The Florida attorney general's office is looking into the possible use of "fabricated documents" as part of its investigation of allegedly fraudulent foreclosures on residential property. In a move that some hope will pressure financial institutions into rewriting troubled housing loans, a 40-state coalition is now poised to probe foreclosure fraud. Among them, Ohio:
"I think the mortgage-servicing firms need to understand that they face real exposure now, and they would be well advised to take this very seriously, to clean this up by doing loan workouts to keep people in their homes, which up till now they've just paid lip-service to," said Ohio Attorney General Richard Cordray.
Some in Congress have called for a moratorium on all foreclosures until the documentation issue is resolved, though senior Administration officials Monday again declined to endorse that idea. Servicers that have lied to courts by filing incorrect paperwork "need to suffer the consequences for their irresponsible actions," said Shaun Donovan, the Secretary of the U.S. Department of Housing and Urban Development. But "where we have not found problems with particular servicers…we do have some risk of going too far."
At the Big Picture, Barry Ritholtz, takes a hard line on the subject, and explains why in considerable depth:
The verification of the specific data that is mandated legally is not taking place by bank executives. Reviewing a file can take anywhere from, 20 minutes to well over an hour. Yet some bank employees are testifying that they have signed off on as many as 150 per day (Wells Fargo) or 400 per day (Chase).
It is impossible to perform that many foreclosure reviews and data verifications in a single day. The only way this could happen is via a systemic banking fraud that orders its employees to violate the law. Hence, how we end up with the wrong house being foreclosed upon, the wrong person being sued for a mortgage note, a bank without an interest in a mortgage note suing for foreclosure, and cases where more than one note holders are suing on the same property that is being foreclosed.
This is more than mere accident or error, it is willful recklessness. When that recklessness is part of a company’s processes and procedures, it amounts to systemic fraud. (THIS IS CRIMINAL AND SHOULD BE PROSECUTED).
The next step in our cavalcade of illegality is the Notary. Their signature and stamp allows these fraudulent documents to be entered into court as actual evidence (no live witness required). Hence, we have no only fraud, but contempt of court on top of it (BOTH OF WHICH REQUIRE PROSECUTION).
Law firms preparing the legal documents are not doing their job of further verifying the information. And, it seems certain states such as Florida have foreclosure mills who were set up from the outset as fraudulent enterprises. (EVEN MORE PROSECUTION NEEDED).
Lastly, some service processors are not bothering to do their job. This is the last step in the foreclosure proceedings that would put a person on notice of the errors (YET MORE FRAUD).
As Ritholtz points out, it's impossible for many of the things that have been happening to happen: houses without mortgages being foreclosed upon, the wrong house being foreclosed upon, the wrong bank suing for foreclosure. This cannot be a case, he says, of “Well, something slipped through the cracks.” Institutions and people along the chain of verification and double-checking had to have committed fraud.
Many banks, The Wall Street Journal editorial board and other apologists for what was apparently happening across the country would like everybody to be convinced that the only problems with these rubber-stamped foreclosures were "technical" in nature. How many times have these guys told us at various crisis points that there was "no problem" that a little tweaking or major bailout wouldn't solve? How this can be ignored in their apologias is astonishing:
In an effort to rush through thousands of home foreclosures since 2007, financial institutions and their mortgage servicing departments hired hair stylists, Walmart floor workers and people who had worked on assembly lines and installed them in "foreclosure expert" jobs with no formal training, a Florida lawyer says.
At CNBC Diane Olick, interviewed Adam Levithin, a Georgetown University Law professor. Levitin says documentation problems involved in the mortgage mess have the potential "to cloud title on not just foreclosed mortgages but on performing mortgages." The problems arise because mortgage paper gets passed around to numerous parties during a home purchase, all of this prescribed by law in detail. Because of the way many foreclosures seem to have been handled, this legal "chain of documentation" has come into question. Thus:
The mortgage is still owed, but there's going to be a problem figuring out who actually holds the mortgage, and they would be the ones bringing the foreclosure. You have a trust that has been getting payments from borrowers for years that it has no right to receive. So you might see borrowers suing the trusts saying give me my money back, you're stealing my money. You're going to then have trusts that don't have any assets that have been issuing securities that say they're backed by a whole bunch of assets, and you're going to have investors suing the trustees for failing to inspect the collateral files, which the trustees say they're going to do, and you're going to have trustees suing the securitization sponsors for violating their representations and warrantees about what they were transferring.
Jobs may be in short supply in some fields, but it appears there'll be no need to pass a Full Employment Act for Lawyers.