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Tuesday, May 31, 2011

New law on crack cocaine could apply to old cases

New law on crack cocaine could apply to old cases

A year ago, a drug dealer caught with 50 grams of crack cocaine faced a mandatory 10 years in federal prison. Today, new sentencing rules cut that to as little as five years, and thousands of inmates not covered by the change are trying to get it applied to old cases.

"Please make this situation fair to all of us," prisoner Shauna Barry-Scott wrote from West Virginia to the U.S. Sentencing Commission, which oversees federal sentencing guidelines. "Treat us the same."

The commission meets Wednesday in Washington to consider making many of the new guidelines retroactive, a step that could bring early release for as many as 1 in every 18 federal prisoners, or approximately 12,000 inmates.

The commission has already received more than 37,000 letters on the issue, most from inmates and their families and friends. Many of the letters are form letters drafted by interest groups such as Families Against Mandatory Minimums, but others contain personal pleas. A woman from New York wrote to say her nephew should be "given another chance at society." A mother from Illinois said her child was sentenced "very harshly."

Prisoners have also been writing judges and public defenders, asking if the new law might help them.

"Dear Judge Blake, I am forwarding this letter to you for your assistance that concerns the new crack cocaine law that was just passed," Steven Harris wrote to a federal judge in Maryland, asking about his 10-year sentence for crack possession and possession of a firearm during the crime. "I would like to know if this law will help me."

Congress and President Barack Obama agreed in August to reduce the minimum penalties for crack. But the law did not apply to prisoners who were locked up before the change.

Michael Nachmanoff, the lead public defender in the eastern district of Virginia, where about 1,000 prisoners would be affected, the most of any area in the country, says his office has been getting about a half-dozen calls or letters a month.

Nachmanoff, who will testify before the commission Wednesday, says his office is prepared to act if the commission makes changes. And he says anyone who worries that retroactivity would be going light on offenders is wrong.

"All of these people will wind up serving long sentences," he said. "This is really about fixing a really unfair problem that now everybody recognizes was wrong."

Since the 1990s, advocates have complained that crack offenders are treated more harshly than those arrested with powdered cocaine. Many critics view the disparity as racial discrimination because black drug offenders are more likely to be charged with federal crack offenses and to serve longer prison terms than other offenders.

The Fair Sentencing Act, signed by Obama in August, attempts to remedy that disparity by changing the amount of crack cocaine required to trigger five and 10-year mandatory sentences.

Before the law was passed, a person convicted of possessing 5 grams of crack cocaine — about the weight of five packets of Sweet'n Low — automatically got sentenced to five years. Now it takes 28 grams to trigger a five-year mandatory sentence, an amount more in line with powdered cocaine. Possessing 280 grams of crack triggers a 10-year sentence as opposed to the old standard of 50 grams — about the same weight as 10 nickels.

Inmates who received the mandatory minimum sentence under the old system will not be eligible for early release because only Congress can make minimum sentences retroactive. But inmates who received above the minimum could see their sentences reduced, and others whose offense did not rise to the level of a mandatory minimum could be eligible for earlier release, too.

The commission estimates that the average sentence reduction for applicable inmates would be approximately three years.

Not everyone supports the proposal for retroactivity. The Fraternal Order of Police opposed the law Obama signed and plans to oppose retroactivity before the commission, arguing criminals were aware of the penalties for their actions.

"They knew what they were doing. They went into it with their eyes open," Jim Pasco, executive director of the Fraternal Order of Police, which represents more than 300,000 law enforcement officers.

Prisoners charged with crack offenses have already had one recent experience with retroactive sentence reductions. In 2007, the commission revised the crack sentencing guidelines, reducing sentences by an average of two years. Approximately 16,000 offenders had their sentences reduced.

For the change to be made retroactive, four members of the six-member commission would have to vote to support the idea. If that happens, Congress could still reject or modify the guidelines until the end of October.

Given that the Fair Sentencing Act passed Congress almost unanimously and that the commission has acted previously to make sentencing changes retroactive, Marc Mauer of the Washington-based Sentencing Project said he is cautiously optimistic that the proposal for retroactivity will be adopted.

