S2:E7 – You Really Thought You Knew it All

The New Untouchables: The Pecora Files
Season 2: Episode 7 – You Thought You Knew It All
August 22, 2021

 

[00:00:05.750] – Thomas Cox [intro/music]

A number of bankers went to jail during the S & L Crisis. Come forward to 2007, not a single banker was put in prison. We had following that time an attorney general by the name of Eric Holder. Guess where he came from? He came from Covington & Burling. When he got done being the attorney general, guess where he went back? He went back to Covington & Burling.

[00:00:29.500] – Max Gardner [intro/music]

The easy explanation is it’s always about the money. There’s a money profit factor in everything they do. And that’s the only way you can figure out why they have done something the way they’ve done it because they figured out a way to make money.

[00:00:54.800] – Eric Vaughan [intro/music]

In a world of elite criminals, only people of elite character can protect our system. This is The New Untouchables.

[00:01:05.300] – Patrick Lovell

And welcome back to The New Untouchables Season Two. It’s really our great pleasure and honor to welcome the two next guests, fine gentlemen if I’ve ever met them, and that constitutes is Thomas Cox coming to us from the great state of Maine, and Max Gardner coming to us from the great state of North Carolina.

I’ll give you a little bit of background on how both Eric and I came to know these two gentlemen and our pursuit of understanding what happened in the aftermath of the great financial crisis. It’s inevitable to go through the maze of the courts.

And at that time period, as we’ve established throughout the first several episodes of The Con, we understand that there was an electronic system, the mortgage electronic registration system that you usurped the standard-bearer registry of deeds that would, of course, prove ownership, land records, title, that sort of thing, and everything that is beans in terms of what the actual lay of the land is in the United States by way of contract law, real estate law, and so on and so forth.

And in the purpose of being able to build, obviously, technology to bring to the fore to create a more efficient system, just the opposite took place. And when you get into the disaster that took place in the courts, there’s truly not two better individuals that can give us a lay of the land. And so without further ado, let me please introduce Mr. Thomas Cox. And if you would, give a little bit of an introduction of who you are, sir.

[00:02:28.600] – Thomas Cox

I’ve been a lawyer since 1970. I’m a little bit long in the tooth, but I’m still going in my failed retirement. During my private practice days, I spent about 30 years representing financial institutions both in doing transactional work and when the savings and loan crisis came at us in late 2008, I think it was, I went full-time working with banks to collect their outstanding loans.

And that involved also a reactive representations of the FDIC that took over some of the failed banks. And some of the difficult work in those days was doing a lot of foreclosures on residential real estate or guarantors of Maine small business loans. From there I took some time off a few years after that. And then I came back in 2008 it was working with Pine Tree Legal Assistance in Maine, starting out there to get their Foreclosure Prevention project off the ground.

The program is called Maine Attorneys Saving Homes, MASH is the acronym. And for the last 12 years, I’m been devoting my effort to representing Maine homeowners facing foreclosure.

[00:03:40.320] – Lovell

I appreciate that. And there’s certainly a lot to unpack in that course of history throughout your career. And, Max, let me just introduce you at the moment. Would you mind sharing with our audience a brief overview of who you are and your career?

[00:03:56.090] – Max Gardner

Well, I’ll give a brief overview if I can. I’ve been practicing law since ’74. Graduated from UNC at Chapel Hill, plus undergraduate law school, I worked for our chief justice for two years, and our associate chief justice. Went with a big insurance defense firm that had recruited me and did a lot of trial work with that firm.

The attorney put me to work on depositions and jury trials right off the bat – best experience I’ve ever had. That was in Greensburg. I came back to Shelby, North Carolina, where I am now in 1978 I had my own practice. And when I was at the big firm, I was the only attorney that did domestic work and bankruptcy work under the old bankruptcy act.

I did some speeding cases for some of our important clients and DWI cases and things like that. So I opened my practice in Shelby as a general practice, continued doing work for that big firm for about two or three years. And eventually, about the mid-80s, I started doing solely bankruptcy work from a litigation point of view.

[00:05:07.440] – Lovell

Okay. Well, I’m going to turn it back to Mr. Cox. When we did our filming for season two, and Eric and I were talking to you briefly about why we haven’t, unfortunately, been able to reveal to the world some of the insane truths that we’ve learned (from) you, in particular, is we’re still on the shelf. I’ll tell you. What we’ve learned in our industry is that there’s a lot of people out there that don’t want to know what happened.

There’s a lot of people that don’t want the world to understand the details of what took place. And yet here we are with this incredible revelation, and yet we haven’t been able to penetrate. And I think it’s a great way to segue into what we learned from your story. I was always so struck, Mr. Cox, by A – what you always reminded me of was a professional with that imbued the highest level ethics and integrity in your profession.

And when we first started talking, you had sort of a semblance of understanding of how the banks used to operate in a way that I would think would imbue professionalism, integrity, dignity of the law, all of those sorts of things. But something manifestly changed. Can you give us a sense of when you were on the other side working for the banks during the S & L Crisis and kind of what happened as you started to unpack the elements that would lead you to discovering a lot during the 2008 great financial crisis.

[00:06:28.720] – Cox

During the S & L Crisis and leading up to it, the S & L Crisis again, I think my memory’s right. It was toward the end of 2008 caring in well into 2009. At that time, we didn’t have at least anywhere near the magnitude we now have a mortgage servicing industry. The loans that I was dealing with then were all owned by the banks involved.

They owned their own loans. When the S & L Crisis hit, they needed to collect those loans. They were collecting their own money, and they were very attentive to how they were doing it. And they were very practically minded in making smart decisions about what loans could be settled, what loans were worthless to be written off, what borrowers should be given payment plans.

All of it was very fully oriented, and all of it was very hands on design to make sure those banks maximize their recoveries out of their nonperforming loans. When you fast forward to today, we have a mortgage servicing industry that predominates in the lending industry. Fannie Mae and Freddie Mac do not service any of their own loans.

They employ mortgage servicers across the country to do all of that work for them. So the services are not collecting their own money. In addition, when I go back to the S &  Crisis, the banks were hiring good lawyers who knew what they were doing, and they were paying them a going rate very closely. They weren’t giving the money away, but they were also paying us our going rate. Again, you fast forward today when you have the mortgage servicers who are not even collecting their own money.

