting in CMBS, said he reached out to members of the group’s commercial real estate team and none had heard of a practice of inflating profits. “We aren’t aware of this occurring and really don’t have anything to add,” he said.

The notion that profit figures for some buildings are pumped up is surprising, said Kevin Riordan, a finance professor at Montclair State University. It raises questions about whether the proper disclosures are being made.

Investors don’t comb through financial statements, added Riordan, who used to manage the CMBS portfolio for retirement fund giant TIAA-CREF. Instead, he said, they rely on summaries from investment banks and the credit ratings agencies that analyze the securities. To make wise decisions, investors’ information “out of the gate has to be pretty close to being right,” he said. “Otherwise you’re dealing with garbage. Garbage in, garbage out.”

The whistleblower complaint has its origins in the kinds of obsessions that keep wonkish investors up at night. Flynn wondered what was going to happen when some of the most ill-conceived commercial loans — those made in the lax, freewheeling days before the financial crisis of 2008 — matured a decade later. He imagined an impending disaster of mass defaults. But as 2015, then 2017, passed, the defaults didn’t come. It didn’t make sense to him.

Flynn, 55, has deep experience in commercial real estate, banking and CMBS. After growing up on a dairy farm in Minnesota, the youngest of 14 children, and graduating from college — the first in his family to do so, he said — Flynn moved to Tokyo to work, first in real estate, then in finance. Jobs with banks and ratings agencies took him to Belgium, Chicago and Australia. These days, he advises owners whose loans are sold into CMBS and helps them resolve disputes and restructure or modify problem loans.

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He began poring over the fine print in CMBS filings and noticed curious anomalies. For example, many properties changed their names, and even their addresses, from one CMBS to another. That made it harder to recognize a specific property and compare its financial details in two filings. As Flynn read more and more, he began to wonder whether the alterations were attempts to obscure discrepancies: These same properties were typically reporting higher net operating incomes in the new CMBS than they did for the same year in a previous CMBS.

Flynn ultimately collected and analyzed data for huge numbers of commercial mortgages. He began to see patterns and what he calls a massive problem: Flynn has amassed “materials identifying about $150 billion in inflated CMBS issued between 2013 and today,” according to the complaint.

The higher reported profits helped the properties qualify for loans they might not have otherwise obtained, he surmised. They also paved the way for bigger fees for banks. “Inflating historical cash flows creates a misperception of lower current and historical cash flow volatility, enables higher underwritten [net operating income/net cash flow], and higher collateral values,” the complaint states, “and thereby enables higher debt.”

Flynn eventually found a lawyer and, in February 2019, he filed the whistleblower complaint. The complaint accuses 14 major lenders — including three of the country’s biggest CMBS issuers, Deutsche Bank, Wells Fargo and Ladder Capital — and seven servicers of inflating historical cash flows, failing to report misrepresentations, changing names and addresses of properties and “deceptively and inaccurately” describing mortgage-loan representations. It doesn’t identify which companies allegedly manipulated each specific number. (Spokespeople for Deutsche Bank and Wells Fargo declined to comment on the record. The complaint does not mention Barrack or his company. )

The SEC has the power to fine companies and their executives if fraud is established. If the SEC recovers more than $1 million based on Flynn’s claim, he could be entitled to a portion of it.

When Flynn filed the complaint, the skies looked clear for the commercial mortgage market. Indeed, last year was a boom year for CMBS, with private lenders in the U.S. issuing roughly $96.7 billion in commercial mortgage-backed securities — a 27% increase over 2018, which made it the most successful year since the last financial crisis, according to Trepp. Overall, investors hold CMBS worth $592 billion.

Flynn’s assertions raise questions about the efficacy of post-crisis reforms that Congress and the SEC instituted that sought to place new restrictions on banks and other lenders, increase transparency and protect consumers and investors. The regulations that were retooled included the one that governs CMBS, known as Regulation AB. The goal was to make disclosures clearer and more complete for investors, so they would be less reliant on ratings agencies, which were widely criticized during the financial crisis for lax practices.

Still, the opinion of the credit-ratings agencies remains crucial today, a point reinforced by the Fed’s decision to hinge its bailout decisions on those ratings. That’s a problem, in the view of Neil Barofsky, who served as the U.S. Treasury’s inspector general for the Troubled Assets Relief Program from 2008 to 2011. “Practically nothing” was done to reform the ratings agencies, Barofsky said, which could lead to the sorts of problems that emerged in the bailout a decade ago. If things truly turn bad for the commercial real estate industry or if fraud is discovered, he added, the Fed could end up taking possession of properties that default.