The commission is expected to rule in the next few months, but that ruling can't come soon enough for some prisoners.

"I love and miss my children very much," inmate Samuel Tirado wrote to the commission from his New Jersey penitentiary. "And I hope to be reunited with them sooner than 2022."

Monday, May 30, 2011


Today, we observe and pay tribute to those that have fallen and those still standing in bravery for our country. 

We Thank, Love, and Honor You. 

God Bless All.

-American Attorney Team

Friday, May 27, 2011

Family Gets $58 Million In Record-Breaking Malpractice Suit

Family Gets $58 Million In Record-Breaking Malpractice Suit

In what is being called the largest medical malpractice verdict in state history, two Connecticut parents have been awarded $58 million on behalf of their eight-year-old son, reports ABC 7's Eyewitness News.
Attorneys for the family say that Daniel D'Attilo now has cerebral palsy because of brain damage resulting from a delayed delivery by their obstetrician. "It's an overwhelming victory for the parents," one of the family's lawyers, Kathleen Nastri, told the Associated Press. "He is profoundly, profoundly disabled and the parents have gone through hell."
The case was filed in 2005, after Daniel's birth on February 2, 2003, reports the Connecticut Post. According to attorneys, Cathy D'Atillo's amniotic fluid dropped by half on January 31, but her physician waited days to perform a Caesarian section -- they also say that even once the surgery did happen, it was done improperly.
According to the NIH, "Cerebral palsy is caused by injuries or abnormalities of the brain" that typically occur in the womb. While symptoms can range from mild to very severe, in Daniel's case he is unable to speak, eat or walk, and suffers from seizures.
Of the record dollar amount granted by the jury, $8 million is expected to cover medical expenses, while the remainder was designated for pain and suffering.
"The dollar amount means he will be taken care of, that's what this means to us," Daniel's mother Cathy told the Eyewitness team, who also reports that her son will need full-time care.
But the doctor's attorney, James Rosenblum said to the Associated Press that the jury's decision was made more out of sympathy than hard evidence -- he promised that his client would appeal the case. "His treatment was impeccable. It's a shocking verdict," he said.

Wednesday, May 25, 2011

Teacher Arrested for Allegedly Chloroforming Students

Teacher Arrested for Allegedly Chloroforming Students
By Lisa Johnson Mandell

Regardless of how "energetic" some kids may be, it should be a no-brainer for a teacher to realize that it's not OK to give chloroform to your students. Authorities believe that a chemistry teacher at Livingston High School in the Merced, Calif., area was trying to help students get high when she aided them in inhaling chloroform.

Chemistry teacher Japhia Smith Huhndorf, 34, of nearby Atwater, was arrested on Monday for allegedly helping three male students, 16, 17 and 18 years old, ingest the chemical by inhaling it from a towel. Chloroform is used in schools to preserve tissue, but elsewhere it can be used as an anesthetic.
It was no surprise that she was arrested on suspicion of three counts of felony child endangerment for this particular incident, but what did come as a shock was what Sgt. Ray Fong of the Livingston Police Department told the Merced Sun Star: There were at least three similar incidents involving Huhndorf over the past five months.
Both students and parents told reporters that they were shocked to hear that Huhndorf had acted this way. Apparently, she was a very popular staff member and the label on her picture in the school yearbook shows that she was voted the "Most Spirited Teacher." Now, perhaps, we know why.