They are hiring the cheapest lawyers they can get on flat rates. And they are maximizing the pressure on those lawyers to do foreclosures as swiftly and as cheaply as they could possibly do them. So that was one of two of the major differences. The other major difference that I didn’t have during the S & L Crisis is this organization called Mortgage Electronic Registration Systems.

The acronym is M-E-R-S, MERS we all know it as. MERS was set up in the mid 1990s but didn’t really become a major player in my experience. And Max may know more about this, but they didn’t become a real major player until the 2000s. Basically the intent of the financial industry with MERS – by the way, Fannie and Freddie were the major players in getting MERS started. One of their major incentives again was to cut corners on saving money.

They didn’t want to have to keep recording and re-recording mortgage assignments. As a new mortgage was originated and sold into a securitized trust, normally, in that process, four or five mortgage assignments would have been required, and that would have been expensive and time consuming and a lot of paper processing.

So the financial industry set up this organization called MERS, which is really an electronic registry of deeds, is a one way to look at it where a mortgage would be filed in the local state registry, but then it would be filed or the loan would be filed on the MERS system, and from there on out, all transfers of that loan would be recorded on the MERS system, but not in the public state registry. Well, that was a new development that I encountered when I came back to the practice in 2008. Those are the major differences between what it was during the S & L Crisis and what we’ve got now.

[00:09:59.820] – Vaughan

I have a couple of quick questions here, Tom. One – it sure seems as though that there was a culture change in the banking industry at some point, because it seems to me that it was very much a very sleepy, almost boring industry for a long time, and then it became anything but. I’m wondering if you can tell us about when that culture change occurred and do you attribute it to anything in particular?

[00:10:24.240] – Cox

Well, yeah, I guess the cultural change, if you want to call it that, would be the securitization industry. We tried, the country, the financial system moved away from banks originating and keeping their loans. Fannie and Freddie were set up well before the S & L Crisis. But as the country moved through the late 1990s and into the early 2000s, there was maximum interest and pressure in the financial industry to get more and more money out into the mortgage market.

And the way to do that was to enable any bank that originated a mortgage loan to sell it to somebody like Fannie Mae or Freddie Mac, and then have that bank get paid for that loan, go out and originate another one. So the government enterprises, they’re called government sponsored enterprises GSEs, were in place to really maximize the flow of money into the mortgage market and greatly increase the volume of mortgages.

And part of the offshoot of that that led to the crisis around 2007 was as the money was flowing into the market, the quality of underwriting for mortgages went way, way down. And we ended up with an example of Countrywide loan servicing or Countrywide mortgage that was just printing mortgages virtually without checking any borrowers or credentials. They were not called ‘no documentation loans,’ but they were being treated that way.

[00:11:51.220] – Gardner

Yeah. I just might add, Eric, that Ginnie Mae did the first securitization in the late 1960s, and they really didn’t take off. It wasn’t something that people were that excited about, and it sort of increased through the 80s and then in the 90s time I think it really took off. You also have a lot of non-banks entering the picture that were originating loans and then sell them to the bank aggregators or sell them to Fannie and Freddie.

So to me, the securitization, the way it took off and the bizarre securitization products we started seeing in the 2000s and the non-bank originators, the non-bank servicers, to me were some of the biggest problems I started seeing the 90s, Tom.

[00:12:40.140] – Vaughan

Right. But you mentioned underwriting. And I think that’s one of the really peculiar things, because underwriting seems to be one of the most vital functions of a bank, both internally and externally. So with securitization on one hand, what do you attribute the banks who have complete control of how they underwrite? What do you attribute the poor underwriting, too? Like, why would they do that, even if they are given sort of, in essence, kind of a bit of permission from the GSEs? How would they do that, since that’s how they make sure that they make money?

[00:13:16.250] – Cox

Well, let’s take a typical mortgage loan made in say 2004, 2005. That loan probably would have been made by a non-bank mortgage broker. That loan would have been arranged by that broker with a plan by that broker as soon as the loan was closed to immediately sell it into the securitization market. And that original lender would not retain any interest in that loan.

So there was no risk to that initial lender as to whether or not the bar were paid in the future or defaulted in the future. But the broker out of every deal took a very nice fee. So the incentive for the mortgage brokers was to make as many loans as they possibly could as fast as they could to collect the largest volume of fees that they could. And they didn’t care about the quality of the loans because they were selling them and the buyers were not holding them accountable for the quality of those loans.

[00:14:17.520] – Gardner

You know, what they cared about was the number they originated a day. That was the driving force, the number of products we can produce per day. And there really wasn’t any underwriting in my view, with Tom’s . . . a Table Funder, for example, is a loan originated that has no money, no assets.

They write the loan. They have to sell the loan that day to have the money to do the closing with and collect their origination fee and the fee they get for selling the loan. And they would normally sell the loan with servicing rights released to whoever bought it. And that would increase their profit by doing that, too.

[00:14:55.280] – Grumbine

So what I’ve heard you say if I’m putting this in chronological order is we once had local banks that knew the people they were selling to. They would lend out these mortgages. They knew when people were going under. They knew who the good risks were and who the bad risks were. They had evaluated their credit worthiness and they made logical choices.

The next phase of this is, hey, we don’t do that anymore. We’re now sending this out to these non-bank folks to create loans to do it as fast as possible – entering into what Bill Black talks about is one of the most important aspects of the fraud is lots of volume. So they’re pumping tons and tons and tons of volume without concern, because they’re not the ones that are actually going to be around to service that loan.

They’re just getting it in, maximizing fees, and getting it out. So we’ve broken a big, important thing in terms of there’s no risk to the bank to do anything because they’re not a bank they’re there to just print mortgages. It seems like every step along the way, every check and balance that could be in place to incentivize adhering to the proper steps was gotten rid of.

And we’re left with an entirely Frankenstein monster of piece parts that none of them have any accountability to the other. And they don’t care as long as they can maximize fees and perverse incentives, as they say, which is the other aspect of this control fraud that Bill Black would talk about.

[00:16:31.400] – Gardner

I remember when I got my first mortgage from a savings and loan. I had to submit a very detailed financial statement, tax returns. The savings and loan had a board of directors. The board directors would consider that. You would wait two or three or four days, ya’ll don’t know if they’re going to approve it or not approve it. Two or three members of the board probably knew you –  who you were, where you worked.

