Mortgage, housing and banking analysts took the weekend to pontificate on the ramifications of last Friday's decision by Massachusetts' highest court to void two foreclosures due to improper paperwork.A coalition of state pension funds took a different tack: They fired a shot across the bow of the big banks.
Under the leadership of New York City Comptroller John Liu, funds from New York, Connecticut, North Carolina, Oregon and Illinois sent a letter (see attachment) to Bank of America , JP Morgan Chase , Citibank and Wells Fargo , demanding that the big banks "conduct an independent review of Company's internal controls related to loan modifications, foreclosures and securitizations and to include a report to shareholders with findings and recommendations in the Company's 2011 proxy statement."
The pension funds hold a collective $5.7 billion worth of stock in the four banks, and the letter makes that point very clear. Of course that's really just a small pittance given that the banks are collectively worth well over $600 billion. Yes, if the funds sold their interests, the banks would take a hit, but in the new world of big bank losses, that's just a tap.
The letter cites all the ills of the past several months involving "robo-signing," put-backs, mass litigation and all kinds of government reports and testimony claiming the banks are trying to sugarcoat the whole mess.
“The banks’ boards cannot continue to pretend the foreclosure mess is the result of technical glitches and paperwork errors,” Comptroller Liu said. “There is a fundamental problem in their procedures that endangers not just homeowners, but shareholders, and local economies," goes the press release from Liu.
The letter to the banks ends, "Thank you for your prompt consideration," and demands a response by January 21st.
The banks responded to me pretty quickly this morning. JP Morgan had no comment.
Wells Fargo: "We have received the letter and are reviewing it. Wells Fargo stockholders benefit from an active, engaged and independent-thinking Audit and Examination Committee whose members take their oversight responsibilities very seriously.
Citi: "We have received the letter and will review it with the members of the Audit Committee at its next meeting and respond. We have confidence in our internal processes and controls."
Bank of America sent a far longer response, the gist of which was, "The letter from the pension funds brings up a concern that the bank is already addressing — the future prevention of compliance failures and restoration of confidence in the foreclosure processes. The points they make have been brought up time and time again, reviewed and fully considered." It then went on to detail all the things B of A is doing to improve its processes.
The banks don't seem all too concern about Liu's coalition, and this isn't the first time he has made demands. In November he tried to get a shareholder vote on an audit of the same thing. That didn't work.
With a new Republican House on their side, the big banks are unlikely to be afraid of a few pension funds, unless of course this becomes the tip of the iceberg. Bank of America already got a pretty sweet deal on loan put-backs from Fannie and Freddie.
As for the Massachusetts ruling, most of the analysts over the weekend agreed that it would not set the standard for voiding all of the nation's many foreclosures; it would, however, engender many many more lawsuits that will slow the process considerably.