SALON

Sunday, Feb 24, 2013 12:00 PM UTC

The recession was her fault

Meet Wall Street's scapegoat, the one person to get jail time for the most massive mortgage fraud in history

By

Topics: Mortgage Fraud, Housing, Crime, Wall Street, Banks, Justice, Editor's Pick, ,

The recession was her fault (Credit: Photo enhancement: Salon)

You remember Lynndie England. She was the Army Reserve soldier photographed at the Abu Ghraib prison giving the thumbs-up sign in front of a set of naked detainees. A lower-level reservist, she was among the few at Abu Ghraib who actually served prison time.

No officers who authorized and directed the torture and detainee abuse, either in that prison, at Guantanamo Bay or anywhere around the world, ever faced trial. But Lynndie England became a symbol for the sorry state of the rule of law in America, where a few small “bad apples” get held to account, and the higher-ups who devised and directed the criminal activity get off scot-free.

There’s a Lynndie England for the financial crisis, too.

Meet Lorraine O. Brown, an individual singled out for actual jail time for her role in the massive mortgage document fraud that plagued this nation. Like England, she stands alone among the multitudes of fraudsters, including those at the highest reaches of the financial industry.

Brown was the President of DocX, a company that created and processed mortgage-related documents, first as a stand-alone unit, and later as a subsidiary of the document processing giant Lender Processing Solutions (LPS). And like Lynndie England, Brown committed a series of legitimate crimes. From 2003 until 2009, DocX routinely forged mortgage documents.

Brown directed the scheme, whereby low-wage temporary workers would sign the documents in the name of executives at DocX, who were authorized as signers by mortgage servicers. Then, different temporary workers would attach fake notarizations to the documents, attesting to their veracity. This “Surrogate Signer” program allowed DocX to execute thousands of documents per day, increasing their profit margins.

These forged mortgage documents were distributed to county land recording offices and state courts all over the country. After the collapse of the housing bubble, when these documents were put to use in foreclosure or bankruptcy cases, the scheme became apparent when people started comparing multiple mortgage documents with the names of authorized signers like Linda Green, all of which had markedly different handwriting.

This scheme was part of the giant bundle of illegal conduct known as foreclosure fraud. According to statements of fact from the Justice Department, from 2003 to 2009 DocX recorded over one million fake documents. That’s probably a low number. DocX wasn’t just forging signatures, they were fabricating entire loan files. During the bubble years, they created a now-infamous mortgage fabrication price sheet, where mortgage servicers, who had trouble proving in court that they owned the homes they wanted to put into foreclosure, could purchase, at low prices, whatever documents they needed. To “Recreate Entire Collateral File,” basically the whole set of documents including the promissory note? That would set a servicer back $95.00.

The larger foreclosure fraud scandal eventually exploded in late 2010, and after over a year of wrangling, the five biggest mortgage servicers – tiny outfits with names like Bank of America, JPMorgan Chase, Wells Fargo, Citi and Ally/GMAC – got their legal liability released in a sweetheart settlement. But Lorraine O. Brown was not so lucky. Her biggest mistake was lying to the FBI, claiming that she never instructed any employee to forge a document or participate in a “Surrogate Signing” program. More important, LPS had closed DocX by this time, making Brown expendable.

Chris Koster, the attorney general of Missouri, indicted Brown, DocX and LPS for forgery. But Koster did not attempt to flip the smaller fry to get to the higher-ups, the standard strategy of most criminal prosecutors. Instead, LPS cut a deal with Missouri for a mere $2 million, and in exchange “cooperated” in the Brown investigation. This severed Brown from the parent company, which not only had to know what was happening at DocX, but used basically the same assembly-line mortgage document execution at its other facilities. In a September 2006 newsletter called “The Summit,” managers for LPS, then known as Fidelity National Foreclosure Solutions, openly touted the process that allowed them to “execute 1,000 documents per day.” Brown’s DocX wasn’t the only forgery and fabrication shop in the United States. This was industry practice.

Furthermore, evidence of the DocX forgery and fabrication process could be used to reach even higher. Who directly solicited the company for fake documents? The foreclosure mill law firms, which then knowingly submitted them into courts. Who directed the foreclosure mills to do that? The mortgage servicers, which are typically units of the biggest banks. Furthermore, there’s no reason to ever request the “entire collateral file” unless you have no other way to generate evidence to prove underlying ownership of the loan. This speaks to a faulty mortgage transfer process, improper securitizations, and generally fraudulent practices at the heart of Wall Street.