They get credit reports. The board would approve you. If you had a problem, you could go to the local bank and get it resolved. You’d actually take payment books. I would take payment books by there, and they would stamp and book my payment. It was a very granular system.  What we have now, I think Tom would agree, is totally divorced from that system.

[00:17:15.400] – Cox

The other part of that, I guess we haven’t mentioned yet, too, is indeed the perverse incentives. But another aspect of the early 2000 mortgage lending spree was that the brokers were so anxious to make these loans and to maximize their profits. So they were collecting fees. But one way they got a bigger fee was that they could qualify a mortgage borrower with the ultimate buyer of the loan for an interest rate say they knew they could qualify that borrower for a 5% rate.

That broker would, in fact, give that . . .  or not the 5% rate, but a 5 3/4% percent or 6% rate. And the difference was called the yield spread premium. And the broker got to keep that. So the brokers didn’t care about the quality of the loans, and actually, they were incentivized to screw over the homeowners as much as they could.

[00:18:08.500] – Grumbine

And all we hear about is how bad these little people were for taking on mortgages that they couldn’t handle. That’s all we hear about. We never hear about the entire industry that went out of their way to ensure that those people fail. It’s just mind boggling.

[00:18:26.190] – Cox

The other part of that, too, and you’re bringing back all the bad memories now. The other part of that was the mortgage brokers in trying to get the borrowers into these homes would use that yield spread premium to jack up the interest rate. And a borrower would say, “I don’t know if I can pay that rate that you’re offering me, Mr. Broker.” And the broker would say back to the borrower, “Don’t worry about it.

Your credit is kind of bad and you don’t qualify for a better rate right now because your bad credit. But if you’ll just pay this higher rate for the next nine months or twelve months, he promised, come back to us. And we’ll put you into a much cheaper loan.” That was all bullshit. That was all false statements and fraudulent inducements for the borrowers to enter into these unaffordable loans. When the homeowners went back for a cheaper rate, they couldn’t get it.

[00:19:17.040] – Lovell

I’ve got a simple question, but it’s going to be a two prong question directed to you, Mr. Cox. So given everything that we’ve heard and growing theme for this podcast is to reinforce this notion to our audience that wherever there’s complexity, a lot of times you might find dishonesty. And so given what we’re talking about at this phase of the game, my first question to you, Mr. Cox, is coming from the background you had how might you characterize the banks at this stage of the game? Were they honest or dishonest?

[00:19:46.180] – Cox

You’re talking about back in the early 2000s? Again, we got to be careful about what we’re calling the lenders because the banks were making a lot of loans back then. But it was the non-bank lenders that were really, really the dangerous players. We did have Countrywide Bank, and it really was a bank. But the non-bank lenders were leading the way in the fraud and the deception that we saw.

Patrick, you talked about complexity. I guess if you combined complexity with lack of transparency, which is what we had back then, that’s when things get really bad. And that’s where this MERS issue comes into play.  MERS, as it was originally designed, was supposed to allow lenders to put their mortgages into the MERS system.

And as MERS was originally designed, their view was that, hey, not only are we going to at least make it publicly look like we own this mortgage loan, we’ve set up our system so we don’t even have to tell homeowners who really is the owner of it. That was how it started off. They’ve been forced to change that now. But how it started off was you didn’t even have any right when you got into trouble with your mortgage to know who to go talk to to try to fix your problem.

[00:20:59.640] – Lovell

Well, along those lines, I remember when we talked in Washington, DC in an incredible way right before we interviewed Miss Sheila Bair. And you were talking about the nature of the registry of deeds. What is the original purpose of the registry?

[00:21:14.220] – Cox

Well, the registry is a place where borrowers and lenders end up recording all of their mortgage documents, or at least that was the traditional way of doing it. In that way, if a borrower had a loan outstanding and then needed a second mortgage, that second mortgage lender could go to look in the registry and  know who the owner of the first mortgage was.

Or if a borrower got in trouble just with the first mortgage, and there was a question about did the original lender still own it? The borrower could go look in the registry or the lawyer could go look at the registry and find out who really did own the mortgage. MERS destroyed that process. MERS made it even worse than what I just said.

I got involved with my battles with MERS in 2010 because MERS was taking the position that not only did they not have to tell who owned the loan, they actually took the position that they had the right to foreclose mortgages, even in their own name. So in my case, the title of the case was Mortgage Electronic Registration System versus Saunders. And Sanders didn’t even know who owned his loan. He didn’t know who to talk to. He didn’t even know who the real owner was when he was being foreclosed upon.

[00:22:25.660] – Lovell

That goes to the point. I was under the impression that really going back to the very beginning of this country, the idea was the registry was to prevent rich people from stealing for people’s property.

[00:22:36.390] – Cox

Professor Christopher Peterson has written some beautiful articles, and he’s dug into the history going back to England. And that was the history. The registry systems, as I understand, started in England, and that was the problem. The rich were stealing the poor folks’ assets. And a registry system was set up there to protect the people who really did own real estate and create and maintain a public registry of who had rights in that real estate.

[00:23:02.180] – Gardner

The MERS Registry, there were really no safeguards in terms of the accuracy of the information that was put in that system. It was terrible. It was nothing anybody could rely on. They had different people with different protocols, different rules entering data in that system. And, Tom, I know back in the day, most of the stuff if we got to MERS Member report, it would be wrong. It would just be wrong. So it was an idea. And it was a system that could not pass a business record test in the country, in my opinion, back in the day.

[00:23:41.180] – Vaughan

Right. So back in the early 2000, we were talking about the brokers and all their incentives. And so if they’re incentivized to do things – to push as much as many mortgages through as possible – I mean, invariably this is something that bore out that the paperwork was either incomplete, very sloppily done or in many cases, fraudulent. But as soon as that’s entered into MERS, that basically gets codified. Is that a proper understanding?

[00:24:09.200] – Gardner

I would say that’s a part of it, but it was mainly people that were not well trained in terms of how to enter data in a land record system. These were just clerks that had no training, no sophistication about them. And the data they entered, they just didn’t know how to enter it correctly or properly. And I just found most of the MERS Member reports to be worthless.

