August 14, 2013 (c) 2013, Bloomberg News.
NEW YORK — A former Bank of America Corp. executive whose work on mortgage bonds is the subject of regulator and Justice Department lawsuits was hired by U.S.- backed Fannie Mae months after the claims began to surface.
Adam Glassner was named a defendant in a September 2011 complaint filed by the Federal Housing Finance Agency, which regulates Fannie Mae, over losses incurred by the firm. He joined Fannie Mae in January 2012 and worked there until this year. Last week, he also was referenced as "BOA-Securities Managing Director" in a Justice Department lawsuit against Bank of America, according to a person with knowledge of his career.
Glassner's hiring illustrates the government's dilemma as the U.S. government recruits skilled managers to navigate the mortgage mess from the same industry responsible for causing it. In this case, Fannie Mae added a banker whose conduct was criticized by its own regulator less than five months earlier.
"There aren't that many people out there with expertise that don't have a potentially tainted background," said Isaac Gradman, a lawyer at Perry Johnson Anderson Miller & Moskowitz in Santa Rosa, Calif., who works with investors and insurers in such cases. "I would hope they would pull from the population with mortgage expertise that didn't engage in the type of conduct that caused the crisis."
Glassner wasn't named as a defendant in the Justice Department's civil case filed in federal court in Charlotte, N.C. The FHFA's separate lawsuit alleged that Bank of America and executives including Glassner are liable for "materially misleading statements" in offering documents for mortgage bonds that caused hundreds of millions of dollars in losses at Fannie Mae and Freddie Mac.
Glassner, who lives in Charlotte, declined to comment when reached by phone and referred questions to Bank of America, which is based in the same city. Lawrence Grayson, a company spokesman, declined to comment on Glassner. In response to the U.S. suit, the lender has said the bonds were purchased by sophisticated investors with access to ample data. The bank is also contesting the FHFA suit.
Fannie Mae "follows a thorough process when evaluating a potential employee's experience and expertise," Andrew Wilson, a spokesman for the Washington-based firm, said in an emailed statement. "We hire employees to help us achieve important goals for the company and for the future of the housing market."
Denise Dunckel, an FHFA spokeswoman, said in an emailed statement that the agency "expects the management teams of Fannie Mae and Freddie Mac to follow sound governance procedures when seeking and hiring new employees."
Executives across Wall Street have found new jobs after participating in mortgage-bond securitizations before the housing crisis, which contributed to the nation's worst economic slump since the Great Depression and taxpayer bailouts for the world's biggest banks.
The roster includes former executives at Bear Stearns Cos. named in a second complaint filed by FHFA who now occupy senior positions in units of Bank of America, as well as Goldman Sachs and Deutsche Bank. Spokesmen for those two firms declined to comment. The FHFA filed 17 separate suits against banks, naming more than 130 people.
The resiliency of such careers highlights the government's failure in holding Wall Street accountable for the housing crash, said William Black, an associate professor of economics and law at the University of Missouri-Kansas City.
"It's consistent with their policy that they no longer prosecute elite bankers," said Black, a former counsel for enforcement and litigation at the Office of Thrift Supervision from 1990 to 1994 who helped clean up the savings-and-loan crisis. Executives "can go next door and even walk into an entity that is supervised and owned by the U.S. government."
It isn't feasible to banish everyone with a link to 2008's turmoil, Gradman said.
"Considering that pretty much everyone that was involved in the mortgage business was wrapped up in the crisis in one way or another, it would be tough to blacklist them all and still have the personnel you need to run a successful business," he said.
Some people named by the FHFA have said the agency's legal strategy broadly targeted Wall Street workers without specific evidence of wrongdoing.
Lawyers for former Bear Stearns workers said in a court filing last week "the FHFA's only allegations" were that those people were officers or directors when the firm issued securities in question and that they signed documents for the deals. That didn't include the paperwork "actually alleged to have contained material misstatements," according to the filing.
The FHFA listed Glassner among four people who signed an amended document used to sell a 2006 mortgage bond.
"Usually as a plaintiff you want to cast as wide a net as possible," Gradman said. "Naming individuals is a good way to keep pressure on the opposition."
