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Another JPMorgan Travesty

"Bart Naylor" "Financial policy reform"Let’s say you run JPMorgan Chase & Co.’s mortgage department, and you’ve just settled a massive lawsuit that claims you forged documents in foreclosure proceedings. You’ve agreed to identify victims and pay them up to $125,000 each. Now, who could you hire to play a role in that process that might call into question the legitimacy of your commitment to finding all the victims and shelling out all those $125,000 checks? Someone who formerly played a leading role at Countrywide Financial Services, the company whose name has become virtually synonymous with abusive lending practices, no doubt. How about Rebecca Mairone?

Mairone works with JPMorgan’s program to identify and compensate victims of foreclosure abuse. But on Oct. 24, the Department of Justice identified her in a complaint filed in a federal district court alleging a massive fraud at Countrywide,  where she worked before JPMorgan. Mairone was chief operating officer at Countrywide and was involved in overseeing employees who underwrote mortgage loans and sold them to the government-sponsored enterprises Fannie Mae and Freddie Mac. The Justice Department alleges that a “streamlined” loan-program initiated by Countrywide in 2007 eliminated quality controls and led to the origination and sale to Fannie and Freddie of defective loans that had obvious problems. Mairone, according to the allegations, failed to heed repeated warnings and internal reviews indicating that Countrywide was foisting bad mortgages on Fannie and Freddie.  Internally, the streamlined loan program was called “the Hustle,” referring to the speed with which Countrywide originated and sold bad loans. By knowingly selling defective loans to Fannie and Freddie and eliminating its quality controls even while telling Fannie and Freddie that it was tightening its standards, Countrywide defrauded Fannie and Freddie — and ultimately U.S. taxpayers — of over a billion dollars, according to the Justice Department lawsuit.

If the government’s allegations are true, JPMorgan appears to have hired a manager who turned a blind eye to, and perhaps affirmatively enabled, fraudulent practices at Countrywide.

The foreclosure victim program that Mairone now works with at JPMorgan was established as part of a legal agreement by banks in the massive “robo-signing” scandal. That’s where banks fabricated documents necessary for foreclosure, often hiring unqualified personnel to act as veritable robots to sign thousands of fabricated foreclosure processing documents a day. The settlement requires banks to identify victims of the robo-signing scandal, and pay them as much as $125,000.

That a manager involved in JPMorgan’s foreclosure victim identification program allegedly looked the other way when confronted with high-risk and potentially fraudulent practices at Countrywide hardly inspires confidence in its commitment to identify and compensate its own fraud victims. In fact, the foreclosure victim problem is rife with such conflicts of interest at many banks, as ProPublica identified.

After the robo-signing scandal broke in October 2010, House financial services subcommittee Chair Maxine Waters (D-Calif.), held a hearing on Nov. 18. Among the witnesses invited from the major banks was Mairone, who testified on behalf of Bank of America (which she joined when Bank of America purchased Countrywide). Identifying herself as Bank of America’s “default servicing executive,” she testified, “We have worked for two years since our acquisition of Countrywide to aggressively respond to more than a million customers in distress.” Mairone failed to inform the congressional committee of her role in the very Countrywide mortgage-making that put these customers in distress.

Instead of pinning the foreclosure crisis on abusive practices such as those at Countrywide, Mairone blamed “the prolonged economic downturn and sustained high unemployment, coupled with the collapse of the U.S. housing market.”

If the Justice Department’s allegations prove true, Bank of America’s decision to keep Mairone on after its acquisition of Countrywide and direct her to represent it before Congress also raises serious questions. Was Bank of America aware of her involvement in the Hustle? If so, did they intentionally delegate her to testify before Congress, understanding it was in her interest to minimize the role of lender fraud in the mortgage industry collapse?

That JPMorgan would now place Mairone in a position of responsibility in relation to its foreclosure victim program at a minimum creates an appearance that challenges the bank’s commitment to integrity.

Already, the $7 billion loss at the bank’s London office, acknowledged by CEO Jamie Dimon as an “egregious mistake,” precipitated the departures of JPMorgan’s chief investment officer and at least three traders.

Public Citizen also called for the termination of JPMorgan energy executive Blythe Masters “if allegations made by the California Independent System Operator Corporation (CAISO) are true and it is confirmed that she had managerial responsibility” for a JP Morgan affiliate that the government claims bilked customers of $73 million. On Nov. 14, the federal government suspended JPMorgan’s electrical-trading authority, saying it filed false information with regulators.

If the Justice Department’s allegations about Mairone stick, it will be yet another black eye for JPMorgan’s already shaky reputation for integrity and management excellence.

Bart Naylor is Public Citizen’s financial policy reform advocate. You can follow him at @BartNaylor.