CMBS can be something of a last resort for borrowers whose projects are unlikely to qualify for a loan with a desirable interest rate from a bank or other lender (because they are too big, too risky or some other reason), according to experts. Underwriting practices — the due diligence lenders do before extending a loan — for CMBS have gained a reputation for being less strict than for loans that banks keep on their balance sheets. Government watchdogs found serious deficiencies in the underwriting for securitized commercial mortgages during the financial crisis, just as they did in the subprime residential market.

The due diligence process broke down, Flynn maintains, in precisely the mortgages he was worried about: the 10-year loans obtained before the financial crisis. What Flynn discovered, he said, was that rather than lowering the values for properties that had taken on bigger loans than they could pay off, their owners instead obtained new loans. “Someone should have taken the losses,” he said. “Instead, they papered over it, inflated the cash flow and sold it on.”

For commercial borrowers, small bumps in a property’s profits can qualify the borrower for millions more in loans. Shaving expenses by about a third to boost profit, for instance, can sometimes allow a borrower to increase a loan’s size by a third as well — even if the expenses run only in the thousands, and the loan runs in the millions.

Some executives for lenders acknowledged to ProPublica that they made changes to borrowers’ past financials — scrubbing expenses from prior years they deemed irrelevant for the new loan — but maintained that it is appropriate to do so. Accounting firms review financial data before the loans are assembled into CMBS, they added.

The financial data that ProPublica examined — a sample of six loans among the thousands Flynn identified as having inflated net operating income — revealed potential weaknesses not readily apparent to the average investor. For those six loans, the profits for a given year were listed as 9% to 30% higher in new securities than in the old. After they were issued, half of those loans ended up on watch lists for problem debt, meaning the properties were considered at heightened risk for default.

In each of the six loans, the profit inflation seemed to be explained by decreases in the costs reported. Expenses reported for a particular year in one CMBS simply vanished in disclosures for the same year in a new CMBS.

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Such a pattern appeared in a $36.7 million loan by Ladder Capital in 2015 to a team that purchased the Doubletree San Diego, a half-century-old hotel that struggled for years to bring in enough income to satisfy loan servicers, even under a previous, smaller loan.

The hotel’s new loan saddled it with far greater debt, increasing its main loan by 60% — even though the property had landed on a watchlist in 2010 because of declining revenue. Analysts at Moody’s pegged the hotel’s new loan as exceeding the value of the property by 40.5% (meaning a loan-to-value ratio of 140.5%).

Filings for the new loan claimed much higher profits than what the old loan had cited for the same years: The hotel’s net operating income for two years magically jumped from what had previously been reported: 21% and 16% larger for 2013 and 2014, respectively.

Such figures are supposed to be pulled from a property’s “most recent operating statement,” according to the regulation governing CMBS disclosures.

But, in response to questions from ProPublica, lender Ladder Capital said it altered the expense numbers it provided in the Doubletree’s historical financials. Ladder said it wiped lease payments —$700,608 and $592,823 in those two years — from the historical financials, because the new owner would not make lease payments in the future. (The previous owner had leased the building from an affiliated company.)

Ladder, a publicly traded commercial real estate investment trust that reports more than $6 billion in assets, said in a statement, “These differences are due to items that were considered by Ladder Capital during the due diligence process and reported appropriately in all relevant disclosures.”

Yet when ProPublica asked Ladder to share its disclosures about the changes, the firm pointed to a section of the pool’s prospectus that didn’t mention lease payments, or explain or acknowledge the change in income.

The Doubletree did not fare well under its new debt package. Revenues and occupancy declined after 2015 and by 2017, the hotel’s loan was back on the watch list. The hotel missed franchise fee payments. Ladder foreclosed in December 2019, after problems with an additional $5.8 million loan the lender had extended the property.

The Doubletree loan was not the only loan in its CMBS pool, issued by Deutsche Bank in 2015, with apparently inflated profits. Flynn said he was able to track down previous loan information for loans representing nearly 40% of the pool, and all had inflated income figures at some point in their historical financial data.

