JIM LEHRER: Now: the growing U.S. home foreclosure problem. Banks foreclosed on more homes this summer than in any three-month stretch since the housing market soured in 2006. An industry group, RealtyTrac, reported today, more than 288,000 properties were lost to foreclosure in the July-September quarter. That’s up from nearly 270,000 in the second quarter.
But fewer takeovers are expected now that several lenders have suspended foreclosures. They’re working to sort out problems with questionable — questionable documents, bad documents.
Meanwhile, attorneys general in every state and the District of Columbia launched a joint investigation yesterday.
And NewsHour economics correspondent Paul Solman has the backstory on the flawed paperwork being used to challenge foreclosures in court. It’s the first in a periodic series on the mortgage crisis. And it’s all part of his regular reporting Making Sense of financial news.
PAUL SOLMAN: Patricia Antrobus lives in a turn-of-the-20th-century house in the Bed-Stuy section of Brooklyn.
PATRICIA ANTROBUS, homeowner: This house, my father bought on the G.I. Bill when I was 1 year old. I love this house. You know, it’s my sanctuary. It’s my — my — what is it, Scarlett? It’s my Tara. It’s — it’s everything to me.
PAUL SOLMAN: It’s also her money pit. In 2004, Antrobus, a school secretary, got a mortgage so she could buy out her siblings. Repair bills soon forced a refinance.
PATRICIA ANTROBUS: When the roof goes, and you have a $6,000 water main break at the same time, you know, I did do a couple of refinances just to try and keep this place together.
PAUL SOLMAN: She wound up owing nearly half-a-million dollars, her payments dependent on the tenants upstairs paying rent, her son downstairs helping out. Then came the great recession, laying them all off, save Antrobus.
PATRICIA ANTROBUS: And that just skews the whole thing, because I don’t have a lot of room and wiggle room, you know, to pay everybody.
PAUL SOLMAN: Three years later, Antrobus fell behind. The bank moved in to foreclose. But, at the 11th hour, in what might be exhibit A of the current foreclosure freeze now threatening the nation, her house was saved by a New York State Supreme Court judge who had noticed something fishy in the foreclosure papers.
HON. ARTHUR SCHACK, New York state supreme court judge: And 1661 Worthington Road, West Palm Beach, Florida, Suite 100.
PAUL SOLMAN: That’s the same address given by three financial institutions listed in Antrobus documents, the same address Judge Arthur Schack had also seen for two other major financial institutions in other cases. It didn’t add up.
HON. ARTHUR SCHACK: How do five different banks end up or entities end up in the same office? Why does — somebody one week is the vice president of bank X, and the next week is the vice president of bank Y, and then they go back to bank X two weeks later? It’s just very questionable.
PAUL SOLMAN: When he looked further, Schack found enough flaws to begin throwing numerous foreclosures like Antrobus’ out of court.
Three years later, the flaws he found have become embodied in robo-signers, employees of GMAC, J.P. Morgan Chase, and Bank of America, a NewsHour underwriter, each of whom has admitted, under oath, to signing foreclosure papers at the rate of at least several thousand a month, like robots. Their banks have now halted foreclosures, in some cases nationwide.
And Judge Schack claims he’s seen more robo-signers at other banks that could make matters worse. But, at Bank of America, which services 14 million mortgages, Rebecca Mairone says they’re responding.
REBECCA MAIRONE, default servicing executive, Bank of America Home Loans: We want to make sure that all of our processes, whether it’s affidavit signing, or whether it’s notary, or whether it’s other foreclosure processes, are met 100 percent of the time on requirements.
But, based on our assessment, we do believe that the underlying facts of the foreclosure in the decisions are accurate. We are working to ensure that our processes and procedures are following guidelines and requirements at this time.
PAUL SOLMAN: So, you might have used so-called robo-signers, but that doesn’t really invalidate the foreclosure itself?
REBECCA MAIRONE: Yes, the underlying facts of the foreclosures and the data is accurate.
PAUL SOLMAN: But legally accurate, asks Judge Schack? All of them?
HON. ARTHUR SCHACK: My concern is, if you’re going to take away somebody’s house, let’s follow the law when we do this, so let’s have it done correctly.
PAUL SOLMAN: But so much of this is legal boilerplate anyway. I mean, I punch agree to all kinds of stuff online that I never read.
HON. ARTHUR SCHACK: Well, but, by signing your name, it says, you did it, you read it, and you agree to it. But the point is, with these documents, when there’s an affidavit of merit, it means that the person has said that — is swearing that they — they’re familiar with the facts of the case. And, if they’re not then, it becomes very, very questionable as to whether it’s legally correct.
PAUL SOLMAN: Because, if they didn’t do that, any numbers could be in there?