None of that was pursued. Instead, Lorraine O. Brown felt the full weight of US law enforcement. In part because of the aggressiveness of the Missouri attorney general, the Justice Department reached a criminal plea bargain with Brown, where she admitted to wire and mail fraud, as well as lying to the FBI. She faces a $250,000 fine and up to five years in prison. Missouri announced their own plea arrangement on counts of forgery and perjury, which carries another 2-3 years of prison time (though she will probably serve this concurrent with the federal time). Sentencing is expected April 23.

Other states are piling on. Last week, in Michigan, Brown pleaded guilty to a racketeering charge. She faces as much as 20 years in prison for that, with sentencing expected May 2. And there may be more charges to come in other states.

The state and federal charges against Brown claim that she committed a conspiracy to forge and fabricate mortgage documents. But apparently it was a conspiracy of one. Nobody else participated in this scheme, at least according to the statements of fact that the Justice Department put out. They assert that Brown cleverly concealed her company’s conduct from mortgage servicers, units of some of the largest banks.

That’s simply bunk.

Servicers may not have known the mechanics of DocX’s fraudulent document executive, and may have nodded their head at Brown’s claims of “robust quality control practices.” But that’s just because they wanted a layer of plausible deniability – in fact for circumstances just like this. They wanted documents they could use in court to foreclose on homeowners as quickly as possible. Brown’s company DocX could provide them, and as a side bonus, the servicers didn’t have to think too hard about how the sausage was made.

Even LPS, the parent company of DocX, got away with this fraud. In addition to the $2 million settlement with Missouri, LPS settled with Michigan, the other state to convict Lorraine O. Brown, for $2.5 million. Other states followed suit. The federal government closed its criminal investigation into LPS for a settlement of $35 million, specifically for the crimes at DocX, which by their conservative estimate included over 1 million documents. That’s roughly $35 a document, about the price of a parking ticket. All in all, LPS has committed around $160 million to settlements over document fraud, which sounds like a lot until you realize they made $2 billion just in 2011.

Worst of all, while DocX has been shut down and Lorraine O. Brown is headed to jail, the forged documents themselves still circulate in state courts. The plea agreements with LPS advise them to “properly execute documents” in the future, and review all documents executed between January 2008 and December 2010, to determine which ones need to be “re-corrected.” But the Justice Department admitted that DocX started forging documents in 2003.

This is what frustrates Lynn Szymoniak, the whistleblower who helped expose fraudulent mortgage assignments at DocX and made famous the various handwriting alternatives of Linda Green.

“The most disappointing thing,” Szymoniak said, “is if I walked into a court in Florida right now, I’d see people losing their homes with Linda Green documents.”

Lorraine O. Brown did something wrong and definitely deserves to go to jail. But she was a rung in a very large ladder that extended up to the executive suites at Wall Street banks – that is, trustee banks like Bank of New York Mellon and even Deutsche Bank, and even those investment banks that worked on the securitization deals like Goldman Sachs, Morgan Stanley and Bear Stearns. They needed falsified documents because of their own improper work in the securitization process. All Brown did was provide a service. She may have created surrogate signing so she could make more money in the production of that service. But without the need for fake documents, she had no business to speak of.

Because of Lorraine O. Brown, we know that foreclosure fraud is punishable by prison time. Yet the document forgery, falsification and fakery continues, deeply damaging the system of private property rights in America, arguably what makes us a civilized society.

Only Lorraine O. Brown has gone to jail for it. Until the entire criminal enterprise is rounded up and brought to justice, we will see the same kind of schemes, with other Lorraine O. Browns, in the future.

David Dayen

David Dayen is a freelance writer based in Los Angeles, CA. Follow him on Twitter at @ddayen. More David Dayen.

You Might Also Like

More Related Stories

Featured Slide Shows

7 motorist-friendly camping sites

close X
  • Share on Twitter
  • Share on Facebook
  • Thumbnails
  • Fullscreen
  • 1 of 9

Sponsored Post

  • White River National Forest via Lower Crystal Lake, Colorado
    For those OK with the mainstream, White River Forest welcomes more than 10 million visitors a year, making it the most-visited recreation forest in the nation. But don’t hate it for being beautiful; it’s got substance, too. The forest boasts 8 wilderness areas, 2,500 miles of trail, 1,900 miles of winding service system roads, and 12 ski resorts (should your snow shredders fit the trunk space). If ice isn’t your thing: take the tire-friendly Flat Tops Trail Scenic Byway — 82 miles connecting the towns of Meeker and Yampa, half of which is unpaved for you road rebels.
    fs.usda.gov/whiteriveryou