There was also a noticeable profit increase in two loans Ladder issued for a strip mall in suburban Pennsylvania. The mall’s past results improved when they appeared in a new CMBS. Its 2016 net operating income, previously listed as $1,101,207 in one CMBS, now appeared as $1,352,353 in another, data from Trepp shows — an increase of 23%. The prospectus for the latter does not explain or acknowledge the change in income. The mall owner received a $14 million loan.

Less than a year after it was placed into a CMBS, the loan ran into trouble. It landed on a watchlist after one of its major tenants, a department store, declared bankruptcy.

Ladder said it excluded $203,787 in expenses from the new loan because they stemmed from one-time costs for environmental remediation of pollution by a dry cleaner and a roof repair. Ladder did not explain why the previous lender did not exclude the expense also.

The pattern can be seen in loans made by other lenders, too. In a CMBS issued by Wells Fargo, a 1950s-era trailer park at the base of a steep bluff along the coast in Los Angeles reported sharply higher profits — for the same years — than it previously had.

The Pacific Palisades Bowl Park received a $12.9 million loan from the bank in 2016. The park reported expenses that were about a third lower in its new loan disclosures when compared with earlier ones. As a result, the $1.2 million in net operating income for 2014 rose 28% above what had been reported for the same year under the old loan. A similar jump occurred in 2013. (Edward Biggs, the owner of the park, said he gave Wells Fargo the park’s financials when refinancing its loan and wasn’t aware of discrepancies in what was reported to investors. “I don’t know anything about that,” he said.)

Flynn said he found that for the $575 million Wells Fargo CMBS that contained the Palisades debt, about half of the loan pool appeared to have reported inflated profits at some point, when comparing the same years in different securities.

Another of the loans ProPublica examined with apparently inflated profits was for a building in downtown Philadelphia. When the owner refinanced through Wells Fargo, the property’s 2015 profit appeared 23% higher than it had in reports under the old loan. Wells bundled the debt into a mortgage-backed security in 2016.

The building, One Penn Center, is a historic Art Deco office high-rise with ornate black marble and gold-plated fixtures, and a transit station underneath. One of the primary tenants, leasing 45,000 square feet for one of its regional headquarters, happens to be the SEC. The agency declined to comment.

Stop the next Wells Fargo scandal before it happens

A California branch of Wells Fargo. (TNS)

Harold Meyerson

What’s the biggest criminal enterprise in California? MS-13? The remnants or successors to the Crips and the Bloods? The Mexican Mafia? If we’re talking about the sheer volume of offenses, the answer is clear: Wells Fargo.

It’s no easy task to keep track of the San Francisco-based megabank’s misdeeds, but here’s a rough tally: Wells has admitted that, beginning in 2011, it opened approximately 2 million bank and credit card accounts for customers who did not need, seek or even know about them, plunging a number of these unknowing customers into default. Earlier this month, the bank announced it may have “significantly” undercounted the number of unauthorized accounts. Goldman Sachs estimated last year that more than half-a-million of the customers who’d been saddled with these accounts may have had to pay an extra $50 million to borrow money as a result of their damaged credit.

This July, Wells also acknowledged that, starting in 2012, it had charged a further 570,000 customers for auto insurance that they neither needed nor sought, pushing 274,000 of them into delinquency on their combined car-and-insurance payments, which led to nearly 25,000 wrongful vehicle repossessions.

Just last Thursday, attorneys for the bank argued in an Atlanta federal appellate court that the judges should toss a lower-court ruling enabling customers to file a class-action suit against Wells for altering the sequence of its customers’ deposits, withdrawals and payments so that it could charge them higher overdraft fees. While other major banks have settled such claims, Wells contends that its bilked customers have no right to sue as a group, and that they must go through an individual arbitration process that will likely cost them more in legal fees than any reward they may receive.

Wells contends that its bilked customers have no right to sue as a group.

Not all of these acts necessarily violated criminal statutes. But if a single individual devised a way to compel a client, without her knowledge or consent, to pay him more money or to suffer a loss of credit or her car, that individual could well face charges of theft, fraud or forgery. Confronted with exposés that began with a Los Angeles Times story in 2013, Wells has admitted to being party to such deeds on a massive basis.

Yes, Wells has had to pay penalties. The Times article led Los Angeles City Atty. Michael Feuer to file suit against Wells for its unauthorized accounts, and joined by the Consumer Financial Protection Bureau, that suit compelled Wells last September to pay $185 million to its defrauded customers. The bank also discharged 5,100 of its low-level employees who’d been encouraged or compelled by superiors to open the fraudulent accounts. Under pressure from Sen. Elizabeth Warren and other progressives, it dropped its CEO, John Stumpf and, more recently, a couple of its longtime board members.