[00:24:32.060] – Cox

Well, it gets even funnier. MERS gets to actually be funny when you look at it. MERS is an electronic registry. MERS as a company does not have any employee. A human being has to make the entries into the MERS system. But what MERS did was they said to the mortgage servicers, “Look, mortgage service, you guys appoint say 10 of your folks to be the folks handling these transfers.

And we’ll give you a figurative MERS baseball cap, and when it comes time to transfer a mortgage on the MERS system, you servicer employee, put on your MERS ball cap. Make the entry. Take the ball cap off. Put it back in the drawer. Go back and work for your servicer.” So MERS turned the whole shebang basically over to the employees of the servicer.

[00:25:22.200] – Gardner

I think they had about 50,000 vice presidents at one time, Tom.

[00:25:27.940] – Lovell

They had 50,000 senior vice presidents, which, of course, we know, Eric and I, because of the work we’ve done with Mr. Cox. And, of course, what you did and, Steve, this should be quite a bit of a shocker to you and your audience. Mr. Cox, what did you find out in discovery that led you to a process to hold this system accountable?

[00:25:46.210] – Cox

When MERS was being organized in the mid 1990s, they took a huge gamble, in my opinion. And their gamble was that they could create this alternative electronic mortgage registry system without any federal or state laws paving the way for them and setting up a system to make that MERS process legally enforceable.

So they, we think, we don’t know for sure, but we think they went out to attorneys in states throughout the country to have individual state attorneys review the plans for the MERS system, and say, “Yeah, that’ll work in Maine. That will work in North Carolina. That will work in California.” What we found with the Maine Supreme Court form of MERS mortgage, we call it – let’s use the loan originated by Bank of America.

That mortgage in Maine would have had the homeowner reciting in print: “I hereby grant to MERS as nominee for Bank of America, a lender, the mortgage in my house.” And then the mortgage document may and MERS as the nominee of Bank of America for the purpose of recording this mortgage and all of the rest of the mortgage interest is actually granted to Bank of America. That was the interpretation that we got out of the Maine Supreme Court of 2010 in the MERS versus Sanders case.

So basically, the Maine Supreme Court said that MERS doesn’t own any interest in the mortgage other than the right to record it. Originating lender really owns it, and that sounds pretty basic. But then it gets more problematic because what flows from that is that that means that purported transfers of the mortgage on the MERS system don’t mean anything.

All is being transferred is the right to record that’s already done. And the consequence of the holdings we got from the Maine Supreme Court were that, hey, loans really needed to be assigned by the original lender who made the loan. That wasn’t too problematic back in the mid-2007-8 era because most of those lenders were still around.

But when 2007 blew up, suddenly these old lenders started collapsing. And we had major players in the mortgage industry going down into liquidating Chapter Eleven. We had New Century Mortgage, First, Magnus Financial Corporation, and a number of others suddenly going out of business. So the significance of the Maine Supreme Court Holdings has been to foreclose those mortgages. Whoever owns the loan at this point needs to go back and get a mortgage assignment and they can’t do it.

[00:28:26.550] – Gardner

I remember a time in 2012, 2013, MERS is getting a lot of pressure. So they came up with a 12 question test to give these attorneys to be vice president. Tom, you remember that test?

[00:28:40.940] – Cox

I do and they weren’t attorneys. They weren’t even attorneys.

[00:28:43.940] – Gardner

Yeah. I gave that test to 50 boot campers in the seminars one time: 49 passed. Some of the questions were really bizarre. Is MERS the owner of the note? The answer was no. Is MERS the beneficiary of the deed of trust? The answer was no. Does MERS own the note? The answer is no. I mean,  it was almost an admission that everything they did was wrong, and it was part of their test to make you a vice president out in South Dakota working for a foeclosure mill law firm out there. That’s crazy.

[00:29:17.640] – Grumbine

I want to just play along the line that I did with the last line of questioning I did. We saw how they ripped out the local ties, took away the checks and balances. We had two gentlemen, one from Massachusetts and one from North Carolina, who were registry of deeds, and they took their job very seriously. It was a big deal to them.

And it sounds to me like we went once again peeling back basic protection where you have someone who owns the suits, their world, and they take care of it and it matters, and it’s local. It took that, which was another safeguard, ripped it out and start putting us through this MERS thing. Every single meaningful protection that was in place up to the point of registering the deed or registering the mortgage, every step along the way, they peeled away every bit of safety net that was available.

[00:30:13.320] – Cox

Correct. And we’re continuing to see the fallout. I’ve been dealing with it. Just in the last week with the case that I got. I took over a case where a loan owner was claiming to own the note and mortgage on a loan that was granted by Option One Mortgage Corporation back in the mid-2005, 2006 era. And that lender is purportedly relying on a mortgage assignment by Option One.

Option One went into a liquidating Chapter eleven case in 2008. They’re long gone and they shut down. This mortgage assignment has got a signed by Option One purportedly and it’s notarized. It’s dated December 10, 2003. The document is a typed document like you normally expect to see, but all the information referring to the mortgage is handwritten in on it.

And where the name of the assignee appears in that document, they put in the name of a securitized trust that didn’t come into existence until four months later in 2004. So think about it. We have an assignment dated December 10, 2003 purporting to assign the mortgage to an entity that didn’t exist at that time and didn’t come into existence until four months later. Somebody at the servicing side filled in in handwriting all of the information in that form.

And by the way, that assignment dated to 2003 was recorded in 2018. So the loan owner in 2018 and 19 said, “We need to record, we need an Option One assignment. They found a blank assignment and somebody filled in all the information after it was signed and notarized. The Massachusetts Supreme Judicial Court has said the blank assignment is void.

So that’s some of the fallout. And by the way, the reason there was a blank assignment created is some whiz kid on Wall Street in 2003 or 2004 thought that was okay. And in fact, the agreements, the pooling and servicing agreements that created these trust mandated that the seller of the loan put into the trust, or custodial file, a blank assignment. It was void. So we’re still doing the full up.

[00:32:44.560] – Vaughan

Wow.

[00:32:45.570] – Intermission

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[00:33:38.810] – Lovell

Okay, let me dive in here as briefly because we’re running out of time, and I’ve got to get a couple of these things. I’m just going to go back to you really quick, and then I want to go into Max. Okay, so, Thomas, just straight up, what did you discover when you did discovery into the VP that were signing to their knowledge? And how did that play out in the Maine Supreme Court?

