In a filing unsealed on June 3, 2016, the Department of Justice (DOJ) confirms what many of us have known for years. Nobody, not even the U.S. Government, with massive resources, can determine who owns your loan and has the right to collect on your mortgage.
The information comes from case files unsealed on June 3, 2016 by federal Judge Yvonne Gonzalez Rogers of the Northern District of California in the case of the United States v. Discovery Sales, Inc. The case involves some 325 fraudulent loans originated by Discovery Sales, Inc. (DSI) between 2006 and 2008, many of which were then sold to Wells Fargo Bank and JP Morgan Chase to securitize.
The Discovery Sentencing document on page 9 states:
The originating lenders who made loans to purchase DSI properties, including Wells Fargo and J.P. Morgan Chase, generally would not keep the mortgages and thus did not end up losing money as a result of the DSI fraud scheme. Instead, they would sell the mortgages to other banks who would package them in securities that were sold to other investors. These securities failed when the underlying mortgages went into default. It was impossible to trace the majority of the mortgage loans on the over 300 homes sold by DSI that were the subject of the FBI investigation; it would have been harder yet to identify individual victims of the fraud given that the mortgages were securitized and traded. (Emphasis added.)
To add more outrage to this case, while the government acknowledges the damages from the fraud scheme resulted in $75 million in damages, the amount being paid by DSI in restitution is $3 million to Fannie Mae and Freddie Mac. That is all, along with an $8.5 million fine that the government will pocket. Once again the government is taking all of the money from a settlement with a fraudulent mortgage lender, and giving nothing to the people who were damaged.
Oh, and one more thing. The “preferred lenders,” Wells Fargo Bank and J.P. Morgan Chase, who were also involved in the scheme, were not charged even though it states they knew about DSI’s “shenanigans to inflate the value of their homes” in the sentencing document:
The parties agree that the preferred mortgage lenders, Wells Fargo and J.P. Morgan Chase, were on some notice that DSI was engaged in various shenanigans to inflate the value of their homes. (Emphasis added.)
During the time of the information, DSI worked with two “preferred lenders,” Wells Fargo Bank and J.P. Morgan Chase. Certain employees and managers of those two preferred lenders knew about the incentive programs offered by DSI and the builders, and knew that the incentives were not being disclosed in the loan files. (Emphasis added.)
Even though Wells Fargo and JP Morgan Chase had the information that the loans were fraudulent, as per what has become standard procedure, the DOJ brought no charges against the banks. There is nothing new about banks selling off defective, fraudulent loans to securitized trusts, and once again the DOJ has found no reason to prosecute too big to fail banks for fraud.
There is much more to this story which we will not delve into at the moment, including the history of the Seeno family who owns DSI and their connection to other funny business…
The full UNITED STATES SENTENCING MEMORANDUM is presented below.