Although many talking heads have espoused in recent years the theory that the housing market tanked because banks were forced to lend to borrowers who couldn’t afford it, the facts revealed in Lawrence E. Jaffe Pension Plan v. Household International Inc. should put that line of thinking to rest once and for all.
Although the case against the HSBC-acquired Household International Inc. was tried back in 2009, with the fraud reportedly occurring between 1997 and 2002, the court recently entered a judgment of $2.46 billion against the firm. It got little play amid the record-setting judgment against JP Morgan Chase for $13 billion for its extensive mortgage fraud activities.
As a recent Rolling Stone report lays out in detail, Household case is important because it reveals the extent to which financial institutions aggressively pursued borrowers who were not qualified. What’s more, our Miami foreclosure lawyers know that these companies did this not because the government was pressing them to do so, but rather because they made a lot of money doing it.
Household was one of the biggest offenders for a long time. The firm went to great lengths to hawk so-called “alternative” mortgage products. Throughout the course of the trial, prosecutors presented mountains of evidence that included internal memos, training videos and more, revealing company-wide efforts to shepherd high-risk borrowers into bad loans.
The case against the firm started as a stock fraud case, but quickly expanded. The company was accused of using a large array of accounting scams to make these bad loans look good on paper to investors.
One trick was called “re-aging.” It worked like this: A person would fall behind on their mortgage payment (obviously, as they were never really in a position to realistically pay anyway). Then, the firm’s accountants would reset the clock on the person’s payment history. This allowed the firm to front to stockholders as if the loans were performing better than they really were and that the company had a stronger portfolio than was the reality.
Eventually, the company was sued by several major investors for securities fraud.
During the course of the trial, other frauds were revealed.
One was labeled the “EZ Pay Plan.” In this scheme, borrowers were convinced to toss their older, safer mortgages in exchange for a Household refinancing plan. These plans were dressed up to customers as a way to save money on interest by paying biweekly instead of monthly. However, the truth was the plans were more expensive and more dangerous.
Although borrowers were told they were paying less interest over a shorter period of time, they were in fact paying higher interest over a shorter period of time.
Another example of a scam was the use of fake “discount points” that covered up prepayment penalties. Then there was the “trap sale,” which lowered the amount of equity people had in their homes and made it difficult if not impossible for customers to refinance with other firms.
The evidence in this case destroys the idea that borrowers were somehow largely at fault for the housing burst, or that they are somehow now to blame for the fact that they couldn’t keep up on their mortgage payments. Companies like Household aggressively came after them with slick marketing lines and intentions to defraud.
Millions of people were duped. They shouldn’t now have to suffer for it by losing their homes too.
If you’re battling foreclosure in Miami or the surrounding areas contact Jacobs Legal for a confidential appointment to discuss your rights. Call (305) 358-7991. Also, don’t miss Miami Foreclosure Attorney Bruce Jacobs on 880AM/the Biz, every Wednesday from 5 p.m. to 6 p.m. on “Mortgage Wars,” discussing foreclosure topics that matter to YOU.
Lurid Subprime Scams Unveiled in Long-Running Fraud Trial, Dec. 12, 2013, By Matt Taibbi, Rolling Stone
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