The rush to foreclose on millions of American home-owners by banks who many times did not have proper documentation to prove they had the standing to foreclose, has only added to the already inconceivable disaster that already existed.
Stopping foreclosures could have minimized some of that damage, but greed was the driver of this catastrophe from the beginning and it wasn't about to stop until someone finally stopped it.
The Foreclosure Mess Could Last for YearsThe dimensions of the foreclosure crisis keep expanding. Lenders and loan servicers including JPMorgan Chase (JPM) and Ally Financial are facing an explosion in homeowner lawsuits and state attorney general investigations of claims of falsified mortgage documents. Lawmakers in both houses of Congress have called for investigations. And procedural mistakes in the handling of mortgage documents have clouded titles establishing ownership of the homes, a problem that could plague both buyers and sellers for years. "This is going to become a hydra," says Peter J. Henning, a professor at Wayne State University Law School in Detroit. "You've got so many potential avenues of liability. You don't even know the parameters of this yet."
Is anyone who is aware of these problems going to buy a home that was foreclosed on, knowing that in the future, someone may come knocking on their door to tell them they are not the legitimate owner of that house?
Two years ago, before this was even being talked about on the MSM, I remember reading that when this documentation problem began to explode, it could cause another melt-down of the economy.
JPMorgan and Ally's GMAC Mortgage unit have delayed foreclosures in 23 states where courts have jurisdiction over home seizures. Bank of America (BAC) suspended foreclosures as well, pending a review of documents. In December 2009, a GMAC employee said in a deposition that his team of 13 people signed about 10,000 documents a month without verifying their accuracy.
Class action and individual lawsuits are being filed by homeowners across the country claiming that lenders and servicers used falsified documents to foreclose on homes and that sometimes banks didn't even hold the titles to homes they foreclosed on.
"You're going to see a tremendous amount of activity with all the AGs in the U.S.," says Ohio Attorney General Richard Cordray, who has sued Ally over foreclosures. "We have a high degree of skepticism that the corners that were cut are truly legal."
MERSMers, (The Mortgage Electronic Registration Systems) which the mortgage banking industry created to handle mortgage transfers is now being sued in Louisville, Kentucky. The suit is on behalf of all Kentucky homeowners who are claiming that:
"MERS was part of a conspiracy to create false promissory notes, affidavits, and mortgage assignments to be used in mortgage foreclosures. Similar class actions have been filed on behalf of homeowners in Florida and New York."DEFECTIVE TITLESPeople who bought homes in foreclosure face their own worries, as paperwork errors raise questions about the validity of the titles needed to prove ownership. "Defective documentation has created millions of blighted titles that will plague the nation for the next decade," says Richard Kessler, an attorney in Sarasota, Fla., who conducted a study that found errors in about three-fourths of court filings related to home repossessions.
A defective title means the person who paid for and moved into a house may not be the legal owner. "This is the most important issue of the whole mortgage mess," says Glenn Russell, a Fall River (Mass.) real estate attorney who won a case last year that reversed a foreclosure because of faulty paperwork. "Families are being thrown out of their homes by people who may not have the right to do that."
Millions have lost their homes to foreclosure. Banks have consistently refused to renegotiate mortgages even though as part of their bailout agreement, they were asked by Congress and President Obama to try to help keep people in their homes.
This summer, Elizabeth Warren addressed the foreclosure problems and the program that was meant to help homeowners stay in their homes. In this interview, she talks to Judy Woodruff about the exchanges she had with Timothy Geithner about that program.
TARP Watchdog Elizabeth Warren: Foreclosure Program 'Too Small, Too Slow', Warns Banks are Still Dangerously ExposedJUDY WOODRUFF: Well, let me ask you about the home mortgage foreclosures. You had a very animated exchange with the secretary over that question.
ELIZABETH WARREN: We did.
JUDY WOODRUFF: He says the success, as we heard him say, can be measured family by family, that it was never intended to help everybody.
ELIZABETH WARREN: Well, you know, no one disputes that. Of course it was never intended to help everybody. But it was intended to help somebody.
The problem we have got -- let me put it this way. This is a program that is saving a tiny number of people, ultimately, by getting them into affordable mortgages that the estimates are they will be able to sustain over time.
And for every one of those families that goes in, there are many, many more families who never make it. And the kinds of numbers we're looking at, we're looking at mortgage foreclosures that stay well over a million families this year, next year, the year after that, the year after that.
That has implications, not only for those families, but for the financial institutions that are holding those mortgages, for the construction industry, for our overall economy. We have a serious problem and a limited amount of time to get ahead of it. HAMP is not getting ahead of it.
JUDY WOODRUFF: The government's current -- that's the name of the program.
ELIZABETH WARREN: The program.
JUDY WOODRUFF: And what's your understanding of why the government -- why the administration, why the Treasury Department isn't doing more?
ELIZABETH WARREN: It is -- it's as if we had a boat that's taking on gallons of water, and they're trying to bail it with a teaspoon.
And, actually, I will give you an example of that. This program has now been in effect for 15 months. It has an allocation to try to deal with a very large problem. The allocation is $50 billion. And, so far, they have actually spent less than $200 million on mortgage foreclosure relief.
It is a -- it is a badly designed program that, from the beginning, was too small, too slow, couldn't be scaled up.
Emphasis mine.
Why were they so unwilling to spend the money allocated to help with the foreclosure crisis? I don't think anyone got an answer to that question. But even if the banks HAD modified more mortgages to help people stay in their homes, there would still be the problem of who actually owned those mortgages. It is a mess.
From the Businessweek article, a conclusion:
The bottom line: Faulty foreclosures will lead to a flood of lawsuits that may haunt lenders, title insurers, and home buyers for years to come.I am very glad that President Obama appointed Elizabeth Warren to lead the Consumer Financial Protection Agency. She seems to be one of the few people in DC who can be trusted with the people's business.