Tuesday, May 24, 2011

State Legalizes Gold as Currency

Utah Legalizes Gold, Silver Coins As Currency

SALT LAKE CITY -- Utah legislators want to see the dollar regain its former glory, back to the days when one could literally bank on it being "as good as gold."
To make that point, they've turned it around, and made gold as good as cash. Utah became the first state in the country this month to legalize gold and silver coins as currency. The law also will exempt the sale of the coins from state capital gains taxes.
Craig Franco hopes to cash in on it with his Utah Gold and Silver Depository, and he thinks others will soon follow.
The idea is simple: Store your gold and silver coins in a vault, and Franco issues a debit-like card to make purchases backed by your holdings.
He plans to open for business June 1, likely the first of its kind in the country.
"Because we're dealing with something so forward thinking, I expect a wait-and-see attitude," Franco said. "Once the depository is executed and transactions can occur, then I think people will move into the marketplace."
The idea was spawned by Republican state Rep. Brad Galvez, who sponsored the bill largely to serve as a protest against Federal Reserve monetary policy. Galvez says Americans are losing faith in the dollar. If you're mad about government debt, ditch the cash. Spend your gold and silver, he says.
His idea isn't to return to the gold standard, when the dollar was backed by gold instead of government goodwill. Instead, he just wanted to create options for consumers.
"We're too far down the road to go back to the gold standard," Galvez said. "This will move us toward an alternative currency."
Earlier this month, Minnesota took a step closer to joining Utah in making gold and silver legal tender. A Republican lawmaker there introduced a bill that sets up a special committee to explore the option. North Carolina, Idaho and at least nine other states also have similar bills drafted.
At the moment, Franco's idea would generally be the only practical use of the law in Utah, given the legislation doesn't require merchants to accept the coins, either at face value – $50 for a 1-ounce gold coin – or market value, currently almost $1,500 per ounce. And no one expects people will be walking around town with pockets full of gold and silver.
Matt Zeman, market strategist for Kingsview Financial in Chicago, expects more people will start investing in gold as America's growing debt and bankruptcies in other countries continue to decrease the value of government-backed money.
"You've seen gold replacing these currencies as safety instruments," Zeman said. "If I don't feel good about the dollar or other currencies, I'm putting my money in precious metals."
Some supporters, including the law's sponsor, seek to push Congress toward removing the tax burdens that discourage use of the coins, such as a federal capital gains tax.
"Making gold and silver coins legal tender sends a strong signal to Congress and the Federal Reserve that their monetary policy is failing," said Ralph Danker, project director for economics at the Washington, D.C.-based American Principles in Action, which helped shape Utah's law. "The dollar should be backed by gold and silver, so we have hard money."
The U.S. and many other countries largely abandoned gold-backed money during World War I because they needed to print more cash to pay for the war. Later, during the Great Depression, President Franklin D. Roosevelt took steps that essentially prohibited gold and silver as legal currency to prevent hoarding.
In 1971, President Nixon formally abandoned the gold standard.
Fifteen years later, the U.S. Mint began producing the gold and silver American Eagle coins, primarily aimed at investment portfolios and allowing people to trade them at market value but with capital gains taxes on profits.
Utah is now allowing the coins to be used as legal tender while levying no taxes.
Opponents of the law warn such a policy shift nationwide could increase the prospect of inflation and could destabilize international markets by removing the government's flexibility to quickly adjust currency prices.
"We'd be going backward in financial development," said Carlos Sanchez, director of Commodities Management for The CPM Group in New York. "What backs currency is confidence in a government's ability to pay debt, its government system and its economy."
Larry Hilton, a Utah attorney who helped draft the law, disagrees and says the gold standard would restore faith in American money at a time when spiraling debt is weakening confidence.
"We view this as a dollar-friendly measure," Hilton said. "It will strengthen the dollar by refocusing policy matters in Washington on what led to the phrase, `the dollar is as good as gold.'"

