Led by Iowa’s Attorney General Tom Miller, up to 40 states’ attorneys general are working together to review the shoddy foreclosure practices that have come to light recently. “We want the companies to put in a system such that this will not happen again,” Miller said in an interview with The Associated Press. “We want to explore what other remedies might be available, in a way that makes homeowners and the general housing economy better off.”
To recap, in about half of the states in the country, lenders are required to file a sworn statement with the court about the underlying facts that give the lender the right to foreclose. The person signing this statement–or affidavit–is swearing under oath that he has reviewed the facts in the affidavit and that everything is accurate. But bank employees have admitted in depositions that they were not actually reviewing the case before signing the affidavit. This comes as no surprise to anyone familiar with the banks’ procedures. As reported by the Washington Post, many banks engage in a practice known as “robo-signing”. For example, the head of GMAC’s foreclosure document processing team signed about 10,000 affidavits per month. By my math, that’s over 60 affidavits per hour, which means GMAC’s robo-signer spent less than a minute “reviewing” each affidavit. Think about this for minute: millions of Americans have lost their houses to foreclosure without banks even taking the time to, you know, make sure that they had the right to foreclose. And courts have been signing off on many of these foreclosures. Awesome!
And robo-signing is not limited just to foreclosures. Most debt collectors rely heavily on boilerplate affidavits signed by the thousands with little or no review of the underlying facts. But like the foreclosure affidavits, courts routinely accept the facts in these affidavits as gospel. My hope is that the foreclosure document scandal will result in more courts and judges viewing all of these boilerplate affidavits with more skepticism.
UPDATE: This Salon.com story details some of the astonishing testimony from several of the employees tasked with signing these foreclosure affidavits. The story is littered with a lot of revealing information, but this is my favorite:
The depositions paint a surreal picture of foreclosure experts who didn’t understand even the most elementary aspects of the mortgage or foreclosure process — even though they were entrusted as the records custodians of homeowners’ loans. In one deposition taken in Houston, a foreclosure supervisor with Litton Loan couldn’t define basic terms like promissory note, mortgagee, lien, receiver, jurisdiction, circuit court, plaintiff’s assignor or defendant. She testified that she didn’t know why a spouse might claim interest in a property, what the required conditions were for a bank to foreclose or who the holder of the mortgage note was. “I don’t know the ins and outs of the loan, I just sign documents,” she said at one point.
UPDATE 2: It’s unanimous. All 50 states have joined the probe. Washington Post story here.
States Set To Unveil Joint Probe Into Foreclosures | NPR | October 13, 2010
A few weeks ago, I had an argument with a friend about the current foreclosure crisis. Despite all the news stories to the contrary, this person did not believe that the foreclosure problem was very widespread. His reasoning was that banks are rational economic actors and that its clearly in their best economic interest to modify mortgages rather than foreclosing on them. He thought that the media had overblown the problem, and that the reality was that banks were modifying most mortgages and only foreclosing on those that had absolutely no chance of being repaid. I disagreed, and shared the frustrating experiences of some of my clients who had been given the modification run-around by their lenders for months only to ultimately be served with a foreclosure notice.
According to a new study conducted by Allan M. White, there is strong data to support my position. Mr. White is a professor at Valparaiso Law School in Indiana. He analyzed nearly 3.5 million sub-prime mortgages in securitization pools overseen by Wells Fargo. The loans were written between 2005 and 2007 and contained mortgages handled by the nations five largest mortgage servicers. Its important to note that Mr. White’s data did not contain any prime mortgages.
Mr. White found that mortgage modifications peaked in February 2009, and have declined every month since. Meanwhile, foreclosures have risen steadily during the same time period for the same pool of mortgages. And Mr. White’s study sheds some light on just how much money banks lose when they foreclose on a mortgage. According to his data, the average loan was approximately $223,000. The foreclosed properties, on average, sold for $79,000 at foreclosure sale. In other words, each foreclosure studied by Mr. White resulted in an average loss of $144,000 for the lender. According to Mr. White’s study, foreclosures in June 2009 alone resulted in approximately $4.59 billion dollars in losses for the lenders. These losses are even more staggering when compared to the losses incurred by banks for mortgage modifications. In June 2009, the banks losses resulting from mortgage modifications was approximately $45 million.