In its suit last week, the Justice Department said Bank of America misled investors about the riskiness of loans backing a January 2008 bond. The complaint describes the activities of two senior executives, including a Banc of America Securities LLC managing director who "ultimately had responsibility" for structuring the deal and preparing offering documents. That was Glassner, said the person familiar with the case, who asked for anonymity because he wasn't authorized to discuss it.
Glassner, 38 years old at the end of July, joined Bank of America in 1999, Financial Industry Regulatory Authority records show. By May 2006, he was a managing director at Banc of America Securities and chairman and chief executive officer of Banc of America Mortgage Securities Inc., which was used to securitize home loans, according to the FHFA suit filed in federal court in Manhattan.
In July 2007, a person with the same titles also ran the mortgage-finance group at Banc of America Securities, according to last week's Justice Department complaint. That was when mortgages bundled into the soured 2008 bond deal were first originated, according to the lawsuit.
The Justice Department said the firm and offering documents overseen by the managing director failed to properly disclose the number of loans originated by mortgage brokers or the amount granted to self-employed borrowers. Both elements typically mean there's more risk of default.
The managing director attended meetings where internal reports showed loans had "serious or critical exceptions" to underwriting standards, and he oversaw preparation of documents stating mortgages met standards, the U.S. said. More than 40 percent of the 1,191 mortgages in the pool didn't comply, the government alleged. The bank portrayed mortgages backing the deal as prime loans vetted by its staff when most were originated by outside brokers, and the executive regularly reviewed documents showing those types of loans had higher delinquencies, the government said.
The executive had a financial motive to withhold negative information about the bond because his bonus was tied to selling securities, according to the suit.
As of June, at least 23 percent of the mortgages in the pool had defaulted or were delinquent, which the government called a high ratio that can't be explained solely by the slump in the real estate market.
In May 2008, Glassner moved into a role helping manage the bank's investments, according to his profile on LinkedIn Corp.'s website. Eleven months later, he joined Ally Financial Inc.'s predecessor GMAC, where he ran businesses that bought loans from and lent to smaller mortgage companies. Ally, the auto and home lender based in Detroit, got three bailouts starting in 2008 that totaled $17.2 billion and left the government with a 74 percent stake.
Less than five months after FHFA's suit, Glassner left Ally to join Fannie Mae, according to an examiner's report completed as part of the bankruptcy proceedings for Residential Capital, Ally's home-lending unit. Fannie Mae was seized along with competitor Freddie Mac in 2008, and they later received $187.5 billion in capital injections from taxpayers.
Glassner, who joined as a senior vice president, dealt with the firm's pricing, said Wilson, the Fannie Mae spokesman. As part of that, he contributed to the growth of Fannie Mae's business of buying loans for cash from small originators, an alternative to a process that would swap the loans for securities.
That business, which brought in more profit for Fannie Mae, drew criticism as it cut down on larger banks acting as middlemen and rankled some smaller lenders, Bloomberg News reported in May. Fannie Mae has said it reflected changes in the marketplace, not anything intentional. The firm will pay $10.2 billion to the U.S. after posting a sixth consecutive quarterly profit.
Bank of America has spent more than $45 billion on litigation, settlements and refunds for investors tied to shoddy mortgages, servicing and foreclosures.
The median cash compensation for senior vice presidents at Fannie Mae and Freddie Mac was $724,000 in 2011, based on a December report by the FHFA's inspector general. That means half of those employees got more.
In June, Glassner joined Bayview Loan Servicing, his LinkedIn profile shows. He left Fannie Mae around that time to join the company, a person with knowledge of the move said. The firm is a unit of Coral Gables, Fla.-based Bayview Financial, which is backed by Blackstone Group, the world's largest buyout firm.
Adora Andy Jenkins, a Justice Department spokeswoman, declined to comment on Glassner's identity or the current case. Anne Tompkins, the U.S. attorney who brought the suit against Bank of America, said earlier this month the investigation into the lender's mortgage and securitization practices continues.
Mattingly reported from Washington. Contributors: Michael Hytha in San Francisco and Peter Eichenbaum in New York.