TOPICS > Economy

Big Banks Resume Foreclosure Paperwork

October 25, 2010 at 5:52 PM EDT
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Major banks across the country continue to dig through internal documents to show that foreclosures have been properly handled following accusations of faulty paperwork. Binyamin Appelbaum of the New York Times gives more details on the investigation into flawed foreclosure proceedings.
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JEFFREY BROWN: Also today, there were new developments in the ongoing foreclosure mess. For an update on that part of the story, we’re joined now by Binyamin Appelbaum of The New York Times. Welcome back.

BINYAMIN APPELBAUM, The New York Times: Thank you.

JEFFREY BROWN: We saw in our news summary Federal Reserve Chairman Ben Bernanke weighing in today. Tell us, what is he — what specifically is he looking at?

BINYAMIN APPELBAUM: What he has said is that the Federal Reserve is reviewing the machinery of foreclosure. They are looking at the way that banks process foreclosures to ascertain how banks make sure that they’re foreclosing on the right people and that they have the right to take those home.

JEFFREY BROWN: And whether people were kicked out of their homes who shouldn’t have been.

BINYAMIN APPELBAUM: Well, that is what they are hoping not to find.

JEFFREY BROWN: They’re hoping not to find. But we still don’t really know the extent of that, right?

BINYAMIN APPELBAUM: We don’t. We know that there have been isolated instances in which people lost homes and perhaps shouldn’t have, but we have no idea how many common it was.

JEFFREY BROWN: Now, how much authority does the Fed have? What could it do if it finds problems?

BINYAMIN APPELBAUM: The Fed has a great deal of authority over banks. They can both force banks to make reforms to their process to make sure that it is working the way that it is supposed to.

And, potentially, they can take punitive action against banks that are found to be in violation of those requirements.

JEFFREY BROWN: Now, this fits into — there are a lot of investigations now ongoing, government investigations, federal government, but also at the state level, number of attorneys general, correct?

BINYAMIN APPELBAUM: Yes, all 50 of them, actually. And this is in large part a state issue. The foreclosure process is governed by state laws. Many of the violations that are alleged to have occurred would have occurred in violation of state laws. And so those attorneys general investigations are really sort of where the action is right now.

JEFFREY BROWN: And where — what — where do they stand? Do you know at this point? Or how long does this process unfold?

BINYAMIN APPELBAUM: Yes, we don’t know how long it will take, but we do know that some of those investigations already are unearthing some interesting things.

The attorney general in Florida has released a series of depositions with employees of law firms in Florida who say that they were involved in forging signatures on foreclosure documents, filing documents that they knew were incomplete or that said things that they didn’t know to be true, that they were basically involved in this robo-signing process and this, you know, fast, fast, fast foreclosure process.

JEFFREY BROWN: Now, in the meantime, Bank of America, one of the key players here, we saw in Paul’s piece, came out this weekend and for the first time acknowledged that it had found at least a few errors.

BINYAMIN APPELBAUM: Mm-hmm.

JEFFREY BROWN: Tell us what they found and what they are saying.

BINYAMIN APPELBAUM: Bank of America initially said, we are going to pause foreclosures and take a look at our process, and then came back pretty quickly and said, we looked. Our process works. We don’t have any problems. We’re going to get back to work.

And the bank has now said, no, wait a second. There are some instances in which we made what it characterizes as minor technical errors, names in documentation. But the bank has continued to insist that what has not happened is any instance in which a homeowner was wrongly foreclosed.

JEFFREY BROWN: And some banks, some of the larger banks have now resumed processing foreclosures?

BINYAMIN APPELBAUM: They have started to do that, right. Bank of America has launched the process of resubmitting documentation in about 100,000 cases where they are now going to proceed with foreclosures.

JEFFREY BROWN: Now, another, on the meantime, here is you have some large investors pressuring the banks — this is sort of on the other side, right — to take these mortgages off their hands. Explain. Explain what is going on there.

BINYAMIN APPELBAUM: Well, basically, you know, each time there is a homeowner who thinks that the bank doesn’t have the right to foreclose on them, there is on the other side of that coin an unhappy investor who thinks that they own that home and would like it.

And so what you have got is a growing number of investors basically saying the banks in constructing these mortgage securities, in managing these mortgage securities were supposed to be getting us our money. And to the extent that these problems with foreclosures are threatening our investment, we want our money back.

JEFFREY BROWN: And these are big players. Who are we talking about here?

BINYAMIN APPELBAUM: We are talking about the Federal Reserve, actually, has now joined, and the Federal Reserve Bank of New York is a participant in this effort to sue Bank of America. We’re talking about BlackRock and some of the largest investors in mortgage securities in the country, and even Fannie Mae and Freddie Mac, the two largest gorillas of mortgage investments.

JEFFREY BROWN: So, for them, it is not a question of who owns the mortgages, but it’s whether the sales were done properly and who should — who should be holding the bag at this point, right?

BINYAMIN APPELBAUM: Right. I mean, they basically know that they own the mortgages.

JEFFREY BROWN: Yes.

BINYAMIN APPELBAUM: They bought them from the banks. Their concern is that the value of those securities has declined sharply, and they are saying, basically, this wasn’t just, you know, a bad bet that went wrong. This was mismanaged. This was sold to us on false pretenses. We deserve a refund.

JEFFREY BROWN: And how big a risk is that to the banking industry as a whole?

BINYAMIN APPELBAUM: In financial terms, that is probably the much greater risk. Even if some…

JEFFREY BROWN: Much greater?

BINYAMIN APPELBAUM: Much greater. Even if some homeowners begin to successfully avoid foreclosure, that doesn’t add up to a lot of money very quickly. But a couple of cases from investors — this suit against Bank of America concerns $47 billion. There are tens of billions of dollars in other securities that could very easily be pulled into this.

That is where the real money is, is in these investor suits against the banks.

JEFFREY BROWN: And the government in all this continues to try to figure out how to handle it, right?

BINYAMIN APPELBAUM: Yes.

JEFFREY BROWN: I mean, on the one hand, wanting to make sure the process works right, on the other hand — and to slow it down in some sense — on the other hand, needing this housing market to work itself out.

BINYAMIN APPELBAUM: Yes. You know, it’s interesting. We’re sort of exactly where we have been for three years now, which is the government is walking this tightrope between on the one hand trying to keep the banking industry working and reviving the economy, and on the other hand trying to hold it as accountable as possible.

JEFFREY BROWN: I mean, you’re talking to these guys every day. You see them trying to work this all out?

BINYAMIN APPELBAUM: Well, they’re trying. They haven’t done it yet.

But, yes, this is a struggle. They’re not sure how to handle it. They’re not sure in the first place what went wrong here, how badly did it go wrong, in how many cases is there a problem. People are still really trying to wrap their heads around the nature of this thing. We don’t yet know what the problem is.

JEFFREY BROWN: All right, Binyamin Appelbaum of The New York Times, thanks very much.

BINYAMIN APPELBAUM: My pleasure.