Some public policy reforms may soon be in the offing as well, at least in Los Angeles. For the past nine years, the city has had a contract with Wells to handle its basic banking services — payrolls, payments to vendors, the works. With that contract expiring next year, a coalition of bank reformers has asked the city council to put some teeth into the city’s Responsible Banking Ordinance so it will never again give its business to a bank like Wells. Their suggested amendments include a ban on doing business with banks that place unreasonably high sales demands on their employees, and with banks that don’t explicitly protect whistle-blowers. These amendments will likely come before the council soon after Labor Day.

These are clearly necessary changes, but they don’t go far enough. A good case can be made that Wells should be prosecuted under federal and state racketeering (RICO) laws — under which, we should remember, not just organized crime groups but also Michael Milken was prosecuted (he pleaded to lesser counts) and his bank, Drexel Burnham Lambert, was threatened (it, too, pleaded to a lesser count).

President Trump’s administration is hardly likely to consider, much less lodge, such charges against a major bank. But California, under its own anti-racketeering and fraud laws, certainly could. The effects of such an action and its attendant disclosures could result not only in convictions and some forfeiture of assets, but also deter such future mischief. They might even lead to the establishment of a state-run bank here in California — a way to ensure that at least one financial institution in the state views the public as its master, not as sheep waiting to be fleeced.

Harold Meyerson is executive editor of the American Prospect. He is a contributing writer to Opinion.

 

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Wells Fargo hit with class-action lawsuit over mortgage lock-in fees

A new class-action lawsuit alleges Wells Fargo & Co. charged improper fees to mortgage borrowers (Justin Sullivan / Getty Images)

James Rufus KorenContact Reporter

Wells Fargo & Co. is facing another consumer lawsuit, this time alleging that it bilked home loan borrowers by charging them extra fees when their applications were delayed — even when it was the bank’s fault.

The new suit, filed Monday in federal court in San Francisco, is the latest development in a growing controversy over the practices of the bank’s home loan unit and one of several new problems that have emerged at Wells Fargo over the last year in the wake of the bank’s sham-accounts scandal.

The mortgage fee matter is already the subject of a whistle-blower’s wrongful termination lawsuit and a probe by the Consumer Financial Protection Bureau. It has also spurred an internal review, which appears to have led to a shake-up in Wells Fargo’s mortgage division.

The suit was filed by the same attorneys at Seattle law firm Keller Rohrback who in 2015 sued Wells Fargo over its creation of unauthorized checking, savings and credit card accounts. Their case, one of the few filed before the bank admitted last year to creating millions of potentially unauthorized accounts, led to a $142-million class-action settlement with Wells Fargo.

“The same profit-over-people culture that fostered Wells Fargo’s fake account scandal appears to have led the bank to stick borrowers with unwarranted fees,” said Derek Loeser, a Keller Rohrback partner.

 

The mortgage fees in question are known as rate-lock extension fees. When a borrower applies for a mortgage, the lender promises a set interest rate — as long as the loan is approved within a certain time period, usually 30 to 45 days. If it takes longer to approve the loan, the borrower must pay a fee to keep the previously promised rate.

At Wells Fargo, like at most lenders, the bank is supposed to waive the fee if it is responsible for holdups. Borrowers pay the fee if they cause delays by, for instance, failing to submit documents on time.

But in the new lawsuit, Las Vegas security guard Victor Muniz alleged that Wells Fargo charged him a rate-lock extension fee of $287.50, even though delays in his mortgage approval were caused by the bank and even though a banker initially told Muniz he would not have to pay the fee.

Muniz alleges the bank was responsible for delays in part because it hired an appraiser who was out of the country while Muniz’s mortgage application was being processed. The suit, brought on behalf of Muniz and all other borrowers who may have paid improper fees, is seeking class-action status.

Wells Fargo spokesman Tom Goyda said that he could not comment on the new case, but that "we continue to work through a comprehensive review of our past practices regarding rate-lock extensions that will help us evaluate the facts, and will address additional steps for our customers as appropriate."

The claims in the case mirror those made in a lawsuit filed last month by former mortgage banker Mauricio Alaniz, who worked for Wells Fargo in Beverly Hills.

