Attorneys General Enter Mortgage Maelstrom, Probe Foreclosures
Attorneys general in all 50 states and the District of Columbia have thrust themselves into a mortgage maelstrom that had already stopped major mortgage companies from moving on some foreclosures.
The states' attorneys general and bank regulators have announced they will examine whether mortgage company employees made false statements or prepared documents improperly.
The chief issue involves “robo-signers,” people who allegedly signed thousands of foreclosure documents and declared they had read the documents, understood them, and believed the foreclosures to be proper. Employees at several companies have admitted to signing thousands of foreclosure documents without reading them.
"The issue of who owns a particular mortgage is of critical importance,” said Maureen Martin, senior fellow for legal affairs at The Heartland Institute. She said the mortgage holder has to prove only two main facts to prevail in a foreclosure if the homeowner has no defenses: the mortgage holder owns the mortgage, and the homeowner defaulted on payments.
‘Knowledge of Facts’ Required
"Proof of these two points is often by affidavit, which is where 'robo-signers' come in,” said Martin. “The person who signs the affidavit has to have personal knowledge of the facts in it. So even if the facts in the affidavit are true, 'robo' signing is illegal. If the facts are false -- evidently the case in many affidavits -- the signer could be charged with perjury and jailed if convicted."
In a joint statement October 13, the attorneys general said they would review evidence that legal documents were signed by mortgage company employees who "did not have personal knowledge of the facts asserted in the documents.” They also said many of those documents appear to have been signed without a notary public witnessing that signature — a violation of law in most states. Twenty-three states require court proceedings for mortgage foreclosures to occur.
The announcement came after complaints from consumers and homeowner advocates that hundreds of thousands of mortgage foreclosures have been mishandled, often with laws being broken.
Already Halted in 23 States
GMAC, J.P. Morgan Chase & Co. and PNC Financial Group Inc. had already halted foreclosure proceedings in the 23 states that require court involvement. Bank of America Corp. had stopped proceedings in all 50 states.
All were under intense pressure because of complaints of mishandled paperwork, failure to establish ownership of loans, and false declarations on foreclosure documents. Some other major lenders, also under pressure, have continued to pursue foreclosures. On October 19, Bank of America and GMAC announced they would resume foreclosures.
'Almost No Factual Disputes'
Five days before the attorneys generals’ announcement, the Mortgage Bankers Association, Financial Services Roundtable, and Housing Policy Council released a joint letter “to set the record straight” on the mortgage foreclosure situation.
“In several states,” the letter says, “some mortgage servicers have put final foreclosure sales on hold while they review their document procedures. It is important to note, however, that these are document process reviews; in almost all cases there are no factual disputes about whether the mortgage is delinquent, the amount of the arrears, or whether foreclosure is proper.
“Indeed, a substantial percentage of foreclosures are uncontested by borrowers. In the overwhelming majority of cases, we believe the facts presented to the courts in foreclosure proceedings about the debt amounts and delinquencies have been accurate."
The letter also stresses that mortgage companies are trying to help borrowers. The letter says mortgage servicers completed 149,000 loan modifications for homeowners in August 2010, including 116,000 proprietary loan modifications and 33,000 Home Affordable Modifications.
Ninety-one percent of the proprietary loan modifications in August reduced homeowners’ monthly payments.
"State attorney general investigations are warranted, but not regarding the mortgage-servicing industry as a whole,” said Martin. “Investigations right now are simply publicity stunts.
"What attorneys general should do is help homeowners being harmed already. They should focus on foreclosure actions within their respective states based on false statements by lenders and prosecute such lenders, and intervene to stop pending foreclosure actions. They should also review every closed foreclosure to see if it should be reversed because of false statements as to ownership."
Steve Stanek (firstname.lastname@example.org) is a research fellow at The Heartland Institute and managing editor of Finance, Insurance & Real Estate News.