Where’s the paper trail?

As more and more Americans face mortgage foreclosure, banks’ crucial ownership documents for the properties are often unclear and are sometimes even bogus, a condition that’s causing lawsuits and hampering an already weak housing market. Docx, and companies like it, were recreating missing mortgage assignments for the banks and providing the “legally required signatures” of bank vice presidents and notaries, signed by minimum wage employees that knew they were signing someone’s   names other than their own.

Docx was owned by a company called LPS, a $2 billion firm that calls itself the nation’s leading provider of mortgage processing services. LPS told us that when it found out about the phony signatures in 2009 being signed in a boiler room environment, it shut Docx down. The FBI and several states are investigating.

Questions:

1.  Based on the article and video, do you think this is a case of fraud?  Discuss in terms of intent.

2. What are all of the costs you think will be litigated in this situation? What was missing in the system that allowed this to happen? Discuss.

3.  Assuming this will be litigated and you are asked to write a financial footnote disclosure regarding contingent litigation against LPS, what would you include? Discuss.

Source:

CBS video. (2011) The next housing shock, April 3(Retrievable online at http://www.cbsnews.com/video/watch/?id=7361572n&tag=related;photovideo)

Anderson, R.  and D. Ruetenik (2011) Mortgage Paperwork Mess: Next Housing Shock?, CBSNews.com, April 1 (Retreivable online at http://www.cbsnews.com/stories/2011/04/01/60minutes/main20049646.shtml?tag=contentMain;contentBody)

The Worst Footnote Disclosures of 2009

Every year, Michelle Leder at www.footnoted.org, takes a look at the worst footnote disclosures that companies try to bury in their routine SEC filings. As her website states, the financial footnotes are important for all users, including professional money managers and analysts, accountants, and individual investors. According to her article, there are a lot of candidates for this distinction, so it is hard to whittle it down to just five.

QUESTIONS:

1. Take a look at Michelle’s entrants in the BNET.com article. Then, after 12/31/09, go to her website (www.footnoted.org) to see who won reader-nominated honor of having the worst disclosure. Do you agree? Why or why not?
2. What is a retention payment?
3. How should the retention payment for Martha Stewart be recorded in journal entry (or entries) form?
4. What is a gross-up?
5. How should a gross-up for Ross Perot Jr. be recorded in journal entry form by the company granting this concession? (For a hint, see http://www.footnoted.org/buried-treasure/perot-gets-a-gross-up/)

SOURCES:
Ritholtz, B. (2009). 2009’s Worst Disclosures Buried in Footnotes, BNET.com, December 21 (Retrievable online at http://www.ritholtz.com/blog/2009/12/2009s-worst-footnote-filings-with-the-sec/)

Leder, Michelle. (2009). Voting now open for worst footnote of 2009! Footnoted.org (Retrievable online at http://www.footnoted.org/)