Monday, May 23, 2011

Supreme Court Rules on Prison Population

Supreme Court Upholds Order For California To Cut Prison Population


WASHINGTON — The Supreme Court on Monday narrowly endorsed reducing California's cramped prison population by more than 30,000 inmates to fix sometimes deadly problems in medical care, ruling that federal judges retain enormous power to oversee troubled state prisons.
The court said in a 5-4 decision that the reduction is "required by the Constitution" to correct longstanding violations of inmates' rights. The order mandates a prison population of no more than 110,000 inmates, still far above the system's designed capacity.
There were more than 143,000 inmates in the state's 33 adult prisons as of May 11, meaning roughly 33,000 inmates will need to be transferred to other jurisdictions or released.
Justice Anthony Kennedy, a California native, wrote the majority opinion, in which he included photos of severe overcrowding. The court's four Democratic appointees joined with Kennedy.
"The violations have persisted for years. They remain uncorrected," Kennedy said. The lawsuit challenging the provision of mental health care was filed in 1990.
Justice Antonin Scalia said in dissent that the court order is "perhaps the most radical injunction issued by a court in our nation's history."
Scalia, reading his dissent aloud Monday, said it would require the release of "the staggering number of 46,000 convicted felons."
Scalia's number, cited in legal filings, comes from a period in which the prison population was even higher.
Justice Clarence Thomas joined Scalia's opinion, while Justice Samuel Alito wrote a separate dissent for himself and Chief Justice John Roberts.
Michael Bien, one of the lawyers representing inmates in the case, said, "The Supreme Court upheld an extraordinary remedy because conditions were so terrible."
State officials did not immediately comment on the ruling.
Eighteen other states joined California in urging the justices to reject the population order as overreaching. They argued that it poses a threat to public safety. State attorneys general said they could face similar legal challenges.
Alito said he, too, feared that the decision, "like prior prisoner release orders, will lead to a grim roster of victims. I hope that I am wrong. In a few years, we will see."
The California dispute is the first high court case that reviewed a prisoner release order under a 1996 federal law that made it much harder for inmates to challenge prison conditions.
The case revolves around inadequate mental and physical health care in a state prison system that in 2009 averaged nearly a death a week that might have been prevented or delayed with better medical care.
The facilities were designed to hold about 80,000 inmates.
The state has protested a court order to cut the population to around 110,000 inmates within two years, but also has taken steps to meet, if not exceed, that target. Kennedy said the state also could ask the lower court for more time to reach the 110,000-inmate target.
Earlier this year, Gov. Jerry Brown signed a bill that would reduce the prison population by about 40,000 inmates by transferring many low-level offenders to county jurisdiction. The state legislature has yet to authorize any money for the transfer.
A person appointed by federal judges now oversees prison medical operations, but the judges have said the key to improving health care is to reduce the number of inmates.
At the peak of the overcrowding, nearly 20,000 inmates were living in makeshift housing in gymnasiums and other common areas, often sleeping in bunks stacked three high. Another 10,000 inmates were in firefighting camps or private lockups within California.
In 2006, then-Gov. Arnold Schwarzenegger used his emergency powers to begin shipping inmates to private prisons in Arizona, Mississippi and Oklahoma. More than 10,000 California inmates are now housed in private prisons out of state.
Schwarzenegger also sought to reduce the inmate population by signing legislation that increased early release credits and made it more difficult to send ex-convicts back to prison for parole violations. Another law rewards county probation departments for keeping criminals out of state prisons.
One result of those changes is that the state has been able to do away with nearly two-thirds of its makeshift beds, although more than 7,000 inmates remain in temporary housing.

Saturday, May 21, 2011

Pope speaks with astronauts

From space, a link to God: Pope speaks with astronauts
Pope Benedict XVI spoke Saturday with the astronauts aboard the International Space Station, and specifically mentioned Cmdr. Mark Kelly's wife, Gabrielle Giffords, who is recuperating from recent brain surgery.

"I know that Mark and his wife were the victim of a serious attack, and I hope that her health continues to improve," the pope said.

Kelly thanked the pope for mentioning Giffords. The Arizona congresswoman was shot in the head in a January assassination attempt.

The two men also talked about how technology used in space may be able to help relations between people on Earth.

"I think it must be obvious to you how we all live together on one Earth, and how absurd it is that we fight and kill each one," the pontiff said.

"We fly over most of the world and we don't see borders, but at the same time we realize that people fight with each other and there is a lot of violence in this world," Kelly said.

Unlike on Earth, technology on the space station allows for almost unlimited power from the sun, he said.

"If these technologies could be adopted more on Earth, we could possibly reduce some of that violence," he said.

The space shuttle Endeavour launched last Monday on a 16-day mission.

