Many Americans are unaware of how JP Morgan Chase Bank, the largest bank in the United States, played a major role in causing the 2008 financial crisis. They are also oblivious to the plight of Laurence “Larry” Schneider, a businessman turned accidental whistleblower who stood up to JP Morgan Chase Bank in a classic tale of David versus Goliath.
When it comes to the 2008 Financial Crisis, Larry had no idea that his business relationship with JP Morgan Chase Bank would lift the lid off of one of the biggest scam perpetrated by a bank on American soil.
In a stunning expose titled, Behind JP Morgan Chase’s Bait-And-Switch by The Nation, Larry revealed that the banking behemoth forgave numerous loans that it sold years earlier, then used those cancellations to receive credit under two mortgage settlements, the United States Trustee Program’s National Settlement and the National Mortgage Settlement. The elaborate deceit dubbed a “bait and switch scheme,” swindled investors out of millions of dollars.
American History Fact: Laurence “Larry” Schneider’s litigation against JP Morgan Chase Bank helped to create the National Mortgage Servicer Settlements.
What Did The Whistleblower’s Suit Allege Against JP Morgan Chase Bank?
What differentiates Larry’s ordeal from other investors is the amount of information it revealed. Larry’s suit revealed the sham JP Morgan Chase Bank was running in the first mortgage market involving “first liens.”
In a nutshell, the litigation showed that JP Morgan Chase Bank got rid of the “toxic-waste dump” of first liens and subprime mortgages via a legal term referred to as “charged-off.” It allowed the bank to collect default insurance on the defaulted mortgages, according to The Nation.
This type of debt is referred to as a mortgage-backed security. According to a feature titled, The Causes of the Subprime Mortgage Crisis, an asset bubble in the housing market was created due to a demand for mortgages after insurance companies continued covering mortgage-backed securities leading to the 2008 financial crisis.
American History Fact: The precarious practice of selling repackaged subprime loans or defaulted loans as mortgage-backed securities is referred to as Patient Zero in an expose by The Washington Post. It’s credited as one of the leading contributors to the 2008 housing crisis.
A Bait And Switch Scheme Involving First Liens And Subprime Mortgages
Larry found out about JP Morgan Chase Bank’s bait and switch scheme like most whistleblowers do–in an innocuous way.
After the Boca Raton investor closed a deal through his other company, Mortgage Resolution Services that included 3,529 loans initially worth $156 million, he slowly began to notice discrepancies.
The grift was simple: JP Morgan Chase Bank sold Larry a bunch of defaulted mortgage loans for $200,000 without providing any actual proof of ownership regarding the loans or residential properties. The bank reeled in him with valuable loans dubbed as “cherries” (valued at $6 million) for their ability to recoup more profit. It also included toxic mortgages. Once the deal finalized, JP Morgan Chase Bank reneged on the most profitable aspect of the offer. The bank also continued profiteering off of the same toxic mortgages by creating multiple streams of revenues.
In layman terms, the bank bilked those toxic mortgage loans for all its worth while footing Larry with the bill.
Per the stipulation of their deal, JP Morgan Chase Bank wrote that the loans given to Larry were primary mortgages but he alleged that many were home-equity loans or “deficiency judgments.” Deficiency judgments are not mortgages; thus, there’s no property to secure as collateral if the debt isn’t paid.
JP Morgan Chase Bank also said it owned all the loans–despite selling them to a third party such as Larry or a collection agency and pocketing the funds. According to the bank, they had the right to transfer them although The Washington Post showed that the loans were actually owned by other investors after being repackaged and sold as mortgage-backed securities.
Larry’s litigation against JP Morgan Chase Bank would lead him down a rabbit hole involving U.S. policymakers and bank executives. In the end, he saw the writings on the walls–Wall Street, the U.S. government, and big banks have a profitable relationship. As an American citizen, he felt the need to alert the public JP Morgan Chase Bank’s infamous bait-and-switch scheme.