Econintersect: Mortgage fraud is the gift that keeps on giving as state and federal probes of mortgage documentation practices and defective foreclosure prosecutions continue. Twelve specific consent orders for settlement of complaints against banks about mortgage documentation are listed at 4closure Fraud.org. Now three more firms (Goldman Sachs, Litton Loan Servicing LP and Ocwen Financial Corp) have agreed to forego future illegal activities with regard to mortgage documentation (Yahoo News). Click on Graphic for larger image.
To top it all off, Friday (Sept. 1) the Federal Reserve announced an enforcement action against Goldman Sachs Group Inc., saying the company’s mortgage-servicing unit had engaged in “a pattern of misconduct and negligence” in its handling of home-mortgage loans. David Dryden wrote at Fire Dog Lake:
“…robo-signing is illegal, so agreeing to end it is like saying “I’ve agreed to stop running over people with my car.”
However, the practice has continued this summer. From an August 31 article by Kate Berry at American Banker:
Several dozen documents reviewed by American Banker show that as recently as August some of the largest U.S. banks, including Bank of America Corp., Wells Fargo & Co., Ally Financial Inc., and OneWest Financial Inc., were essentially backdating paperwork necessary to support their right to foreclose.
Some of documents reviewed by American Banker included signatures by current bank employees claiming to represent lenders that no longer exist.
Many banks are missing the original papers from when they securitized the mortgages, in some cases as long ago as 2005 and 2006, according to plaintiffs’ lawyers. They and some industry members say the related mortgage assignments, showing transfers from one lender to another, should have been completed and filed with document custodians at the time of transfer.
It is clear that what needs to be done is well known. An interagency review (Federal Reserve System, Office of the Comptroller of the Currency and Office of Thrift Supervision) has recommended a number of specific actions. Here is an excerpt from the recommended industry Reforms section of the report:
Industry reforms that could improve the oversight and regulation of mortgage-servicing and foreclosure processing should generally include standards that require servicers to address major areas of weaknesses highlighted in the review, including in the following general areas:
Governance and Oversight
- implement and routinely audit sound enterprise wide policies and procedures to govern and control mortgage-servicing and foreclosure processes ‰ develop quality controls for effective management of third-party vendors who support mortgage servicing and foreclosure processing
- strengthen the governance standards intended to ensure compliance with applicable federal and state laws and company policies and procedures
- develop company standards that emphasize accuracy and quality in the processing and validation of foreclosure and other servicing-related documents throughout the entire foreclosure process
Organizational Structure, Staffing, and Technology
- increase staffing to adequate levels and provide them with requisite training to effectively manage the volume of default loans and foreclosures
- upgrade information systems and practices to better store, track, and retrieve mortgage-related documents
Accountability and Responsiveness Dealing with Consumers
- ensure borrowers are offered appropriate loss mitigation option
- ensure proper custody and control of borrower documents related to the servicing of the mortgage
- increase coordination between loss mitigation and foreclosure-processing units to prevent inappropriate foreclosures
- improve communication with borrowers and establish measurable goals and incentives for delivering accurate information and responsive assistance
- develop complaint-resolution processes that are routinely monitored and measured for quality assurance
Meanwhile, Bloomberg reports in an article by Zeke Faux and Jody Shenn that Standard & Poor’s is giving a higher rating to securities backed by subprime home loans, the same type of investments that led to the worst financial crisis since the Great Depression, than it assigns the U.S. government. According to that article:
S&P is poised to provide AAA grades to 59 percent of Springleaf Mortgage Loan Trust 2011-1, a set of bonds tied to $497 million lent to homeowners with below-average credit scores and almost no equity in their properties. New York-based S&P stripped the U.S. of its top rank on Aug. 5, saying Washington politics were making the country less creditworthy.
Editor’s note: It appears that defective mortgage securitization continues, as well. Could the Mafia have concocted a more egregious scheme that the mortgage racket? For a description of how junk is transformed into AAA, read The Alchemy of Securitization.