Friday, May 20, 2011

U.S. Consumer Outlook Brighter, but Net Worth a 'Time Bomb'

U.S. Consumer Outlook Brighter, but Net Worth a 'Time Bomb'

Is there light at the end of the tunnel for U.S. consumers? Financial distress is generally at its lowest since fall 2008, according to figures in the newConsumer Distress Indexproduced by CredAbility, a nonprofit credit counseling organization. However, Americans' consumer net worth continues to suffer overall, with 47 states registering high levels of distress, including one, West Virginia, that's in a state of emergency.

Mark Cole, chief operating officer of CredAbility, says that net worth is a "ticking time bomb," as many Americans over the age of 50 have less time and opportunity to recover financially from the recession. The average jobless spell forAmericans over the age of 55lasts longer, and new jobs may pay less.

The organization measures consumer distress, or the financial picture for the average American family, on an index from 0 to 100. This quarter, Americans are making some modest gains, with the overall index score at 68.1, up from 67.2 in the fourth quarter of 2010. But any score below 70 indicates financial distress. The scale measures five categories: employment, housing, credit, household budget management, and net worth.

Several factors have raised the overall score: more full-time and part-timeemployment, better handling of household budgets, and smart use of credit, according to the report.

One factor that could negatively affect household budgets in months to come is the price of gasoline. In the first three months of 2011,Americans spent $593 refueling their carson average, an increase of 7.6% from the same period in 2010, according to the report.

For states in the West and Southeast, a weak housing market and high unemployment continue to make life difficult for the average household. States that have been especially hard hit by foreclosures, including Florida, Arizona and Nevada, are among the top five most distressed states.

North Dakota is the least distressed state, followed by South Dakota, Wyoming, Nebraska and Alaska. Cole says that these states have more stable industries and unemployment rates are lower. Strong community stability and low population sizes also have served to buffer consumers. "It's a different lifestyle," he says of states that are least distressed.

Thursday, May 19, 2011

Rosie Perez Sues ‘Law & Order: SVU’

Rosie Perez Sues ‘Law & Order: SVU’
By Vicki Salemi

Talk about a pain in the neck! Literally. Academy Award-nominated actress Rosie Perez is suing production companies behind Law and Order: Special Victims Unit for an undisclosed amount. She suffered from neck injuries directly related to the show!

According to The Daily News, papers were filed in Brooklyn Supreme Court based on the production companies’ negligence related to her numerous neck injuries. In a 2009 shoot, Rosie experienced several herniated discs in her neck after an extra forcibly shook her.

In the scene, Rosie played an irate mother and stuck her head inside a car to choke another mom before a school crossing guard pulled her away. Referring to one of the takes, Rosie’s lawyer Brian O’Dwyer told the newspaper, “I guess he got carried away with the scene.”

Since then, the 46-year-old actress underwent two operations, one of which included spinal fusion last summer. Bone marrow was transplanted from her pelvis into her vertebrae. She ended up attending a White House event in a wheelchair and neck brace!

“She’s still suffering severe pain, numbness of the arms, and she’ll never be the same despite the surgery,” said her attorney. Plus, Rosie has missed out on almost a year’s worth of work due to the injuries and recovery.

As for the dollar amount she’s seeking? The suit actually doesn’t outline a dollar sign. Combining the severity of the injury and lifelong nature of it, along with Rosie’s earning potential, Brian said the damages will be “very substantial.”