HON. ARTHUR SCHACK: Of course. And you could have — why don’t we have Mickey Mouse sign the thing, instead of having a human being sign it? I mean, it’s — it becomes meaningless. I mean, that’s the whole concept behind this, getting a judgment, is that everything is truthful. If we don’t know if it’s truthful, why are we even signing this stuff?
PAUL SOLMAN: The problems Judge Schack spotted years ago have spawned their own industry.
MAX GARDNER, Attorney, North Carolina: So, we want to show you what the real deal is.
PAUL SOLMAN: From his sleepy home base in Shelby, North Carolina, Max Gardner runs barrister boot camps. Lawyers from all over the country flock to the Sherlock of Shelby to deduce the facts of foreclosure, no longer elementary in this era of complex securitized mortgages.
MAX GARDNER: You have got the originator. You’ve got the sponsor, the depositor, the trustee.
PAUL SOLMAN: In the process of securitization, mortgages were gathered into a pool, which was then used as collateral for the now infamous investments mortgage-backed securities.
But it turns out that, in the several steps of the process, a key one may often have been neglected: legally transferring or assigning the mortgages from the original lender on through to the tax-exempt trust that issued the securities.
MAX GARDNER: There was this great demand to generate more mortgages. And I think that with that demand came a lack of due diligence and proper underwriting and proper compliance with all the rules they had set up.
PAUL SOLMAN: California lawyer Walter Hackett spent 27 years in the banking industry.
WALTER HACKETT, attorney, California: When they tried to industrialize the loan securitization market, which is really what they did — they tried to automate everything they could. They started digitizing loan documents and shredding originals.
PAUL SOLMAN: Making it harder, says Hackett, to track the transfers.
WALTER HACKETT: And, of course, what that means is, we have no clue who owns what.
PAUL SOLMAN: What’s emerging today, say these consumer lawyers, is a banking industry trying to cover its tracks.
MAX GARDNER: And what we’re doing is using the documents that the securitized trust created, the business model they created themselves, and were saying, did you do things the way that you said you did it?
PAUL SOLMAN: If not, the ownership of the mortgage is in question, and banks may be forced to negotiate.
Consider the case of Sandra Orosco, facing foreclosure from a new bank after Judge Schack stopped an old foreclosure three years ago.
So, who owns your loan now?
SANDRA OROSCO, homeowner: Bank America, supposedly.
PAUL SOLMAN: But you’re not sure?
SANDRA OROSCO: Well, the whole thing is real unsure right now since the information I got a couple of days ago. So, I’m like…
PAUL SOLMAN: Orosco’s case is typical. She doesn’t know who owns the loan. Bank of America, it turns out, only services it. And, indeed, for the vast majority of foreclosures triggered by boom-era mortgages, legal ownership is now in limbo.
MAX GARDNER: Well, just from what I have seen in California, I would say its somewhere around, for sure, 65 percent, conservatively, and the number might be much higher.
PAUL SOLMAN: April Charney, a Jacksonville Florida legal aid attorney, is a pioneer in the field of fighting foreclosure.
APRIL CHARNEY, attorney, Florida: We have case review once a week from our intake, and we have walk-in intake basically into our program, thousands, and not one of them has shown the paperwork.
In fact, I call out to my classes that — the lawyers that I train, if you can show me a proper transfer from an originating lender to the first bankruptcy remote vehicle, I will eat the paper. And I haven’t eaten any paper yet.
PAUL SOLMAN: North Carolina’s Max Gardner says that, of the thousands of cases he’s been involved with:
MAX GARDNER: All I can say is, I have never seen a complete unbroken chain.
PAUL SOLMAN: But the point isn’t to freeze all foreclosures permanently, says Gardner. It’s to finally force banks to offer loan modifications that their clients can afford.
MAX GARDNER: A lot of those cases, when we really pressed the — the other side hard for those documents, they came back with a very favorable settlement offer in the case that would substantially reduce the principal debt, reduce the interest maybe from 12 percent or 14 percent to 2 percent or 3 percent, you know, pay my legal fees, so the consumer wouldn’t have to pay that, and give the consumer an affordable loan.
WALTER HACKETT: You cannot have millions of Americans getting free homes. I mean, it — we’re done as a country if that happens. But I think lenders or whoever will come to the table in droves when we start getting some of these cases decided in our favor. And, ultimately, we will.
PAUL SOLMAN: That’s what Patricia Antrobus is hoping for. After Judge Schack ruled in her favor in 2008, her mortgage was modified, modestly. But the terms still proved too tough. She’s now four months behind on her payments, another mortgage reduction her only shot at saving the family home.
PATRICIA ANTROBUS: The whole time that I have dealt with this whole situation, I have always felt like that small, you know, like David and Goliath, but I don’t have a rock and a slingshot.
PAUL SOLMAN: With the admission of document shenanigans, millions of homeowners might finally have the ammunition they have so long lacked.