Foreclosures probed

Staff and Wire Reports
Created: 10/13/2010 09:50:40 PM PDT

Officials in all 50 states and the District of Columbia began a joint investigation on Wednesday into allegations that mortgage companies mishandled documents and acted illegally to foreclose on hundreds of thousands of homeowners.

The officials, including attorneys general and bank regulators, will review whether mortgage company employees made false statements or prepared documents improperly.

“This group has the backing of nearly every state in the nation to get to the bottom of this foreclosure mess,” Iowa Attorney General Tom Miller said.

Four large lenders, including Bank of America and Chase, already have halted questionable foreclosures after evidence emerged that bank employees processed thousands of foreclosure documents without reading them.

Other banks have not done so, saying they did nothing wrong.

Miller said one idea being discussed is to create an independent monitor to review whether banks have fixed their problems.

“We want the companies to put in a system such that this will not happen again,” Miller said. “We want to explore what other remedies might be available, in a way that makes homeowners and the general housing economy better off.”

Some banks, such as Wells Fargo & Co. and Citigroup Inc., insist they did nothing wrong. But employees of Bank of America, Ally Financial’s GMAC Mortgage unit and JPMorgan Chase have acknowledged in depositions that they signed thousands of foreclosure documents without reading them.

“There’s a lot of shenanigans going on and taking advantage of the American public,” said Chris Sorenson, executive director of the Riverside-based Homeownership Education Learning Program.

Sorenson, a former bank executive who now educates homeowners on the loan modifications process, said banks have a “perverse” incentive to delay the process and foreclosure as opposed to modifying a loan.

“The banks are there to make money, not to assist you,” he said.

Local mortgage bankers and brokers are concerned about a potential sales slowdown and the harm it would do to the larger economy. The local chapter of the California Association of Mortgage Professionals discussed the issue Wednesday morning in Rancho Cucamonga.

“The speculation is that this would slow down home sales, and I suppose that’s true,” said Brian Weide, a mortgage banker with Sunstar Mortgage Services in Ontario. “People who were about to go into imminent foreclosure may not have the urgency to sell and they would probably bide their time living in their homes for a while. So it may reduce some of the available inventory, which would make it more competitive for buyers, but it’s hard to say to what extent.”

Bob Rice, a mortgage broker at First Secure Financial in San Bernardino, also voiced concern.

“This is a very unfortunate turn of events that could potentially have devastating effects on the housing market if it were to linger on more than a month,” Rice said. “If this were to go on for more than a month, you’re looking at one-third of all sales are going to cease. And potentially, because the banks would have no recourse, you could potentially see more people not making their payments with the anticipation of being able to live in their homes, and that’s simply not true. It’s just delaying the inevitable.”

Five states, including California, accounted for more than 50 percent of the nation’s foreclosures in the third quarter of 2010, according to RealtyTrac.

RealtyTrac’s Foreclosure Market Report for the third quarter of 2010, shows that foreclosure filings – default notices, scheduled auctions and bank repossessions – were reported on 930,437 properties in the third quarter. The total represented a nearly 4 percent increase from the previous quarter but a 1percent decrease from the third quarter of 2009, according to the report.

California accounted for 21 percent of the nation’s total foreclosure activity in the third quarter, with 191,016 properties receiving a foreclosure notice – the nation’s largest foreclosure activity total. The state’s foreclosure activity decreased nearly 1percent from the previous quarter and was down nearly 24 percent from the third quarter of 2009, according to the report.

Attorneys general have taken the lead in responding to a nationwide scandal that’s called into question the accuracy and legitimacy of documents used to force millions of people from their homes.

“This is a serious matter, and I think that the financial firms that engaged in this practice have real exposure,” Ohio Attorney General Richard Cordray said. “It would well serve them to think hard about what their exposure is.”

Several federal agencies have been looking into the issue, and White House spokesman Robert Gibbs said Tuesday the administration supports “the steps that the attorney generals and our federal regulators are taking to get to the bottom of and to fix the process in the mortgage industry.”

The Obama administration has rebuffed calls for a national halt to foreclosures despite pressure from consumer advocates and some Democratic lawmakers. Officials argue that halting sales of foreclosed homes could prevent the housing market from recovering. The administration says a freeze also would distract many lenders from their efforts to help borrowers in danger of foreclosure.

To read entire story, click here.