Wednesday, May 18, 2011

George Soros Dumps Nearly $800 Million In Gold

George Soros Dumps Nearly $800 Million In Gold

By Frank Tang and Aaron Pressman

Billionaire financier George Soros, who called gold "the ultimate bubble," dumped almost his entire $800 million stake in bullion in the first quarter, well before a commodities slump blamed partly on reports he was liquidating his holdings.
Famed gold bull John Paulson held his ground, but Soros was joined in the retreat by several other big names, including Eric Mindich and Paul Touradji, according to 13-F filings with the U.S. Securities and Exchange Commission that provide the best insight into where hedge funds are placing their bets.
Soros, who has been bullish on gold in the past several years, cut his holdings in the SPDR Gold Trust (GLD.P: Quote, Profile, Research, Stock Buzz) to just $6.9 million by the end of first quarter, compared with $655 million in December, becoming the most high-profile investors to turn his back on one of the market's best-performing assets.
He also liquidated a 5 million share stake in the iShares Gold Trust (IAU.P: Quote, Profile, Research, Stock Buzz), the filings showed. His total holdings in gold-backed ETFs was $774 million as of December.
Gold rose for a tenth consecutive quarter in the three months to March, hitting record highs above $1,400 an ounce, buoyed by political turmoil in the Middle East and North Africa and lingering worries about indebted European countries.
The gains accelerated in April, but peaked at the start of this month, reaching a record $1,575 an ounce on May 2.
Prices have since fallen more than 5 percent amid the biggest commodities slump since late 2008, a move partly triggered by a Wall Street Journal report that Soros' $28 billion fund was selling precious metals -- and felling fears other big funds were also seeing a peak.
Eric Mindich, who runs the Eton Park Capital Management, nearly halved his stake in the SPDR gold trust to $326 million for the first quarter, a filing showed on Monday.
Mindich's fund also owned $839 million worth of call options by the end of first quarter, compared with $1.1 billion worth of put options at the end of the fourth quarter.
Touradji Capital Management, one of the world's largest commodities-oriented hedge funds run by Paul Touradji sold 173,000 shares in the SPDR Gold Trust during the quarter. Those shares would be worth about $25 million at current prices.
But John Paulson, who notched the industry's biggest ever payout last year, kept his 31.5 million share or $4.4 billion stake in the SPDR fund, remaining the biggest shareholder of the world's largest gold-backed exchange traded fund for the quarter, according to regulatory filings.
The sales make sense given that Soros said he had bought gold because he was worried about deflation, said Mark Luschini, chief investment strategist at Janney Montgomery Scott in Pittsburgh.
"It's pretty hard to make the case for deflation right now so if that was a reason you were buying gold, you should take this signal from Soros," he said.
Inflation is now the greater concern, Luschini said. So most investors should still keep about 3 percent to 5 percent of their assets in gold to protect against inflation and possible further problems in the world financial system.
Soros also slashed stakes in gold and silver mining companies during the first quarter. The firm owned 1.4 million shares of Kinross Gold (K.TO: Quote, Profile, Research, Stock Buzz) at the end of the quarter, down from 4 million shares three months earlier. Holdings in Novagold Resources (NG.TO: Quote, Profile, Research, Stock Buzz) dropped to 3.5 million shares from 12.9 million.
Gold ended the first quarter little changed, as the spot gold prices were only $10 higher to end at $1,430 an ounce on March 31, and the SPDR Gold Trust was up 1.3 percent.
In the second quarter, gold hit a record high $1,575.79 an ounce on May 2 fueled by the outlook of low U.S. interest rates.
So far in the second quarter, SPDR Gold Trust's bullion holdings gained only about 1 percent to 1,229 tonnes as of Friday, well below its record high at 1,320.436 tonnes set on June 29 last year.
Institutional investment managers are required to file form 13-F with the SEC within 45 days after the end of each quarter.

Tuesday, May 17, 2011

5 Firms Defrauded Taxpayers?

Confidential Federal Audits Accuse Five Biggest Mortgage Firms Of Defrauding Taxpayers