[00:33:57.780] – Cox

You are talking about the infamous Jeffrey Stephan deposition.

[00:34:01.920] – Lovell

Yes, sir.

[00:34:02.680] – Cox

That I did in 2000. What I was able to uncover in a foreclosure case in 2010 is that this gentleman by the name of Jeffrey Stephan, I was seeing him in Maine as the sole signer of hundreds of sworn summary judgment affidavits being filed in Maine foreclosure cases. Based upon my experience as having done a lot of foreclosures during the S & L Crisis, I could look at Stephan’s affidavits and I knew quickly a very quick review that they were simply not true.

And I knew that Stephan did not know the truth of the facts that he was putting in his affidavits. So I don’t think you’ve got time for the full story here today, but the long and short is I went down to Fort Worth, Pennsylvania, and in 2010 I took Stephan’s deposition. I had settled in and ready to go at the guy for a full day.

And it only took an hour for Stephan to admit that when he signed these affidavits, he didn’t read them. He didn’t know what documents were true. And then on all of his affidavits there was a notary certificate at the bottom where the notary certified that Stephan had appeared before the notary and sworn to the truth of the affidavit. And Stephan admitted that that didn’t even happen.

He would sign the affidavits in bulk signing hundreds of affidavits at a time, hand them to a staff member who would take them down to the hall and put them in some notary’s desk who would just sign the notarization without Stephan ever having raised his hand and sworn to the truth of the affidavits.

And that’s what led to the foreclosure industry in the fall of 2010, basically suspending all foreclosure activity for a period of time. And that eventually led in 2012 to the $25 billion national mortgage settlement with the five largest servicers in the country.

[00:35:55.860] – Gardner

The ultimate irony of that deposition is that when Tom appeared, the attorneys for GMAC did not appear in person. I think they appeared by telephone. Isn’t  that right, Tom?

[00:36:09.420] – Cox

That’s right. And the other thing I did with that deposition, Max was one of the first guys to see that deposition. I ragged to Max a little bit. I sent it to five of the most prominent foreclosure lawyers in the country that I knew. Max was one of them. I told him to keep it under wraps, but he really didn’t. That’s okay, because probably good he didn’t. But one of the folks I sent that to was a lawyer down in Florida named Matt Weidner and Matt Wediner got that transcript.

I bought an expedited copy. I had a copy of that transcript within 24 hours of completing the deposition, and we got that deposition up on the Internet within about 48 hours of its being completed. And that caused the GMAC folks to hire the most expensive law firm in Portland, Maine to come after me and ask the court to impose sanctions of me for putting that position out on the Internet.

[00:36:56.160] – Grumbine

So, Max, let me ask you a question. I remember not too terribly long ago, there was an effort in helping people with bankruptcies there’s, like a bankruptcy boot camp. Can you explain what that was and how it pertains to the Wells Fargo situation within the COVID space?

[00:37:17.160] – Gardner

Yeah. I was seeing crazy, bizarre products starting in 99, 2000:  the option ARMS, the multiple option ARMS, the ARMS that had a teaser rate. And then they went to the margin rate of 9%. I saw people that were getting refi’s every six months. And that’s what really kind of got me started with the idea of the boot camps. And then we had the 2005 Bankruptcy Reform Act that made it very difficult and very expensive for consumers to file bancruptcy.

It was intentional. It took about 10 years to get it passed, but it became effective October 17, 2005. So we’re starting to see foreclosures pick up during that time period 2001 to 2005. So I started the boot camps to train attorneys to how to deal with these problems. And I was really into the securitization and into the Robo Signing.

I had run into some documents by accident in the lawsuit I had in a bankruptcy court involving Fidelity National Lender Processing Services, Black Night. It’s all the same thing. And it was basically documents telling their employees how to do Robo Signing and how it worked, and in black and white. And it had all their timelines. And if they could sign 20 false documents an hour, they got more than if they could sign 10.

And they were all like Jeffrey Stephan. They had no idea what they were doing, no idea what they were attesting to, didn’t even know what a mortgage was. Some of the depositions I took, they had no idea what a mortgage or deed of trust or a QWR (qualified written request) or anything else was. And so my idea behind the boot camps that are still going on for 16 years now.

And I call them Max Gardner’s Consumer Defense Academy because we’re way beyond just mortgage  problems in this country. And we’ve had about 2,500 attorneys that have come through. Tom has been an instructor and I don’t know how many boot camps he’s been to a lot. I’ll say that. And one of the prime guys I got was Dick Shepherd, who was the vice president of Saxon Mortgage. And when Morgan Stanley bought Saxon in 2007, I found out about Dick.

And Dick started working for me, and Saxon was the subprime originator and servicer. And I learned a great deal. I’ve got to give Dick a lot of credit because he knew where all the bodies were buried. Let me put it that way and how everything was done wrong and why it was done wrong and how servicers really made money.

And my whole purpose of the boot camps was to try to teach the attorneys more about how a servicer, a bank, an originator worked and really operated, how their processes function than their own attorneys did. I always felt that there was knowledge and power. And another big problem I’ve seen over the years is outsourcing actual core functions of a servicer to Mombasa, India, the Philippines or Vietnam, Chile, Argentina, Panama.

They save a hell of a lot money. And the bottom line in every case I’ve ever had is . . .the easy explanation is it’s always about the money. There’s a money profit factor in everything they do. And that’s the only way you can figure out why they have done something the way they’ve done it, because they’ve figured out a way to make money.

[00:40:50.380] – Vaughan

So you mentioned that we’re now well beyond mortgages, and I want to ask you two quick questions. The first is sort of on the heels of that. So one of the things that is certainly affected by all this is pension. And I’m wondering if you get to tell us a little bit about some of your work with Wells Fargo and what you’ve been doing with Richard Morganson as pertaining to pension.

[00:41:13.960] – Gardner

Well, we’ve had two big class actions against Wells. The first one that’s been resolved was Wells Fargo and bankruptcy cases was filing documents with the court claiming the debtor had agreed to mortgage modification and the debtor knew nothing about it. They never applied for it. It really screwed up the bankruptcy case when they did that.

And we got that case settled and resolved. The current case we have against Wells is Wells, we allege has given millions of consumers forbearances that never asked for them, never wanted them, knew nothing about them. It does impact your credit. You can’t get credit that you’re in a forbearance. If you have a home equity line of credit with Wells, that’s cut off when you get a forbearance.