    Image credit: Getty

  • Chattahoochee-Oconee National Forest via Noontootla Creek, Georgia
    Boasting 10 wildernesses, 430 miles of trail and 1,367 miles of trout-filled stream, this Georgia forest is hailed as a camper’s paradise. Try driving the Ridge and Valley Scenic Byway, which saw Civil War battles fought. If the tall peaks make your engine tremble, opt for the relatively flat Oconee National Forest, which offers smaller hills and an easy trail to the ghost town of Scull Shoals. Scaredy-cats can opt for John’s Mountain Overlook, which leads to twin waterfalls for the sensitive sightseer in you.
    fs.usda.gov/conf


    Image credit: flickr/chattoconeenf

  • Nordhouse Dunes Wilderness Area via Green Road, Michigan
    The only national forest in Lower Michigan, the Huron-Mainstee spans nearly 1 million acres of public land. Outside the requisite lush habitat for fish and wildlife on display, the Nordhouse Dunes Wilderness Area is among the biggest hooks for visitors: offering beach camping with shores pounded by big, cerulean surf. Splash in some rum and you just might think you were in the Caribbean.
    fs.usda.gov/hmnf


    Image credit: umich.edu

  • Canaan Mountain via Backcountry Canaan Loop Road, West Virginia
    A favorite hailed by outdoorsman and author Johnny Molloy as some of the best high-country car camping sites anywhere in the country, you don’t have to go far to get away. Travel 20 miles west of Dolly Sods (among the busiest in the East) to find the Canaan Backcountry (for more quiet and peace). Those willing to leave the car for a bit and foot it would be remiss to neglect day-hiking the White Rim Rocks, Table Rock Overlook, or the rim at Blackwater River Gorge.
    fs.usda.gov/mnf


    Image credit: Getty

  • Mt. Rogers NRA via Hurricane Creek Road, North Carolina
    Most know it as the highest country they’ll see from North Carolina to New Hampshire. What they may not know? Car campers can get the same grand experience for less hassle. Drop the 50-pound backpacks and take the highway to the high country by stopping anywhere on the twisting (hence the name) Hurricane Road for access to a 15-mile loop that boasts the best of the grassy balds. It’s the road less travelled, and the high one, at that.
    fs.usda.gov/gwj


    Image credit: wikipedia.org

  • Long Key State Park via the Overseas Highway, Florida
    Hiking can get old; sometimes you’d rather paddle. For a weekend getaway of the coastal variety and quieter version of the Florida Keys that’s no less luxe, stick your head in the sand (and ocean, if snorkeling’s your thing) at any of Long Key’s 60 sites. Canoes and kayaks are aplenty, as are the hot showers and electric power source amenities. Think of it as the getaway from the typical getaway.
    floridastateparks.org/longkey/default.cfm


    Image credit: floridastateparks.org

  • Grand Canyon National Park via Crazy Jug Point, Arizona
    You didn’t think we’d neglect one of the world’s most famous national parks, did you? Nor would we dare lead you astray with one of the busiest parts of the park. With the Colorado River still within view of this cliff-edge site, Crazy Jug is a carside camper’s refuge from the troops of tourists. Find easy access to the Bill Hall Trail less than a mile from camp, and descend to get a peek at the volcanic Mt. Trumbull. (Fear not: It’s about as active as your typical lazy Sunday in front of the tube, if not more peaceful.)
    fs.usda.gov/kaibab


    Image credit: flickr/Irish Typepad

  • As the go-to (weekend) getaway car for fiscally conscious field trips with friends, the 2013 MINI Convertible is your campground racer of choice, allowing you and up to three of your co-pilots to take in all the beauty of nature high and low. And with a fuel efficiency that won’t leave you in the latter, you won’t have to worry about being left stranded (or awkwardly asking to go halfsies on gas expenses).


    Image credit: miniusa.com

  • Recent Slide Shows

  • Share on Twitter
  • Share on Facebook
  • Thumbnails
  • Fullscreen
  • 1 of 9

Related Videos

Comments

 45 Comments

Comment Preview

Your name will appear as username ( settings | log out )

You may use these HTML tags and attributes: <a href=""> <b> <em> <strong> <i> <blockquote>

follow salon

Most Read

Popular on Reddit

links from salon.com

From Around the Web

Presented by Scribol
listener_new_rect The Listener: "The Joker": Laughing at life's deepest sorrows