By Shahien Nasiripour
WASHINGTON -- A set of confidential federal audits accuse the nation’s five largest mortgage companies of defrauding taxpayers in their handling of foreclosures on homes purchased with government-backed loans, four officials briefed on the findings told The Huffington Post.
The five separate investigations were conducted by the Department of Housing and Urban Development’s inspector general and examined Bank of America, JPMorgan Chase, Wells Fargo, Citigroup and Ally Financial, the sources said.
The audits accuse the five major lenders of violating the False Claims Act, a Civil War-era law crafted as a weapon against firms that swindle the government. The audits were completed between February and March, the sources said. The internal watchdog office at HUD referred its findings to the Department of Justice, which must now decide whether to file charges.
The federal audits mark the latest fallout from the national foreclosure crisis that followed the end of a long-running housing bubble. Amid reports last year that many large lenders improperly accelerated foreclosure proceedings by failing to amass required paperwork, the federal agencies launched their own probes.
The resulting reports read like veritable indictments of major lenders, the sources said. State officials are now wielding the documents as leverage in their ongoing talks with mortgage companies aimed at forcing the firms to agree to pay fines to resolve allegations of routine violations in their handling of foreclosures.
The audits conclude that the banks effectively cheated taxpayers by presenting the Federal Housing Administration with false claims: They filed for federal reimbursement on foreclosed homes that sold for less than the outstanding loan balance using defective and faulty documents.
Two of the firms, including Bank of America, refused to cooperate with the investigations, according to the sources. The audit on Bank of America finds that the company -- the nation’s largest handler of home loans -- failed to correct faulty foreclosure practices even after imposing a moratorium that lifted last October. Back then, the bank said it was resuming foreclosures, having satisfied itself that prior problems had been solved.
According to the sources, the Wells Fargo investigation concludes that senior managers at the firm, the fourth-largest American bank by assets, broke civil laws. HUD’s inspector general interviewed a pair of South Carolina public notaries who improperly signed off on foreclosure filings for Wells, the sources said.
The investigations dovetail with separate probes by state and federal agencies, who also have examined foreclosure filings and flawed mortgage practices amid widespread reports that major mortgage firms improperly initiated foreclosure proceedings on an unknown number of American homeowners.
The FHA, whose defaulted loans the inspector general probed, last May began scrutinizing whether mortgage firms properly treated troubled borrowers who fell behind on payments or whose homes were seized on loans insured by the agency.
A unit of the Justice Department is examining faulty court filings in bankruptcy proceedings. Several states, including Illinois, are combing through foreclosure filings to gauge the extent of so-called “robo-signing” and other defective practices, including illegal home repossessions.
Representatives of HUD and its inspector general declined to comment.
The internal audits have armed state officials with a powerful new weapon as they seek to extract what they describe as punitive fines from lawbreaking mortgage companies.
A coalition of attorneys general from all 50 states and state bank supervisors have joined HUD, the Treasury Department, the Justice Department and the Federal Trade Commission in talks with the five largest mortgage servicers to settle allegations of illegal foreclosures and other shoddy practices.
Such processes “have potentially infected millions of foreclosures,” Federal Deposit Insurance Corporation Chairman Sheila Bair told a Senate panel on Thursday.
The five giant mortgage servicers, which collectively handle about three of every five home loans, offered during a contentious round of negotiations last Tuesday to pay $5 billion to set up a fund to help distressed borrowers and settle the allegations.
That offer -- also floated by the Office of the Comptroller of the Currency in February -- was deemed much too low by state and federal officials. Associate U.S. Attorney General Tom Perrelli, who has been leading the talks, last week threatened to show the banks the confidential audits so the firms knew the government side was not “playing around,” one official involved in the negotiations said. He ultimately did not follow through, persuaded that the reports ought to remain confidential, sources said. Through a spokeswoman, Perrelli declined to comment.
Most of the targeted banks have not seen the audits, a federal official said, though they are generally aware of the findings.
Some agencies involved in the talks are calling for the five banks to shell out as much as $30 billion, with even more costs to be incurred for improving their internal operations and modifying troubled borrowers’ home loans.
