Main Street

Missing Notes and Robo-signers

The stories that have come out lately about the foreclosure crisis are just mind-boggling.

John Carney has a good summary of the issues, and boy does it get confusing fast (the issue, not the summary). We’re talking about a massive industry, massive malpractice, and multiple sets of state laws under which it’s all going down.

Key points:

Ever since the housing bubble burst, there have been signs that there are serious problems with foreclosure practices. In some cases, the financial institution claiming it owns the mortgage has not been able to produce the underlying loan documents.

Meanwhile, mortgages are being sold, resold, and securitized so rapidly and sloppily that often documentation is not getting where it’s supposed to be—so when a foreclosure comes up, nobody even knows where the mortgage note is.

And then we started learning about loan officers who were signing off on foreclosures without looking at the information they had. If it was put in front of them, they foreclosed on it, right or wrong. This is where you get things like houses being foreclosed on even though the owner paid cash.

The New York Times looks into this practice:

At JPMorgan Chase & Company, they were derided as “Burger King kids” — walk-in hires who were so inexperienced they barely knew what a mortgage was.

At Citigroup and GMAC, dotting the i’s and crossing the t’s on home foreclosures was outsourced to frazzled workers who sometimes tossed the paperwork into the garbage.

And at Litton Loan Servicing, an arm of Goldman Sachs, employees processed foreclosure documents so quickly that they barely had time to see what they were signing.

“I don’t know the ins and outs of the loan,” a Litton employee said in a deposition last year. “I’m not a loan officer.”

Carney writes:

Now, if the problem truly is just sloppy work on the part of robo-signers, banks can likely resume foreclosures before too long. But many suspect that the reason banks were falsifying their knowledge about the possession of loan documents is that the banks do not actually have the documents and don’t know where to find them. This could permanently impair their ability to foreclose on some properties.

The banks, meanwhile, are saying basically that yes, their procedures were sloppy, but that they should be presumed innocent of wrongful foreclosures until they’re proven guilty. Mind you, that’s not a courtesy they extended to hundreds of thousands of homeowners.

The bank added: “When we find team members who do not follow procedure, we fix what is done incorrectly. Until this case is resolved, we should keep in mind that a deposition does not suggest a wrongful foreclosure.”

Mr Dimon defended JPMorgan’s conduct but said banks’ costs might rise as a result of the controversy, although not significantly. “We don’t think there are cases where people have been evicted … where they shouldn’t have been,” he told investors during a call to discuss third-quarter earnings adding that JPMorgan is reviewing 115,000 foreclosure cases across the US.

“Obviously it will increase our costs a little bit and maybe we’ll have to pay penalties eventually to some of the [attorneys-general]”. Mr Dimon pledged that if JPMorgan made mistakes, “we will fix them”.

I’m sure that’s really comforting to people who have already lost their homes to shoddy practices.

Tags: foreclosure crisis