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The Watch List: The foreclosure scandal

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.”

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  • Diane King

    Answer to John Meacham’s question, “Why the rush to foreclose?” not mentioned by Michael Hudson: The loans, sliced and diced into investment instruments, as Hudson described, no longer have a clear owner. The loan servicers, the banks and mortgage companies, know this, and by proceeding quickly with the foreclosure process, the hope is that the homeowner doesn’t realize this or doesn’t know how to insist legally on knowing who owns their loan. Even with large numbers of loans attached to now abandoned properties purchased by investors who specialized in “flipping” properties, there are also many homeowners unwittingly stuck with adjustable payment loans that offered deferred interest, later capitalized into the loan principle, a sinking housing market, possible loss of employment, and any other number of factors that have offered no relief. What would have been appropriate given the state of the economy, would have been an insistence that financial institutions make reasonable adjustments in principle on home loans they serviced or were invested in through securitized instruments to bring them in line with the fallen market values. With real estate markets still quite depressed, any foreclosures completed now will be sold in this depressed market anyway.

  • LunaNegra

    Shame ,Shame…not only the people that directly participate in those illegal foreclosure should be prosecuted but the companies and the company owners should be held responsible for it. If the big bosses starting to get prosecuted and their companies paying steep fines that might bring them to close down their doors being punished too we might see some improvement.

  • Rstpa

    Good comment Diane. What is missing is that the courts when presented an issue after the foreclosure sale, want to shut their eyes as if it is nothing. So, in my view, the courts need to jump into the fray especially when presented issues of deceptive lending,deceptive sales and fraud upon the third party innocent buyers. I could give u several examples of fraud and abuse of civil process by lawyers who are hired by the lenders to find ways of selling deceptively during Sheriff Sales. U may write me at if u care to share more details of deception.

  • Mkcs2000

    This loan Modification is a big joke.
    None of these lenders help the genuine borrowers who are the homeowners and taxpayers.
    These so-called banks when they were on Financial Life Support received the Big BailOut money of $30 Billion FREE OF INTEREST absolutely with NO COLLATERAL and the banks earn interest from the Government. What kind of Lending Practice is this? Very interesting!
    This is Democracy of the Corporate by the Corporate for the Corporate.
    Where is Countrywide? They ruined everything in this country by making American Taxpayers miserable and homeless and escaped very easily from the scene.
    American Banking is not working the way it should work.

  • Guest

    Not only foreclosure scandal, even the day to day banking should also be on the watch list.
    Some months ago, I had been to Wells Fargo Bank to do some transaction and the teller said that they could not do any cash transactions since their computers went down. So I simply deposited my check and left. It was not just Wells Fargo but Bank of America also had the same problem.
    Customers came to that branch to withdraw some money but they could not since the bank computers were down. Even ATMs would not work. The Bank Manager and other staff members simply turned the clients away from the branch as they could not do any cash transactions, either deposits or withdrawals. We have our money in our bank accounts still we cannot withdraw from our own account. There was no other alternative. The bank branch could have looked at the previous day transactions register and paid cash but even that could not be done. That was scary. Many customers were upset and angry. Nobody in the branch knows how to fix the problem

    We talk so big about computer systems and claim that we live in an information superhighway. But whenever there is a problem or a computer glitch like this, nobody, literally no one, knows how to fix this.

    Poor bank people depend on some programmers who have remote access but cannot do anything to help the customers. Americans should remember that Wall Street is not a holy place.
    They make us so dependent on computers as if we cannot do anything without them.
    But whenever there is some serious glitch or transactions problem, nobody knows how to resolve the issues.

    I think we have to go back to the olden days, with ledgers, passbooks, and withdrawals.