In this edition of The Watch List, we tackle the foreclosure scandal, which is the latest byproduct of the burst real estate bubble. The Obama administration this week began a criminal investigation into whether banks and other financial institutions committed mail or wire fraud when filing false court documents to foreclose on people’s houses.
This latest probe comes amid horror stories about homeowners whose homes were illegally and improperly foreclosed. In some cases, the homes didn’t even have mortgages.
And as with almost every scandal, there are new terms being bandied about like “robo-signing.” That’s the practice of banks and other lenders signing thousands of foreclosure documents without confirming their accuracy — in effect rubber stamping them just to keep the foreclosure process moving. The attorneys general of all 50 states have announced their own investigation.
As we wait for these investigations to resolve, what do we need to know? Here’s some background.
At the heart of the foreclosure mess are depositions by one robo-signer — 41-year- old Jeffrey Stephan. He revealed that he processed up to 10,000 foreclosures a month, signing affidavits stating that all the documents were in place when he had not checked them.
Why are these documents so important? Because they are supposed to make clear who actually owns the mortgage and therefore has the right to foreclose on the property — something that gets tricky when a mortgage is bundled into a security and sold off to investors in bits and pieces. The banks themselves are just the middlemen – mortgage servicers who collect payments and foreclose on delinquent loans.
By late September major banks like JP Morgan chase and Bank of America had voluntarily suspended foreclosures while they scrambled to recheck their paperwork. Bank of America, for one, has announced it is planning to resume foreclosures as soon as next week. The banks maintain this is simply a problem of sloppy paperwork that will be quickly sorted out.
But others say this, like so much else related to the housing crisis, is something that goes far deeper and could have serious ramifications for the economy as a whole.
Need to Know’s Jon Meacham discusses the latest revelations in the home foreclosure fraud scandal with Michael Hudson, author of “The Monster How a Gang of Predatory Lenders and Wall Street Bankers Fleeced America and Spawned a Global Crisis.”