The Foreclosure Crisis' Widening Gyre
[UPDATE]: Sen. Jeff Merkley (D-Ore.) has asked the Treasury and Housing and Urban Development Departments to appoint a special investigator to look at foreclosure processes at major mortgage servicers. "It is essential that completed foreclosure actions be reviewed, and that proper restitution under the law be made for every family not treated properly during the foreclosure process," Merkley wrote. Here's his letter.
[UPDATE 2]: Michigan House Democrats John Conyers and Carolyn Kilpatrick demanded today that all mortgage companies freeze foreclosures in Michigan. "Given the depth of the financial calamity in Michigan and other states, the huge number of foreclosures, and the chain reaction of problems involving foreclosures that has impacted communities and individuals, I would urge home mortgage lenders to cease their foreclosure activities," Conyers said in a statement. "Rather than spending their time running mass production foreclosure mills, the lenders should be working with individuals to keep families in their homes and restructure their loans."
The onslaught of scrutiny and criticism of the nation's top foreclosure players continues to mount. On Tuesday, House speaker Nancy Pelosi and 31 other California House Democrats asked the Justice Department, Federal Reserve, and Office of the Comptroller of the Currency, which regulates national banks, to investigate fraud by mortgage servicers, the middlemen who handle monthly payments, assess late fees, and foreclose on homeowners. "Recent reports that Ally Financial (formerly GMAC), JP Morgan, and Bank of America may have approved thousands of unwarranted foreclosures only amplify our concerns that systemic problems exist in the ways many financial institutions have dealt with homeowners who are seeking to avoid foreclosure," the letter reads. "We are particularly perplexed by this apparent pattern in light of the many incentives Congress and the Obama administration have offered to servicers and lenders to avoid foreclosures where financially viable, including subsidies and loan guarantees from taxpayers." (The delegation's letter is included at the end of this post.)
The California delegation's letter comes amidst a flurry of criticism and demands for investigations by members of Congress and state attorneys general. The whole debacle began after a leaked GMAC memo revealed the company's plans to freeze foreclosure evictions and sales of repossessed houses as the multibillion-dollar company tried to fix a "technical" problem with its foreclosure legal filings. That "technical" problem, however, wasn't so benign, it turns out: An employee in GMAC's "document execution" department (dubbed a "robo signer" by critics) had admitted to mass-signing tens of thousands of legal filings without knowing what they said, a violation of federal rules of civil procedure and casting doubt on the validity of thousands of foreclosures. Moreover, numerous other mortgage servicers used robo signers like GMAC's, bringing into question the validity of yet more foreclosures throughout the country.
Here's are the highlights since GMAC's admission, the first domino to fall:
- Attorneys general in Connecticut, Massachusetts, Illinois, California, Iowa, Texas, and Ohio have ordered foreclosure moratoriums or investigations into questionable practices by GMAC and others
- The AFL-CIO union last week demanded that all banks follow JPMorgan Chase's lead and freeze foreclosures nationwide
- Freddie Mac, the government-owned housing corporation, ordered (pdf) mortgage servicers to review their foreclosure processes and root out fraudulent practices
- Sen. Robert Menendez sent tough letters to JPMorgan Chase (pdf), Bank of America (pdf), and Ally Financial (pdf) demanding that executives at those banks to revisit potentially fraudulent foreclosures and reinstate those homeowners who were unjustly foreclosed upon. Menendez also sent a sternly worded letter to 117 different mortgage servicing companies (pdf) and demanded a Government Accountability Office investigation into "misconduct" by Ally, JPMorgan, Bank of America, and others
After years of shady practices, barreling ahead with foreclosures, and helping to sink the Obama administration's flagship homeowner relief program, it looks like the mortgage servicing industry is finally getting the scrutiny it deserves. We'll keep you updated as this debacle unfolds.