“There is 100 times as much money lost in foreclosure sales as there was in writing down balances in modifications,” Mr. White said. “That is not rational economic behavior.”
Take that, friend.
New York Times: So Many Foreclosures, So Little Logic.
The New York Times has an article detailing the alleged practices used by Wells Fargo to steer African-Americans into sub-prime mortgages. The article relies on the affidavit testimony of two former Wells Fargo loan officers from an ongoing discrimination lawsuit between the City of Baltimore and Wells Fargo. According to the affidavits quoted in the article, Wells Fargo employees commonly referred to sub-prime loans as “ghetto loans” and blacks were referred to as “mud people” and other derogatory racial slurs. The employees’ testimony also details the unfair and deceptive tactics used by Wells Fargo to place African-American loan applicants into sub-prime loans, even when the prospective borrower could have qualified for a prime loan. There is further testimony about how Wells Fargo targeted African-American church leaders to help steer their congregations to Wells Fargo mortgages and how Wells Fargo recruited African-American loan officers specifically to work with potential African-American borrowers. If you’re interested in reading the full text of the affidavits, the Consumerist has a link to them here.
Many observers have long suspected that minorities were unfairly targeted by sub-prime lenders. The affidavit testimony of these two former Wells Fargo employees strongly corroborates this suspicion. The alleged practices of Wells Fargo are appalling, and if proven to be true, Wells Fargo deserves the maximum penalty available.
(photo: Steve Rhodes)
The Minneapolis Star-Tribune has a story today about the shifting demographics in the wave of foreclosures that have hit Minnesota. In a report to be released today, half of the people seeking foreclosure counseling from the Minnesota Home Ownership Center, a leading foreclosure counseling organization, held prime, not sub-prime, mortgages. Approximately half of those people cited job loss as the primary factor for the foreclosure. This shift is also evident on the national level. According to one study cited in the story, the national delinquency rate for prime mortgages increased from 4.34 percent to 5.06 percent in the fourth quarter of 2008.
One of the myths of the foreclosure crisis is that it is being fueled by reckless sub-prime buyers, who bought houses they knew they couldn’t afford. But the Minnesota Home Ownership Center study, as well as statistical trends on the national level, seem to indicate that job loss, rather than reckless borrowing, may be a more relevant factor. The Star-Tribune story quoted Scott Anderson, a senior economist at Wells Fargo & Co. in Minneapolis. Anderson notes that the new wave of people unable to pay the mortgage often is middle-class families that most likely have two incomes. One loses a job and all of a sudden they can’t afford their house. Or they are under water on their mortgage and can’t refinance. ”As this recession has intensified, the face of this mortgage crisis has changed by 180 degrees,” said Anderson.
If you live in Minnesota and are facing foreclosure, please contact me for a free case evaluation.
(photo: Michael Slatoff)
Yesterday I wrote about the dubious value of for-profit debt settlement companies in the context of credit card and other unsecured consumer debt. Today’s New York Times has an article about congressional efforts to fight back against similar companies that prey on desperate homeowners in foreclosure.
Like debt settlement companies, these mortgage modification companies promise to obtain favorable loan modifications for homeowners behind on their mortgage payments. As the article notes, many of these companies demand large up-front fees and then fail to deliver a loan modification. The companies intentionally mislead consumers into thinking that their services are part of the Obama administration’s efforts to help with the foreclosure crisis.
Consumers in foreclosure should exercise extreme caution when dealing with for-profit mortgage modification programs. If you need help negotiating a modification with your mortgage, there are many government and non-profit programs that will provide real assistance.