“There Goes the Neighborhood,” which ran on 60 Minutes last Sunday, is a must-see piece. Scott Pelley walks through a pillaged house in Cleveland, slated for demolition in a county neighborhood stabilization program. This abandoned house is owned by Structured Asset Investment Trust 2003-BC11. An investor reports lists the property as “in foreclosure” despite no court filing. Ohio is a judicial foreclosure state, so a foreclosure filing requires a lawsuit, but there isn’t one.
According to the prospectus, Trust 2003-BC11 was underwritten by Lehman Brothers. Aurora Loan Services is the Master Servicer, though the entire trust was passed to sub-servicers. Specifically Chase, Option One, Ocwen, and Wells Fargo serviced 30.46%, 29.47%, 26.84%, and 12.19% of the loans.
The Murrayhill Company is the Credit Risk Manager. According to the prospectus Murrayhill “will monitor and advise the servicers with respect to default management of the mortgage loans.” Later, the prospectus clarifies “The Murrayhill Company, a Colorado corporation .. will monitor and make recommendations to the Master Servicer and the Servicers regarding certain delinquent and defaulted Mortgage Loans…”
Murrayhill literally wrote the book on how Aurora should deal with defaults for Trust 2003-BC11, then took upon themselves to the obligation to monitor that same book.
Colorado-based Murrayhill was founded by Sue Ellis Allon and apparently did spectacularly well back in the past. In a case study published by the Tuck School of Business at Dartmouth in 2003, the same Trust 2003-BC11 closed, Allon bragged her company enjoyed “more than 100% annual growth” for the prior three years.
Murrayhill was eventually acquired and merged into Clayton Holdings. Allon served on their Board of Directors. Eventually she formed Allonhill, her newest company, also in Colorado. Various news reports portray Allon as a “reformer,” really trying to get to the core of the housing crisis.
On September 9, 2011, Allonhill signed an engagement letter — a definitive agreement — with the Office of the Comptroller of the Currency (OCC), as part of the consent order wherein servicers agreed to submit foreclosure fraud for review by “independent” third-party companies. The engagement letter notes that Allon founded Murrayhill, “which pioneered the concept of independent third-party oversight of loans and servicers.” But there is no mention that Murrayhill was tasked with promulgating and monitoring Aurora’s default policies and procedures.
That is, OCC chief John Walsh signed off on hiring Allon to audit her prior work for fraud.
Let’s repeat that; the OCC — an arm of President Obama’s Treasury Department — signed off, allowing a company founded and managed by the woman who created Aurora’s foreclosure practices to audit her own firm’s work, and did so pursuant to a consent order and under the guise of consumer protection. Allonhill, the firm that promulgated and enforced foreclosure policies, is based less than a mile away from the address listed for Murrayhill, the firm auditing for foreclosure fraud on behalf of borrowers.
Until now there has been a mountain of circumstantial evidence that the Obama administration has been comfortable with foreclosure fraud. There is the conspicuous lack of prosecutions, unwarranted and unwelcome intervention in the 50-state Attorney General review, and references that infer robosigning is a “victimless” crime. But, until this disclosure, there has been no solid evidence the federal government is actively covering up bank-perpetrated fraud.
This arrangement clarifies that the Federal Government, at the highest levels, are comfortable, or even arguably complicit, covering up foreclosure fraud.
The section regarding Conflicts of Interest in the Allonhill contract reads “Allonhill .. represent(s) that this engagement does not create a conflict of interest…” But it is impossible to think of a more substantive conflict of interest — the notion that a former executive is supposed to bust herself — than this arrangement. Even Bernie Madoff hired a storefront accountant to robosign his audits; he didn’t have the chutzpah to appoint himself to the role.
The agreement continues, “Allonhill will implement various controls to manage conflicts and ensure that the loan review services are provided with an appropriate level of independence. These controls include: (a) Restricting any individual who was previous employed by, or otherwise under contract to provide services to, Aurora Bank from…” a long list that includes essentially everything Allonhill is supposed to be doing.
I guess they overlooked that the founder and CEO of Allonhill is the same woman that created and monitored the fraud Allonhill is supposed to be monitoring while working for Aurora.
Allonhill is so massively conflicted with regards to Aurora that the decision to engage the firm taints not only the entire OCC review process into question, but also every person involved in the review, and the Treasury Department itself. It is impossible to think of any company that could be more conflicted in performing these audits. Even Aurora itself could blame Murrayhill for the problems, but Allonhill can’t, at least not without implicating its own founder and CEO.
John Walsh, the head of the OCC, should finally be fired for incompetence. His boss, Bailout King Treasury Secretary Timothy Geithner, also deserves the axe. Congress should let the subpoenas fly in every directions, including and especially towards the White House, to figure out how this could have happened.
Forget just firing Allonhill and Walsh; every reviewer has to be fired: it’s clear that the entire review process is corrupt.
Once Walsh, the Bush appointee who was reappointed by Obama (“You’re doing a heckuva’ job, John”) is gone the new director should void these contracts, start from scratch, and be sure to disqualify anybody who had anything to do with this fiasco. In the interim, there is now a persuasive argument for a nationwide freeze on foreclosures until this mess is straightened out.
As the reviews are reformulated every document, every email, every engagement letter — absolutely everything — should be released without a single redaction. Any firm that doesn’t want to work in sunlight can simply decline to bid. I’m sure they’ll have plenty of takers. I’d personally be pleased to have one of these contracts, and would staff up a firm with top-notch auditors who would find foreclosure fraud.
News reports say that President “Hope & Change” Obama, who promised Hope but gave us the ineffectual and arguably outright harmful HAMP, has apparently decided to reincarnate himself in the likeness of President Teddy Roosevelt. He might want to think about this quote from President T. Roosevelt: “No man who condones corruption in others can possibly do his duty by the community.”
Paraphrasing from a Senatorial candidate I once adored, foreclosure is not a Blue State problem, it’s not a Red State problem, it’s an American problem. And it’s long past time the White House wakes up and doesn’t something besides protect the perps who caused this mess.