And why would they do it? They make money. If they get a forbearance, they get money for forbearance. They get money when they work out a forbearance, resolve a forbearance. And it even gets more complicated than that, but I won’t even get into them buying back Ginnie loans out of trust or put in forbearance and then selling them back and making a lot of money on both ends of that transaction.

But that case is still pending. We’ve consolidated with some other cases before a judge in San Francisco, a federal district court judge is hearing all those cases right now, and that’s where we stand. But what else has got such a long history? We’d have to do three webinars.

[00:42:41.540] – Vaughan

Right. So, now. My other question is actually kind of going back to something else that we were discussing a little bit earlier, and I just was wondering if to both of you maybe could just help put a button on top of this idea of, like, I think what we describe as a two-headed monster between Robo Signing and MERS. I wonder if you can just sort of encapsulate how those two things interact and how they hurt the consumer.

[00:43:09.400] – Gardner

Well, I just say about MERS, I think Tom had mentioned this. Fannie and Freddie really formed MERS. They were the financial source of funding that started MERS. And when MERS really took off in around 2001 is when Fannie agreed that their loans could be processd through the MERS system. And to me, that’s what really took off the MERS system.

And then you get lack of regulation. You get so many non-banks. You know what we’re dealing with today are non-banks buying major servicing rights, and then they’re entering into arrangements with non-banks to be subservices. And then you got sub, sub servicers. And it’s really gotten into a situation where I’m not an apologist for the banks and the servicers, but I never thought there was enough money in 1985 to service the mortgage owners in default.

And Tom can mention to this, but the basic same financial compensation system for just servicing on a loan is still in place today that was in place in 1985. Just like the systems of record are basically DOS-based systems that were created in the 70s, and they just don’t want to spend the money to upgrade those.

Richard Cordray when he was CFPB (Consumer Financial Protection Bureau) director, that was his number one objective, and he failed. They didn’t get it done. And then you say it costs too much money to do it to upgrade their systems. My iphone can probably do as much as any servicing system out there right now – my iphone Max and maybe more.

[00:44:46.710] – Cox

I’ll give you an example of how all this comes full circle. We’ve talked a lot about MERS and how that was all organized. The international law firm of Covington & Burling was the lawyers who advised Fannie and Freddie and the financial industry in setting up the MERS system. Then fast forward into the financial blow out 2007 and 2008.

And I’m sure a lot of the people who will listen to this are aware, but probably a lot of them aren’t. By the way, going back to S & L Crisis, a number of bankers went to jail during the S & L Crisis. Come forward to 2007 going forward. Not a single banker was put in prison. We had following that time, an attorney general by the name of Eric Holder. Guess where he came from?

He came from Covington & Burling. When he got done being the attorney general, guess where he went back? He went back to Covington & Burling. And the government created during Holder’s time, the so-called HAMP Program – the HAMP Program, a federal mortgage modification program that was a deceit and a mess, in my opinion.

And then Treasury Secretary Timothy Geithner had the audacity to describe that program as one “designed to foam the runway” for the financial industry to make them land as easily as they could out of the financial process. It wasn’t designed to help homeowners. So there we go full circle to all of that. And then come forward to today, and we have the COVID crisis, and we have the forbearance problem.

And Max has described how Wells Fargo screwed over homeowners going into forbearances. Well, now we got millions of homeowners who are going to have to be coming out of forbearance. And we have a servicing industry that’s utterly incapable of handling that process. And part of the reason the servicing industry can’t handle it is because our United States government can’t even get its act together.

Fannie and Freddie have their own forbearance exit programs, which is different from the FHA programs, which is different from the USDA programs, which is different from the VA programs. And all of those are different from the private bank program. And so we got a servicing industry that’s out for money and a government that seems unable, even after the 2007 crisis to get its act together to get programs in place to help homeowners. So here we are, folks.

[00:47:03.680] – Grumbine

I got to ask you, when we talk about unemployment and the individuals who are struggling, the key to all this is it comes down to enforcement and the ability to enforce on the books regulations. Just imagine if we actually funded the agencies that are tasked to monitor this stuff.

There’d be millions upon millions of jobs because there is so much that needs to be done. And we act like there’s no work out there. But it’s quite clear there’s tons of work. We’re not funding it. Why do you think they’re underfunding enforcement?

[00:47:39.420] – Cox

Because Wall Street lobbyists have outsized power in Washington, and they prevent the government from enacting appropriate regulations and providing sufficient financial resources to the regulators. We have the OCC (Office of the Comptroller of the Currency) right now which wants to regulate the fintech industry, the electronic lenders who want to make extortionate interest rate loans to the core of consumers across the country.

And they are out to try to enable more of this kind of fraud that we’ve already seen in the mortgage industry. And the Wall Street industry is powerful enough to prevent appropriate regulation.

[00:48:17.820] – Gardner

Yeah. They’re trying to make payday loans illegal throughout the United States. They’re illegal in many states. And the rule is that if Chase makes the loan for one second and it’s bought by a hedge fund, then they can use the Chase interest rate under the National Banking Act and preempt all state law usery rates. So that’s going on right now.

But just think about what’s happening to the IRS. They’ve decimate the IRS. The IRS probably has half the employees they had 15 years ago, and the veteran employees have quit because they just didn’t want to deal with what they’ve had to be dealing with. I used to be able to work out IRS problems with IRS agents assigned to bankruptcy 15 years ago. Now they’re not anymore.

So, I think that’s just kind of a poster child. There’s not any enforcement. If they’re not going to enforce the right to collect their own money through the IRS by staffing that agency properly, well, there’s no hope for any other agency.

[00:49:14.120] – Grumbine

That puts an exclamation point on something that’s very important to me, and that’s austerity. We see when the federal government doesn’t spend on these necessary priorities, that ultimately not only do the agencies themselves fail their mission, but then the downstream domino effect of all the things that come from that failure impact every person in this country, and more so because it always runs downhill.

The poor and the people that are most vulnerable end up getting steamrolled when our government doesn’t spend on these things. I find it fascinating that we’re obsessed with reducing the debt, reducing the deficit, and all this other nonsense when, in fact, what we’re actually doing is ensuring more tragedy, more financial upheavel, more instability in the system that prides itself on being stable. And we’re watching it literally implode because of lack of funding. Do you think that’s a fair statement?

