Prosecuting Wall Street

 

(CBS News) 

Two whistleblowers offer a rare window into the root causes of the subprime mortgage meltdown. Eileen Foster, a former senior executive at Countrywide Financial, and Richard Bowen, a former vice president at Citigroup, tell Steve Kroft the companies ignored their repeated warnings about defective, even fraudulent mortgages. The result, experts say, was a cascading wave of mortgage defaults for which virtually no high-ranking Wall Street executives have been prosecuted.

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The following is a script of "Prosecuting Wall Street" which aired on Dec. 4, 2011. Steve Kroft is correspondent, James Jacoby, producer.

It's been three years since the financial crisis crippled the American economy, and much to the consternation of the general public and the demonstrators on Wall Street, there has not been a single prosecution of a high-ranking Wall Street executive or major financial firm even though fraud and financial misrepresentations played a significant role in the meltdown. We wanted to know why, so nine months ago we began looking for cases that might have prosecutorial merit. Tonight you'll hear about two of them. We begin with a woman named Eileen Foster, a senior executive at Countrywide Financial, one of the epicenters of the crisis.

Behind the financial crisis: A fraud investigator talks

Steve Kroft: Do you believe that there are people at Countrywide who belong behind bars?

Eileen Foster: Yes.

Kroft: Do you want to give me their names?

Foster: No.

Kroft: Would you give their names to a grand jury if you were asked?

Foster: Yes.

But Eileen Foster has never been asked - and never spoken to the Justice Department - even though she was Countrywide's executive vice president in charge of fraud investigations. At the height of the housing bubble, Countrywide Financial was the largest mortgage lender in the country and the loans it made were among the worst, a third ending up in foreclosure or default, many because of mortgage fraud.

It was Foster's job to monitor and investigate allegations of fraud against Countrywide employees and make sure they were reported to the board of directors and the Treasury Department.

Kroft: How much fraud was there at Countrywide?

Foster: From what I saw, the types of things I saw, it was-- it appeared systemic. It, it wasn't just one individual or two or three individuals, it was branches of individuals, it was regions of individuals.

Kroft: What you seem to be saying was it was just a way of doing business?

Foster: Yes.

In 2007, Foster sent a team to the Boston area to search several branch offices of Countrywide's subprime division - the division that lent to borrowers with poor credit. The investigators rummaged through the office's recycling bins and found evidence that Countrywide loan officers were forging and manipulating borrowers' income and asset statements to help them get loans they weren't qualified for and couldn't afford.

Foster: All of the-- the recycle bins, whenever we looked through those they were full of, you know, signatures that had been cut off of one document and put onto another and then photocopied, you know, or faxed and then the-- you know, the creation thrown-- thrown in the recycle bin.

Kroft: And the incentive for the people at Countrywide to do that was what?

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[DebbieCorona]

These people should be in jail but with so much $$ and power in Wall Street that owns the US Government it is never going to happen. What I find interesting is that the GOP will not allow anyone to be on the Consumer Advocate Agency. So while I think both DEM and GOP in Congress are guilty I find it interesting the GOP is doing everything they can to give power back to the people.

[skikill32]

Everyone who has one of these mortgages needs to become educated. All should know how to find out who "owns" their note. If everyone tried to findyournote all the proper parties might come to the table to discuss modifications, principal reductions and writing new mortgages without fraud.

[dcschorr]

Thanks to all who signed the petition!

[cg37102006]

I worked at Countrywide for a year back in the mid 00's. While I didnt know of or participate in any mortgage fraud, I can say, for a fact, that we were putting people in home loans that they should not have been in. This was company policy. Mozilo's settlement payment of 22 mill or whatever he paid was less than 20% of all the money he made at Countrywide, so it is hard to say justice was done. But then again, ultimately, people signed on the dotted line and took the keys to house they agreed to pay for, so blame has to be spread around some beyond just the corporation.