But even that number would fall short of legitimate compensation for the bank's harmful practices, reckons the nascent federal Bureau of Consumer Financial Protection. By taking shortcuts in processing troubled borrowers' home loans, the nation's five largest mortgage firms have directly saved themselves more than $20 billion since the housing crisis began in 2007, according to a confidential presentation prepared for state attorneys general by the agency and obtained by The Huffington Post in March. Those pushing for a larger package of fines argue that the foreclosure crisis has spawned broader -- and more costly -- social ills, from the dislocation of American families to the continued plunge in home prices, effectively wiping out household savings.
The Justice Department is now contemplating whether to use the HUD audits as a basis for civil and criminal enforcement actions, the sources said. The False Claims Act allows the government to recover damages worth three times the actual harm plus additional penalties.
Justice officials will soon meet with the largest servicers and walk them through the allegations and potential liability each of them face, the sources said.
Earlier this month, Justice cited findings from HUD investigations in a lawsuit it filed against Deutsche Bank AG, one of the world's 10 biggest banks by assets, for at least $1 billion for defrauding taxpayers by "repeatedly" lying to FHA in securing taxpayer-backed insurance for thousands of shoddy mortgages.
In March, HUD's inspector general found that more than 49 percent of loans underwritten by FHA-approved lenders in a sample did not conform to the agency's requirements.
Last October, HUD Secretary Shaun Donovan said his investigators found that numerous mortgage firms broke the agency’s rules when dealing with delinquent borrowers. He declined to be specific.
The agency’s review later expanded to flawed foreclosure practices. FHA, a unit of HUD, could still take administrative action against those firms for breaking FHA rules based on its own probe.
The confidential findings appear to bolster state and federal officials in their talks with the targeted banks. The knowledge that they may face False Claims Act suits, in addition to state actions based on a multitude of claims like fraud on local courts and consumer violations, will likely compel the banks to offer the government more money to resolve everything.
But even that may not be enough.
Attorneys general in numerous states, armed with what they portray as incontrovertible evidence of mass robo-signings from preliminary investigations, are probing mortgage practices more closely.
The state of Illinois has begun examining potentially-fraudulent court filings, looking at the role played by a unit of Lender Processing Services. Nevada and Arizona already launched lawsuits against Bank of America. California is keen on launching its own suits, people familiar with the matter say. Delaware sent Mortgage Electronic Registration Systems Inc., which runs an electronic registry of mortgages, a subpoena demanding answers to 75 questions. And New York’s top law enforcer, Eric Schneiderman, wants to conduct a complete investigation into all facets of mortgage banking, from fraudulent lending to defective securitization practices to faulty foreclosure documents and illegal home seizures.
A review of about 2,800 loans that experienced foreclosure last year serviced by the nation's 14 largest mortgage firms found that at least two of them illegally foreclosed on the homes of "almost 50" active-duty military service members, a violation of federal law, according to a report this month from the Government Accountability Office.
Those violations are likely only a small fraction of the number committed by home loan companies, experts say, citing the small sample examined by regulators.
In an April report on flawed mortgage servicing practices, federal bank supervisors said they “could not provide a reliable estimate of the number of foreclosures that should not have proceeded."
The review of just 2,800 home loans in foreclosure compares with nearly 2.9 million homes that received a foreclosure filing last year, according to RealtyTrac, a California-based data provider.
“The extent of the loss cannot be determined until there is a comprehensive review of the loan files and documentation of the process dealing with problem loans,” Bair said last week, warning of damages that could take “years to materialize.”
Home prices have fallen over the past year, reversing gains made early in the economic recovery, according to data providers Zillow.com and CoreLogic. Sales of new homes remain depressed, according to the Commerce Department. More than a quarter of homeowners with a mortgage owe more on that debt than their home is worth, according to Zillow.com. And more than 2 million homes are in foreclosure, according to Lender Processing Services.
Rather than punishing banks for misdeeds, the administration is now focused on helping troubled borrowers in the hope that it will stanch the flood of foreclosures and increase consumer confidence, officials involved in the negotiations said.
Levying penalties can't accomplish that goal, an official involved in the foreclosure probe talks argued last week.
For their part, however, state officials want to levy fines, according to a confidential term sheet reviewed last week by HuffPost. Each state would then use the money as it desires, be it for facilitating short sales, reducing mortgage principal, or using the funds to help defaulted borrowers move from their homes into rentals.
In a report last week, analysts at Moody’s Investors Service predicted that while the losses incurred by the banks will be “sizable,” the credit rating agency does “not expect them to meaningfully impact capital.”