[00:50:12.600] – Cox

I think you’re absolutely spot on. And part of what we’re seeing, we’re seeing Wall Street hedge funds going out into the market and buying up private residences out of foreclosures and renting them back to people at extraordinarily high rental rates and even renting these properties that are in disastrously unsafe and dangerous conditions. So we have a Wall Street industry profiting on making the loans, profiting on foreclosing the loans, profiting on buying up the houses coming out of the foreclosures. That’s what we have in play.

[00:50:46.170] – Grumbine

Infuriating.

[00:50:47.370] – Lovell

Okay, we’re coming to the end of our conversation here. I want to try to give you guys an opportunity to address this and maybe close out. I want to reinforce, reassess to our audience that you’re hearing from two of the most prescient good guy attorneys that know all sides of this aspect. And what have they told us throughout this podcast?

We’ve heard of complexity that leads to outright fraud, that they caught red handed, and they have to fight in the courts on a myriad of places with people that have obviously tiny bit of resources to defend themselves. Meanwhile, Steve, you’re the expert, quite frankly, in macroeconomics as it relates to Fed policy eventually. Right?

And so, in the end, what we find out is based on the way that works within our monetary policy, that everything is pumped into the system to back stop asset value. And this is at the heart of a lot of that. Obviously, there’s many myriads of different aspects of our economy, but housing is certainly epically huge, particularly in light of where we are with what Mr. Cox just said in terms of hedge funds, asset managers who are at the direct control of the spigot, if you will, as a result of what the Fed policy is all about, hyperinflating assets and using this to put on to pensions again, Max.

That’s what Black Rock is doing. They’re selling these to these pensions. Right? And this is second verse same as the first, Steve, as we’ve learned from Bill Black this whole time. In closing arguments, gentlemen, the thing that’s always confounded me the most, above all else, are the courts.

How in the world, at the level that we have seen, the things that you have described today made possible in a country that is A – separation of powers; B – where judges are supposed to have lifelong appointments and be above the fray so they don’t make strange decisions when we’re talking about their rules. So I know we could talk for days about this. But could you please tell the American people what we need to understand about our judicial system?

[00:52:44.000] – Cox

Let me give you an example straight from Maine. I’ve been to the Maine Supreme Court in the last 10 years over 30 times, and we’ve had really good success there up until about two years ago. I was in the Maine Supreme Court in an oral argument about two years ago, when a woman who I considered our most intelligent justice said from the bench in open court, “We’ve been criticized for being too strict on the banks in foreclosure cases.”

I don’t know where that criticism came from. I’ve never read it. I’ve never seen it in public. Shortly after that, we had two vacancies in the Maine Supreme Court. One of the vacancies was filled by our governor with a woman from a high price law firm who had regularly represented the Maine Bankers Association in the legislature and in court proceedings.

And the other appointee filling the vacancy was a trial judge known to all of us as trial lawyers for favoring the banking industry. So there’s an example of how I believe the financial industry got to the political appointment powers for these judges and changed the shape of what’s happening in Maine.

[00:53:47.160] – Gardner

Yeah, I would just say the messaging is certainly a big part of what we do these days. And I’ve got to give the industry credit. Coming up with the “free house message” was a genius thing, because everybody wanted a free house. And the judges would say, “I’m not gonna give a free house. I’m not gonna give anybody a free house. Are you making the payments?”

And that sort of just overrode the substance of the law. And the judges stopped looking at the law, stopped looking at the facts. Is this really an admissible piece of evidence? Is this affidavit accurate? I think that was a big, big problem. The second big problem is lawyers like Tom and myself that do this kind of litigation on what I would think is a pretty high level of knowledge, we don’t run into the average foreclosure mill.

We run into the 500, 5,000 attorney law firm. And I remember the first time I had a case against what I call a tall building law firm. The senior partner said, “Mr. Gardner, we’re going to vaccinate you.” I said, “What the hell do you mean, you’re gonna vaccinate me?” They said, “We’re gonna make this case so hard on you, we’re going to do so much that you’re not ever going to want to take another one again.”

And the thing you got to remember is most of the lawyers are representing consumers in foreclosure cases, in court, in debt collection cases are solo to small law firms. When you get a good lawyer, the servicer is going to escalate that to a big firm, Tom, and the big firm is going to try to work you out and work you to death.

[00:55:24.880] – Cox

Well, they do. Except the flip side of it, Max, is I think they respect you. And I think they respect me. I can make deals with servicers that most lawyers can’t make. And I know that you can, too, because as much as they said they were going to vaccinate you, I don’t think they want to deal with you very much anymore, and they don’t want to deal with me very much anymore.

[00:55:43.580] – Gardner

I’m pretty much satisfied there’s no disease I couldn’t try right now.

[00:55:48.180] – Vaughan

So, I just have one more question that I want to pose to both of you. The front line defense with the different issues that we’ve been talking about is, generally speaking, the internal control of a company, whether it’s a non-bank lender, bank, whatever the case might be. When those fail, regulation is supposed to be the thing that steps in that prevents the consumer from being harmed.

When that fails then you have, like, a Department of Justice and law enforcement that’s supposed to step in and protect the consumer. And then finally, if that fails, it’s the court. What is a person, a consumer who is the victim of predatory behavior, fraudulent loans, so on and so forth, what is the advice that you give to that consumer, given that all of these controls all along the way have failed, and they’re now facing things in the court?

[00:56:55.810] – Cox

Well, try to get to Max or me and we’ll get to the best lawyer you can find. But, Eric, I guess what I was thinking is you were asking the question is, I think some of what we’ve talked about in the last hour is what has led to a lot of the political unrest in this country.

[00:57:13.580] – Grumbine

Yes.

[00:57:14.150] – Cox

Even the courts are not a final saving barrier for the little guy who is being burned. And so I think the whole system is gradually building to a lot of the political unrest that we’re seeing. And I’m not smart enough to predict where that’s going, but it’s sure out there.

[00:57:31.980] – Gardner

I think you start with the Tea Party movement, Trumpism and everything like that. To me, it all goes back to financial crisis. And the average guy thinking, I got screwed. The banks, they got made whole, and I got screwed, and my family got screwed, and I lost my home. My brother lost his home. There is a tremendous amount of resentment still arising out of that.