[ctdeihl]

I feel that Foreclosers should come to a STOP when this was out about the Fraudulent Misconduct going on through Bank Systems and Wall Street.To allow Foreclosers to go on,is like telling people Crime does Pay,but only if you pay certain people amount to go on with the activitys.I thought We had a Justice system for All.It's not looking that way anymore.

[FdnDoc]

I don't belive the guy from the Justice Department when he says that they are acting independently from the White House. I just read in the newspaper a story about California State Atty. General Kamala Harris getting "enormous pressure" from the Obama administration to cut a deal with banks for a sum of cash, rather than any further investigation into "robo-signing" of documents. If they are pressuring people outside their jurisdiction why wouldn't they inside their own.

[techsearch64]

THANK YOU CBS and Mr. KROFT for having GUTS start to lay it out like no one else has done on prime time till now...it's TIME!!! So Mr. Lanny Breuer, head of the criminal division at the Department of Justice, you find it offensive that all of this was done, then before you take another day of salary we pay you, DO SOMETHING ABOUT IT, MAN!!! YOU have the tools, the law, you have at least 2 top level executives 1 who has never been tapped for testimony....who said NO this is wrong and they have the FACTS and EVIDENCE for you and this still isn't enough?? You don't fool us. Good grief. Thanks to the ENRON tragedy with the losers tragically being the employees who lost their savings, the stage was set for more of same. Please CBS keep on this story and know we "out here" in reality land support you 100% of the way.

[ammo17]

let me tell you straight out,after watching this guy the assistant atty.general of the USA who seemed to be confused by the questions the reporter was asking him,there is no chance in hell that there will any prosecuttion of the banks and mortgage companies as long as obama is getting tons of money by the same people who should be prosecuted.also eric holder has to be the WORST atty.general in our country`s history.

[First-Amendment]

It appears that one of two things happened to cause the financial crisis: either senior executives at mortgage companies, commercial banks and investment banks were grossly incompetent and negligent in running their respective firms or they conspired to enrich themselves at the expense of investors and homeowners by promoting a business environment with lax corporate governance, loose lending standards and permissive fraudulent activities. It is implausible that well educated and experienced lending executives were all grossly incompetent and negligent and did not at all times act in their own best interest. After all, it would be a violation of the fundamentals of capitalism and fee markets for executives not to act in their own best interest. It is more likely that board approved compensation structures gave executives a perverse incentive to exploit financial moral hazard whereby executives decided how much risk to take while tax payers, investors and homeowners bear the cost when things go badly. This is supported by the fact that during the financial crisis homeowners lost trillion in cash/equity, tax payers and investors lost hundreds of billions of dollars from loan defaults while executives retained hundreds of billions of dollars in previous compensation.
Robo-signers, forgery, phony paperwork, securities fraud, obstruction of justice, retaliation against whistle blowers, and manipulation of underwriting to approve loans and drive up home prices collectively sound like banking executives were running racketeering operation to enrich themselves at the expense of homeowners, investors and tax payers and not legitimate lending operations. These stories continue to trouble me and I am left wondering why there has been a lack of prosecution of executives and lenders by law enforcement agencies. Large deep pocketed, sophisticated institutional investors and the wealthy have teams of accounts and lawyers to recover damages from being misled about mortgage-backed investments. The federal governmental has the resources of the executive branch. Who is looking after the interest of unsophisticated individual consumers who took out mortgages that they could afford but had no way of knowing that the racketeering operations being run by the mortgage industry were overinflating home prices? Why have the feds not filed charges against lenders and executives like they did with Michael Milken and Drexel Burnham Lambert? Milken is small potatoes compared with the deception and fraud committed by executives and lenders.

[movinonllc]

Stanford L. Kurland the architect and major contributor to the financial crisis now runs a company called Penny Mac. His claim to federal regulators when obtaining approvals to be a lender was that Penny Mac would attempt to keep troubled homeowners in their homes and this is far from the truth. The company buys clumps of troubled mortgages from banks such as Citi at 20 t0 30 percent of face value then plays loan shark to the mortgagee. This guy should be in jail not making millions taking advantage of victims of the financial crisis which he was a major player in.