Alaniz alleged that the bank’s mortgage processing and underwriting departments were chronically understaffed, leading to frequent bank-caused delays. Rather than have the bank waive the rate-lock fees, though, Alaniz alleged that workers would falsely report that borrowers had submitted incomplete or inaccurate information.

Goyda said last month that the bank has been reviewing the rate-lock fee matter, and the bank noted in a regulatory filing this month that the Consumer Financial Protection Bureau has opened an investigation into the issue.

Since starting its review, the bank has parted ways with a handful of mortgage executives, including its former national sales manager and regional managers in California, Oregon and Nevada.

Goyda said that findings of the bank’s review contributed to the leadership changes.

“While there were a number of factors, some of the things we learned in our review of the rate-lock extension matter were factors in that decision,” he told the Los Angeles Times last month.

Wells Fargo is also facing new class-action litigation related to other recent revelations of bad practices. The bank in July admitted that it forced hundreds of thousands of auto loan customers to pay for unneeded insurance policies.

Attorneys late last month filed a suit over those policies in federal court in San Francisco seeking class-action status. A similar suit was filed in federal court in Santa Ana on Monday.

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Wells Fargo wants court to toss overdraft lawsuits and let it use arbitration

Class-action lawsuits have accused Wells Fargo of changing the order of debit card transactions to unfairly increase the number of transactions eligible for overdraft penalties. (Justin Sullivan / Getty Images)

Associated Press

A group of Wells Fargo & Co. customers who say they were victims of unfair overdraft practices want their claims heard in court, but the bank wants the disputes handled through arbitration.

Class-action lawsuits filed around the country have accused Wells Fargo of changing the order of debit card transactions — from highest dollar amount to lowest dollar amount — to unfairly increase the number of transactions eligible for overdraft penalties.

For example, say a customer has $100 in an account. The customer first makes four transactions of $20 and then, later that day, has a $90 transaction. If the transactions are taken in chronological order, only the final $90 transaction would cause an overdraft and trigger a fee. But if the transactions are reordered so the $90 transaction is first, each of the four $20 transactions would trigger a separate overdraft fee.

Lawyers for the Wells Fargo customers say the practice — which they say continued at least a decade — was “unfair and unconscionable” and disproportionately affected the poor because they are most likely to have low account balances.

The customers also say the San Francisco bank refused to let customers opt out of overdraft protection programs; didn't get customer consent before processing transactions that would lead to overdraft fees; and failed to provide customers with accurate balance information to help avoid overdrafts, among other things.

The litigation has dragged on for more than eight years and includes Wells Fargo customers from 49 states, California not among them. (The bank lost a related case brought on behalf of California customers when, in 2010, a judge found the bank had deceived customers and ordered it to pay $203 million in restitution. The bank appealed that ruling all the way to the U.S. Supreme Court, which last year declined to take the case, allowing the judgment against Wells Fargo to stand.)

It is now consolidated before a federal judge in Florida who last year declined Wells Fargo's request to force the claims into arbitration. The bank appealed that ruling to the 11th U.S. Circuit Court of Appeals in Atlanta, which heard arguments Thursday.

The cases were styled as class actions from the start, and Wells Fargo initially chose to pursue a litigation strategy, U.S. District Judge James King wrote. Extensive time and other resources had been expended in that litigation by the time the bank belatedly tried to invoke its arbitration rights, he wrote.

The arbitration clause in the Wells Fargo contracts was permissive, rather than mandatory, meaning that in the case of a dispute either party can request arbitration within a reasonable period of time.

Sonya Winner, an attorney for Wells Fargo, told a three-judge panel of the 11th Circuit that the fact that Wells Fargo didn't enforce its arbitration rights in disputes with some customers doesn't mean it waived those rights in every case.

Other large banks facing similar lawsuits over reordered debit charges long ago settled those disputes. Consumer Financial Protection Bureau Director Richard Cordray invoked those cases — and the subsequent recovery of about $1 billion — as he advocated the importance of class-action lawsuits as a consumer protection tool in an editorial this week in the New York Times.

“It is true that the average payouts are higher in individual suits,” he wrote in the editorial published Tuesday. “But that is because very few people go through arbitration, and they generally do so only when thousands of dollars are at stake, whereas the typical group lawsuit seeks to recover small amounts for many people.”

Last month, Cordray announced a new rule to prevent financial companies from using mandatory arbitration clauses to bar groups of consumers from pursuing class-action lawsuits. The U.S. House voted to block it just two weeks later, and its fate now lies with the Senate.