In terms of an attorney, I would not believe anything I saw on the Internet. Disregard all that. I would try to get friends, family, people who would recommend a good lawyer. And I would go to that lawyer, and I would want to see cases that lawyer has had. Have you handled this type case? Can I see some results of the cases that you’ve handled? Let me see the opinions. Let me see the orders.

That’s the way I would try to pick out an attorney. And I’ll have to say there have been a lot of attorneys during this whole crisis that have taken advantage of consumers that really did not know what they were doing. Tom and I could give you five hours worth and been very frustrating to deal with attorneys who have . . .

There is a terribly flawed . . . that have no legal basis, in fact, for that matter, and they’ve sold consumers on their services. So I think you have to be very careful. And I would certainly vet out the lawyer and make sure that they really have the track record they say they have.

[00:58:53.740] – Lovell

I want to say, first of all, on behalf of Eric and I and Steve, thank you. We cherish your expertise, your experience, what you guys have championed on behalf of the little guy, and then the great truths that you revealed and all of the different apparatuses that you have.

I want to draw attention that Max Gardner works frequently with one of the most well known journalists in this entire eschelon in this industry, Gretchen Morgenson, originally from New York Times and so forth and currently at NBC. And as we roll out of here, guys, look, what we’re trying to do is we talked about consumer rights.

This is citizens’ rights from where I’m sitting. People’s lives got destroyed that they will never recover from. There’s symmantics and gymnastics and the heavy hand of big money versus no recourse whatsoever. And then you two heroes step up on behalf of so many people you’ve helped that the numbers that we saw coming out of the Better Markets with Dennis Kelleher, by 2012, there was 16 million filed foreclosures.

That’s, like, what, 50 million Americans directly impacted by this? You guys aren’t big enough to handle 50 million Americans. And so what we’re doing is putting all of the pieces of the puzzle together that we know came through the FCIC (Federal Crisis Inquiry Commission) to a degree, but it was bipartisan. It got washed out of the DOJ. We’re dealing with this aftermath.

And this is like, what phase five really of this whole thing going back to the S & L Crisis? And so before I run out of my breath, I just want to say this to you guys in closing and then toss it to you, Steve. We are attempting with everything we have to build a people movement, a civil rights-like movement to purge corruption from our midst.

Because where I’m sitting, you guys just described corruption and intended corruption this whole time. How you prove it in the courts and what happens is your business, which is much more than we can talk about. But we know what’s wrong. With that note, I turn it to you, Steve. Take us home, buddy.

[01:00:37.560] – Grumbine

To echo what Patrick said. We are trying to create a movement here. And like you said, it’s a civil rights-like movement to purge corruption. And based on what you said today, and based on what all the other experts that we’ve run through here on our various episodes have said, it comes down to a question of does a person really genuinely have a chance through the normal main means of following the rules or, like whistleblowers, do we have to go the next step?

Do we have to use extra judicial processes? Do we have to go out into the streets? Do we need to take matters into our own hands to make this matter? Because as it stands right now, it seems like every avenue that has been raised up is guarded with snakes and pitchforks and fire and lava.

And quite frankly, it doesn’t look reasonable to ask anyone to try to win these wars on their own. They’re up against monied interests, powers that understand the fraud that’s going on. What chance do we have without taking matters into our own hands?

[01:01:47.820] – Cox

If we can’t fix the problem with the political process, then I don’t know what hope there is. I’m sure not going to advocate violence. That’s not what I see . . .

[01:01:58.830] – Grumbine

Sure.

[01:01:58.830] – Cox

. . . as a solution to anything. If we can’t fix the political process, I despair for where our democracy is going.

[01:02:05.260] – Gardner

Yeah, I was just going to say this is much bigger than every single lawyer I’ve trained at the boot camp. They can handle all the cases. I’m really concerned about the forbearance problems that will be coming around in September and October. And of course, they’ve extended the federal guarantees from 12  months to 18 months of forbearance.

I don’t think the industry is able to deal with it. I don’t think they can deal with it. I think there’s gonna be another major, major problem. We do have the CFPB now. We do have Regex and RESPA and requests for information and notices of error. The CFPB has got a regulation they put out now that I think they’re going to make effective that any federally related mortgage loan, which would be about 95%, there’s going to be a stay on foreclosures until December 31, 2021.

I think that’ll go into effect August 3rd, and that’s really to give everybody time to try to work out the forbearances. But my concern is they’re just not enough attorneys out there that really understand how these forbearance mods work and the best options for the consumers is that they’re going to be able to give the correct advice. I’m very concerned about what’s going to happen. I was concerned about the economy before COVID-19, and obviously I’m more concerned today than I was a year and a half ago.

[01:03:31.620] – Grumbine

Thank you, guys, for your great insights. And thank you so much for taking a crack at a tough question there. Obviously, I’m not advocating violence, but there is non-violent direct action that people can take, have been taking since the civil rights movement of the 60s. So there are other means besides the voting booth where we can exact some pressure.

And I think we’re at a point now where the rules, the laws, the elected officials, there’s so much capture, so much power in these lobbyists’ hands that without some sort of a citizens union to fight back, and I would harken to our movement here for the civil rights-like movement to purge corruption. I would say that we have to look at all options.

I really think we’re at a point now where the amount of pain and suffering and quite frankly, we’ve heard about suicides has reached such a level, and nothing was done previously, and I see no appetite for doing anything currently.

I’m quite terrified that people are going to take matters into their own hands in a way that’s not organized. And you will get violence. So thank you so much for taking the time to answer that. Patrick, back to you, brother.

[01:04:41.160] – Lovell

Well, I’ll just say that in the vision of truth and justice and the spirit of liberty and justice for all, I hope one day that we’re marching on the capital arm and arm with you two and all of the others that we have brought to bear in The New Untouchables because I think that what we’ve been able to bring forward is the firepower of the people who know how this works. And so if we ever had a chance to actually create the critical mass necessary to demand it, there are people in place that could fix things quickly.

[01:05:07.760] – Ending Credits

The New Untouchables is produced by Andy Kennedy, descriptive writing by Rose Ann Rabiola Miele, and promotional artwork by Cristina of Paradigms and Revolutions Design Group. The New Untouchables is publicly funded by our Real Progressives Patreon account. If you would like to donate to the New Untouchables, please visit patreon.com/realprogressives.