September 28, 2010

Dark Satanic Mills: From the Washington Post comes this inevitable story about Foreclosure Madness:
The nation's overburdened foreclosure system is riddled with faked documents, forged signatures and lenders who take shortcuts reviewing borrower's files, according to court documents and interviews with attorneys, housing advocates and company officials.

The problems, which are so widespread that some judges approving the foreclosures ignore them, are coming to light after Ally Financial, the country's fourth-biggest mortgage lender, halted home evictions in 23 states this week.

During the housing boom, millions of homeowners got easy access to mortgages while providing virtually no proof of their income or background. Now, as millions of Americans are being pushed out of the homes they can no longer afford, the foreclosure process is producing far more paperwork than anyone can read and making it vulnerable to fraud.

Ally Financial is now double-checking to make sure all documents are in order after lawsuits uncovered that a single employee of the company's GMAC mortgage unit, a 41-year-old named Jeffrey Stephan, signed off on 10,000 foreclosure papers a month without checking whether the information justified an eviction.
In fact, Mr. Stephan isn't the only "affidavit slave" to have admitted signing documents in support of foreclosures without having actual knowledge that the information he was verifying was true and accurate; a second robosigner was uncovered last week at Ally, and an employee of JPMorgan Chase copped to the same mistake in May, admitting that her eight-person team had been signing off on 18,000 documents a month used in support of foreclosures.

Even more sinister may be the use of fraudulent loan documents, such as assignments between lenders, to justify claims of standing. According to the Post,
In Georgia, an employee of a document processing company, Linda Green, for years claimed to be executives of Bank of America, Wells Fargo, U.S. Bank and dozens of other lenders while signing off on tens of thousands of foreclosure affidavits. In many cases, her signature appeared to be forged by different employees.

Green worked for a foreclosure document company owned by Lender Processing Services. The company is being investigated by a U.S. attorney in Florida for allegedly using improper documentation to speed foreclosures.

Lenders have already started to withdraw foreclosures that had Green's name on them.

Green also submitted to courts documents that listed "Bogus Assignee" as the owner of a mortgage instead of the real name. In another case, she signed as the vice president of "Bad Bene," a made-up company.
This doesn't even begin to encompass all the home mortgage transactions that utilized the very questionable legal entity knows as "MERS" as a placeholder for high-risk loans, in order to avoid paying recording fees in local counties. More than a few assignments from MERS to the alleged noteholder include signatures from robosigners employed by the very lenders seeking to claim title to the property.

The use of foreclosure mills in judicial foreclosure states like Florida, where judges must sign off on sales beforehand, has created an aggressive and active counterreaction, from attorneys representing desperate homeowners who cannot turn to bankruptcy to modify their loans to reflect the actual value of their depressed property. The failure of Congress to provide the most equitable free market remedy, the cramdown, has meant that many homeowners who caught a tough break in the recent past, and/or overborrowed at the peak of the Bubble, but who now have the financial stability to resume paying their obligations, are unable to obtain realistic terms for future mortgage payments based on the actual value of their houses, and must either abandon the dream of homeownership or throw the Hail Mary. However, anything that mucks up the machinery of the already overburdened foreclosure system will lead to higher costs beforehand, even where the homeowner has surrendered the property, thus complicating the process of getting homes back on the market, and hurting the short-term recovery in housing.

In non-judicial states, where an expedited process allows lenders to avoid the courts in exchange for waiving additional efforts at recovering the debt, the problem is only slightly less acute. Robosigners are involved in fewer transactions, but since those tend to be at the beginning of the process rather than the end, any mistakes could prove especially costly for the banks. In California, recent loans are subject to a requirement that lenders must first contact the delinquent borrower at least thirty days before a notice of default is sent out to discuss repayment options; those affidavits in support tend to be signed by clueless out-of-state pencil pushers who have little contact with the file, and who often use the same tactics as their brethren in Florida. The combination of an especially acute housing crisis in California combined with a very large legal profession will see an explosion of litigation in this area before too long.

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