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2010 United States foreclosure crisis

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The 2010 United States foreclosure crisis, sometimes referred to as foreclosure-gate,[1][2] is an ongoing and unresolved issue in the United States and refers to an apparently widespread epidemic of improper foreclosures initiated by large banks and other lenders. The foreclosure crisis was extensively covered by news outlets beginning in October 2010, and several large banks, including Bank of America, JP Morgan, Wells Fargo, and Citigroup have responded by temporarily halting their foreclosure proceedings in some or all states.[3][4] The foreclosure crisis has caused significant investor fear in the US.[5]

Early signs of trouble

In spring 2010 news stories begin to emerge detailing erroneous foreclosures and evictions, including banks variously foreclosing on homes which were paid for without a mortgage, accidentally foreclosing on the wrong home, and providing fraudulent documentation in courts.[6]

Robo-signing controversy

In the fall of 2010, major U.S. lenders such as JP Morgan Chase,[7] Ally Financial f/k/a GMAC, and Bank of America[8] suspended judicial and non-judicial foreclosures across the United States over the potentially fraudulent practice of robo-signing, a practice first identified and reported by Nye Lavalle in 1999 and widely exposed by fellow mortgage fraud activists Michael Redman and Lisa Epstein via their blogs.[9] Robo-signing is a term used by consumer advocates to describe the robotic process of the mass production of false and forged execution of mortgage assignments, satisfactions, affidavits and other legal documents related to mortgage foreclosures and legal matters being created by persons without knowledge of the facts being attested to. It also includes accusations of notary fraud wherein the notaries pre and/or post notarize the affidavits and signatures of so-called robo-signers.

At the 2000 National Consumer Law Conference in Broomfield, Colorado, Nye Lavalle released two white papers and reports he authored. The reports released were titled Predatory Grizzly "Bear" Attacks Innocent, Elderly, Poor, Minorities, Disabled & Disadvantaged[10] and 21st Century Loan Sharks."[11]

In a follow-up report in 2008, titled "Sue First, Ask Questions Later,"[12] Lavalle detailed the wide-scale practice of robo-signing in the mortgage servicing industry. On page 1 of the report Lavalle states "one of the many predatory servicing practices developed was the use of known false, fraudulent, and forged affidavits, assignments, and satisfactions of mortgages." In this report, Lavalle identifies a number of non-conformances in the handling of mortgages, power of attorneys, affidavits, and satisfaction of liens in public records across the United States. Among other problems with these records, Lavalle states that he found evidence of documents being forged by using "squiggle marks" that are not the marks or signatures of the officer that is authorized to be the signatory on the document in question. In addition, Lavalle finds that "initials only" marks were used so that anyone can sign an officer's signature. Lavalle also states that he found significant variations in the marks for individuals that suggest multiple signers. Also noteworthy was the revelation that a named officer of a bank or lender was found to have signed documents which would imply that the officer was in many difference cities across the United States at once.

A Washington Post article about the robo-signing foreclosure crisis on October 7, 2010, concluded with Lavalle's warning to the industry when the Post wrote "several years ago (2003), on a message board still active on the MERS Web site,[13] one participant (Lavalle) accused the company of participating in fraud and concealing the transfer of loans from public scrutiny." "The company's president and chief executive, R.K. Arnold, responded by insisting that MERS actually increased the transparency of the mortgage system and reduced the cost of homeownership by making the industry more efficient." "We're not perfect," Arnold wrote, "but there's nothing sinister about who we are and what we do."

Beginning in 2009, the allegations of robo-signing by Lavalle, Epstein and Redman were proven by local Palm Beach Attorney, Tom Ice of Ice Legal, who proved up the wide-scale practice of robo-signing in depositions taken of GMAC's Jeffrey Stephan and other robo-signers.[14] News outlets have reported that on September 14, 2010, Jeffrey Stephan testified that he had signed affidavits which he hadn't actually reviewed on behalf of Ally Financial Inc.[6][15] This revelation led to increased scrutiny of foreclosure documentation. The practice was apparently common practice in the mortgage industry, and was given the term Robo-signing.[6] In the weeks following the robo-signing revelation other large banks have come under fire for employing robo-signers as well, including JPMorgan Chase and Bank of America.[16]

Role of MERS

Main article: MERS

The Mortgage Electronic Registration Systems, known as MERS, is a privately held company that operates an electronic registry designed to track servicing rights and ownership of mortgage loans in the United States.[17][18] As of the crisis 62 million mortgages are held in the name of MERS,[19] and MERS has initiated thousands of foreclosures in the United States, claiming to be the mortgagee of record. Lawyers have contended in court that MERS has no legal right to initiate a foreclosure, because MERS does not own the loans in question. US lending laws state that only the owner of a loan can initiate a foreclosure.[18][19] Class action law suits against MERS are pending in California, Nevada, and Arizona, while state supreme courts in Maine, Arkansas, and Kansas have already ruled against MERS right to file for foreclosures. MERS has however won court cases in several other states, affirming its right to initiate foreclosures in those states.[18] The MERS numerous legal inconsistencies, which might look trivial, in fact reflect the dysfunctionality of the whole mortgage securitization approach itself and therefore would have a profound impact on financial system if challenged.

