iWATCH NEWSBOOK SHOW CONTENTS Debt Deception ©2011 Center for Public Integrity 2 Table of Contents About The Center for Public Integrity and iWatch News 3 Project Credits 3 About the Authors 4 THE GREAT MORTGAGE COVER-UP Whistleblowers silenced to protect fraudsters, say former 6 Countrywide employees Mortgage industry tanks, fraud continues at Countrywide 20 Loan underwriter found herself in ‘dangerous territory’ 32 A ‘counseling meeting’ then termination at Countrywide 37 LOOSE LENDING Payday lending bankrolls auto racer’s fortune 43 Race car driver Scott Tucker drew elaborate facade around 53 his Payday loan businesses Credit lenders remake themselves in image of Payday lenders 64 Fights over tribal Payday lenders show challenges in financial 74 reform Buyer beware 82 BOWERRO RS NIGHTMARES Disabled homeowner alleges broker, bank sold her mortgage 93 she could not afford Soldiers battle car dealers over inflated prices, loan terms 106 Small town teacher seeks help for big debt 113 $700 dormitory fee costs family Its car 124 Navy pension signed over as collateral for costly quick cash 132 3COVER CONTENTS ABOUT CPI4 Debt Deception ©2011 Center for Public Integrity 3 About the Center and iWatch News The Center for Public Integrity is a nonprofit, nonpartisan, and independent digital news organization specializing in original investigative journalism and research on significant public policy issues. Since 1990, the Washington, D.C.-based Center has released more than 475 investigative reports and 17 books to provide greater transparency and accountability of government and other institutions. It has received the prestigious George Polk Award and more than 32 other national journalism awards and 18 finalist nominations from national organizations, including PEN USA, Investigative Reporters and Editors, Society of Environmental Journalists, Overseas Press Club, and National Press Foundation. In 2011 the Center launched iWatch News. Visit www.iWatchNews.org for ongoing coverage of numerous topics, including the stories featured in this newsbook. Project Credits Executive Director: Bill Buzenberg Editors: Julie Vorman and John Dunbar Authors: Ben Hallman, David Heath, Michael Hudson, Amy Biegelsen, Shirley Gao, Jason McLure iWatch Newsbook Design: Roger Fidler, Donald W. Reynolds Journalism Institute in Columbia, Missouri. www.rjionline.org This iWatch Newsbook collects a number of stories published by the Center between February and October of 2011. Taken together, they provide a look at how massive corporations and shady lending practices have contributed to the decay of the financial system. To see the original stories, along with video and new pieces about the financial collapse and its impact on the country, please visit www.iWatchNews.org 3COVER SHOW CONTENTS FIRST ARTICLE4 Debt Deception ©2011 Center for Public Integrity 4 About the Authors Benjamin Hallman covers business and finance for the Center. He joined in June 2010 after nearly five years as a legal affairs reporter at The American Lawyer, where he covered the business of law, white collar crime, and regulatory Washington. Hallman has reported on the accounting fraud prosecutions of HealthSouth’s Richard Scrushy and Qwest’s Joesph Nacchio; on the massive Google book search settlement; and, from Iraq, on American-led efforts to rebuild the Iraqi justice system. His story about the crash of Lehman Brothers was anthologized in The Best American Legal Writing (2009). He also previously worked as a reporter for the St. Louis Post-Dispatch. Hallman received a master’s degree in journalism from the University of Missouri in 2004. Michael Hudson covers business and finance for the Center. He previously worked as a reporter for the Wall Street Journal and as an investigator for the Center for Responsible Lending. Hudson has also written for Forbes, The Big Money, the New York Times, the Los Angeles Times and Mother Jones. His work has won many honors, including a George Polk Award for magazine reporting, a John Hancock Award for business journalism and accolades from the National Press Club, the White House Correspondents’ Association and the American Bar Association. He edited the award-winning book Merchants of Misery and appeared in the documentary film Maxed Out. His latest book, THE MONSTER: How a Gang of Predatory Lenders and Wall Street Bankers Fleeced America— and Spawned a Global Crisis, was named 2010 Book of the Year by Baltimore City Paper and called “essential reading for anyone concerned with the mortgage crisis” by Library Journal. David Heath comes from The Seattle Times, where he was three times a finalist for the Pulitzer Prize. He co-authored an investigation of conflicts of interest surrounding clinical cancer research at a Seattle hospital. The series won the Harvard University’s Goldsmith prize for investigative reporting, the George Polk award for medical reporting, the Gerald Loeb award, the Scripps Howard Foundation’s public service award, the Associated Press Managing Editors’ public service award and the Newspaper Guild’s Heywood Broun award. Heath’s recent expose on congressional earmarks was recognized by the National Press 3COVER SHOW CONTENTS FIRST ARTICLE4 Debt Deception ©2011 Center for Public Integrity 5 Foundation with the Everett Dirksen award for best coverage of Congress. He is a graduate of Grinnell College and was a 2006 Harvard Nieman Fellow. Amy Biegelsen won the Virginia Press Association’s 2009 and 2011 Best in Show Award for a feature portfolio, and a collection of health and environmental stories. She is the recipient of the Virginia Trial Lawyers Association’s Excellence in Journalism prize for a story on children’s mental health issues and is a two-time finalist for the Livingston Award for Young Journalists. She earned a bachelor’s degree from the University of Chicago. Jason McLure is a New Hampshire-based correspondent for Thomson Reuters covering the 2012 primary and regional news. Previously, he worked in Africa as a correspondent for Bloomberg News and Newsweek, and his reporting has appeared in The Economist, New York Times, National Law Journal and other publications. A former Peace Corps volunteer in Niger, he is a graduate of the University of Missouri. Shirley Gao, a former intern with the Center, is a junior at Princeton University majoring in public policy. Her academic interests include global health, conflict resolution, and civil society. On campus, she writes for The Ink at www. universitypressclub.com. Support the Center: Donate Today The Center for Public Integrity would cease to exist if not for the CLICK HERE generous support of individuals like you. Help keep transparency and accountability alive and thriving by becoming a new or recurring member to support investigations like Debt Deception. To make a recurring (monthly, quarterly, semi-annual, or annual) gift click here when you are online or visit http://www.iWatchNews.org/. Our work could not be completed without your generous support. Donors of $500 or more in a 12-month period will be acknowledged on our website and in publications. 3COVER SHOW CONTENTS FIRST ARTICLE4 Debt Deception | Mortgage Cover-Up ©2011 Center for Public Integrity 6 Whistleblowers silenced to protect fraudsters, say former Countrywide employees iWatch News investigative series reveals legacy of corruption that still plagues Bank of America By Michael Hudson Published Online | September 22, 2011 N THE SUMMER OF 2007, a team of corporate investigators Isifted through mounds of paper pulled from shred bins at Coun- trywide Financial Corp. mortgage shops in and around Boston. By intercepting the documents before they were sliced by the shredder, the investigators were THE GREAT MORTGAGE able to uncover what they believed COVER-UP was evidence that branch employ- ees had used scissors, tape and pletely different piece of property. Wite-Out to create fake bank state- Eileen Foster, the company’s ments, inflated property appraisals new fraud investigations chief, had and other phony paperwork. Inside seen a lot of slippery behavior in the heaps of paper, for example, her two-plus decades in the bank- they found mock-ups that indicated ing business. But she’d never seen to investigators that workers had, anything like this. as a matter of routine, literally cut “You’re looking at it and you’re and pasted the address for one going, Oh my God, how did it get to home onto an appraisal for a com- this point?” Foster recalls. “How do 3PREVIOUS ARTICLE SHOW CONTENTS NEXT ARTICLE4 Debt Deception | Mortgage Cover-Up ©2011 Center for Public Integrity 7 Todd Wawrychuk/Image Group LA Eileen Foster was mortgage fraud investigations chief for Countrywide Financial Corp., which eventually became Bank of America. you get people to go to work every used against them. Another, she day and do these things and think says, called her and growled into it’s okay?” the phone: “I’m g--d---ed sick and More surprises followed. She tired of these witch hunts.” began to get pushback, she claims, Her team was not allowed to in- from company officials who were terview a senior manager who over- unhappy with the investigation. saw the branches. Instead, she says, One executive, Foster says, sent Countrywide’s Employee Relations an email to dozens of workers in Department did the interview and the Boston region, warning them then let the manager’s boss vet the the fraud unit was on the case and transcript before it was provided to not to put anything in their emails Foster and the fraud unit. or instant messages that might be In the end, dozens of employ- 3PREVIOUS ARTICLE SHOW CONTENTS NEXT ARTICLE4 Debt Deception | Mortgage Cover-Up ©2011 Center for Public Integrity 8 ees were let go and six branches Bank of America denies Foster’s were shut down. But Foster wor- allegations and stands behind its ried some of the worst actors had decision to fire her. Foster sees the escaped unscathed. She suspected, ruling as a vindication of her deci- she says, that something wasn’t sion to keep fighting.