Attempted legislative fix

In an apparent attempt to resolve some of the issues with missing, lost, and sometimes fraudulent paperwork both the United States house of representatives and the United States senate passed H.R. 3808 which would force courts to recognize out of state and electronic notarizations. The bill passed the Senate through a verbal vote, and wasn't publicly debated. President Barack Obama, fearing "unintended consequences on consumer protections"[20] utilized his veto powers, at first using a pocket veto by simply not signing the bill, and later by issuing a more formal protective-return veto.[21]

Voluntary suspension of foreclosures by lenders

On October 6, 2010 Attorney General of Ohio Richard Cordray filed suit against Ally Financial Inc seeking $25,000 in penalties for each instance of fraud, in addition to undisclosed amount of consumer restitution. The action could potentially mean hundreds or thousands of individual penalties for each instance of robo-signing that occurred in the state of Ohio.[15] State Attorney Generals from various other states have also started to react to the controversy. It has been reported that legal authorities in California, Connecticut, Illinois, Iowa, Maryland, Massachusetts, North Carolina and Texas have contacted lenders and mortgage services demanding answers.[15] As of October 14, 2010, all 50 states have entered a joint investigation into the mortgage industry. The joint investigation aims to determine the veracity of allegations that banks have not reviewed foreclosure documents properly or have falsified documents in order to evict homeowners.[5]

See also

References

  1. ^ "Will Bankers go to Jail for Foreclosure-gate?". October 19, 2010. Retrieved October 21, 2010.
  2. ^ "Administration Shifts Focus on Foreclosure-Gate". October 20, 2010. Retrieved October 21, 2010.
  3. ^ Segal, David (October 17, 2010). "White house urges calm on foreclosures". New York Times. Retrieved October 18, 2010.
  4. ^ LaCapra, Lauren (October 18, 2010). "Foreclosure crisis: home equity loan time bomb". The Street. Retrieved October 18, 2010.
  5. ^ a b "Investor fears grow over foreclosure mess". October 14, 2010. Retrieved October 18, 2010.
  6. ^ a b c Tauke, Joseph (October 14, 2010). "One nation, under fraud". The daily caller. Retrieved October 18, 2010.
  7. ^ http://online.wsj.com/article/SB10001424052748704657304575540340176254622.html?mod=googlenews_wsj
  8. ^ http://www.fool.com/investing/general/2010/10/08/bank-of-america-to-halt-foreclosures.aspx
  9. ^ Cha, Ariana Eunjung (October 21, 2010). "Fla. Activists Fight Against Shoddy Foreclosures". CBS News. Washington Post. Retrieved October 31, 2010.
  10. ^ http://www.scribd.com/doc/3683593/Predbear
  11. ^ http://www.scribd.com/doc/13625416/AAMA-Report
  12. ^ http://www.scribd.com/doc/20955838/PMI-Ocwen-Anderson-Report-Sue-First-Ask-Questions-Later
  13. ^ http://www.mersinc.org/forum/viewreplies.aspx?id=13&tid=93
  14. ^ Jeffrey Stephan
  15. ^ a b c Whelan, Robie (October 7, 2010). "Robo-signer debate: Was it fraud?". The Wall-Street Journal. Retrieved October 18, 2010.
  16. ^ Prior, Jon (October 8, 2010). "Robo-signer effect on housing market reaching critical mass". Housing Wire. Retrieved October 18, 2010.
  17. ^ "Mortgage Electronic Registration System, Streamline Assignments of Mortgages". Retrieved 2009-04-30.
  18. ^ a b c "Factbox: The role of MERS in foreclosure furor". October 13, 2010. Retrieved October 18, 2010.
  19. ^ a b Brown, Ellen (October 15, 2010). "Foreclosuregate: Time to Break Up the Too-Big-to-Fail Banks?". YES! Magazine. Retrieved October 19, 2010.
  20. ^ "Obama to veto foreclosure documents bill". NPR. October 7, 2010. Retrieved October 18, 2010.
  21. ^ "Obama Clarifies Pocket Veto Of Controversial Bill Related To Foreclosures". October 9, 2010. Retrieved October 21, 2010.
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