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Yesterday, February 6, was the supposed deadline for attorneys general to sign a foreclosure fraud scandal settlement with US banks which broke in 2010. New York Attorney General Eric Schneidermann and California Attorney General Kamala Harris among others are hesitant to settle knowing the extent of foreclosure abuses. It has been reported that government-backed mortgage giant Fannie Mae knew about foreclosure fraud as far back as 2003, but did nothing about it.

State attorneys general planned to settle over foreclosure practices with big banks. (photo: AP)
State attorneys general planned to settle over foreclosure practices with big banks. (photo: AP)



Fannie Mae Knew About Foreclosure Fraud for a Decade, Did Nothing

By Pat Garofalo, ThinkProgress

07 February 12

 

oday is the supposed deadline for a group of attorneys general to sign onto a settlement with the nation's biggest banks, stemming from the foreclosure fraud scandal that broke back in 2010. The settlement has been in limbo for several months, as a group of AGs believed it gave too much up to the banks in terms of immunity for mortgage misdeeds.

Part of the hesitation on the part of AG's such as New York Attorney General Eric Schneidermann and California Attorney General Kamala Harris is that the settlement would have shortchanged investigations into the true extent of foreclosure abuses, which have reportedly gone back decades. In fact, according to a report in the New York Times over the weekend, government-backed mortgage giant Fannie Mae knew about foreclosure fraud as far back as 2003, but did nothing about it:

Even then, [Florida businessman Nye Lavalle] discovered, some loan-servicing companies that worked for Fannie Mae routinely filed false foreclosure documents, not unlike the fraudulent paperwork that has since made "robo-signing" a household term. Even then, he found, the nation's electronic mortgage registry was playing fast and loose with the law — something that courts have belatedly recognized, too…For two years, he corresponded with Fannie executives and lawyers. Fannie later hired a Washington law firm to investigate his claims. In May 2006, that firm, using some of Mr. Lavalle's research, issued a confidential, 147-page report corroborating many of his findings.

And there, apparently, is where it ended. There is little evidence that Fannie Mae's management or board ever took serious action.

Schneidermann has sued Bank of America, JP Morgan Chase, and Wells Fargo for their use of a mortgage database that may have led to improper foreclosures. And evidently a look into what Fannie Mae knew about foreclosure fraud is also warranted.

 

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+22 # maddave 2012-02-07 09:30
There is one solution that we all may find attractive:set free al prison inmates who have been convicted of non-violent, victimless crimes . . . and fill the resultant vacuum and empty cells with mortgage brokers, bankers, and felonious foreclosure.

Let them visit a spell and bond with the people whom they previously considered to be their lawful prey.
 
 
+4 # colpow 2012-02-07 09:46
They'd have less of a chance in prison than Jeffrey Daumer (sp?) did. Deservedly.
 
 
-11 # lnason@umassd.edu 2012-02-07 10:59
What bothers me most about this framing is the nature of the "fraud". Other than a few inevitable errors (which are bad and should be redressed when they are discovered), most of these foreclosures were justified in terms of the homeowner not having paid their mortgage bills. Sometimes the non-payment was due to lack of money -- the homeowner lost a job or someone got seriously ill -- but sometimes the homeowner decided that the house was under water and it would take a year or two to foreclose so why bother paying the mortgage.

To zing the banks because of the technicality of robosigning seems amiss. And where justice does lie on the side of the foreclosed homeowner, why should the money in this settlement go to the government? Shouldn't settlement money go to the victims?

This whole argument seems ginned up to bolster state governmental revenues.

Lee Nason
New Bedford, Massachusetts
 
 
+4 # BradFromSalem 2012-02-07 13:55
This is a much bigger issue than technicalities. By utilizing this back end system designed to circumnavigate various local laws, avoid paperwork and fees; the banks found it easier than ever before to begin foreclosure procedures.

True that in many cases the mortgage was not paid up to date, but in many cases the banks did not feel the need to evaluate their risk since the loans were all destined for amorphous MERS. They made loans they never should have, please, please I beg DON'T EVEN THINK ABOUT BLAMING THE VICTIMS. Because that is exactly what they are victims of greedy banks looking to get their commission on creating a mortgage and no back end responsibility on the banks to make sure the loans were good.
 
 
-4 # lnason@umassd.edu 2012-02-07 19:31
liberal libertarian:

I agree with you that the banks had no incentive to grant only sound and reasonable mortgages. As long as the banks could make commissions from the deals and get rid of their risks on fannie and freddie, they would have to be stupid to worry about risk. I really don't blame the banks for this arrangement but rather I blame fannie and freddie for knowingly accepting so many bad mortgages as a matter of policy.

But I still believe that we should hold the mortgage holders somewhat accountable since, absent fraud (and there may have been some fraud in some cases though widespread fraud clearly did not occur), they too should have realized that they could not sustain their mortgages.

So the mortgage holders should, at least in most cases, lose their homes to foreclosure.

But I still don't understand why the state governments are getting the settlement money instead of the victims of the robosigned foreclosures.

I see this as a trend in american jurisprudence. Some company does something bad and hurts people, the government sues and gets a wad a money, and the people who have been hurt are left flying in the breeze. Doesn't make any sense to me except as an extortion racket.

Lee Nason
New Bedford, Massachusetts
 
 
0 # BradFromSalem 2012-02-08 06:48
Lee,

You are correct when you point out that much of the bad loans were made due to systemic issues. However the system was not created by individual homeowners. They signed those contracts in good faith. They signed them under an assumed common knowledge that when someone provided a mortgage to them all the fees they paid upfront were so that a vetting process would be performed. Further, the system was designed by many banks, not Fannie and Freddie. Again, STOP BLAMING THE VICTIMS!

Lastly, you are very correct that the money from any settlement should go to the victims. But, the victims are all homeowners. The systemic issues that created the boom, that created the bust actually affected each and every person that purchased a mortgage during the years of MERS existence. Every one of those victims deserves a reduction of principal or a cash settlement.
 
 
+16 # Floridatexan 2012-02-07 11:53
Mr. Nason, if you really want to understand the nature of the corruption in the housing (and other) markets, read Matt Taibbi's GRIFTOPIA. The reason for robosigning is that the actual chain of title to the property was lost amidst the selling and reselling of these tainted loans. The lenders were often not bound by banking regulations (Countrywide, e.g.). They wrote loans without performing due diligence on the ability of the homeowners to repay. Everyone was "banking" on a continued upturn in the housing market. Some people abused the system; others, mainly purchasers of primary residences (as opposed to second homes and investment properties) just got taken...period. ..many of these people had an adjustable rate, some of them saw their monthly payments skyrocket as the market worstened. It's not the fault of the average homeowner, but a flawed and corrupt system that rewarded greed and duplicity. If you were not a new buyer, but a seller, as the market dropped, you probably lost a substantial amount of equity as well, as I did.
 
 
0 # lnason@umassd.edu 2012-02-07 19:39
Floridatexan:

I have read most of what Taibbi has written on the subject and I agree that mortgage lenders failed to assess risk. They failed to assess risk because they had no risk since they knew they could sell the mortgages on. Do we really blame banks which were simply maximizing profits for their shareholders as they are morally required to do? Or do we blame fannie and freddie who assumed those bad mortgages as a matter of policy? Personally, I blame Fannie and Freddie.

Homeowners were victims here -- yes, they got caught short by the crash. So what is the just response to this? We make the middlemen (mortgage lenders) financially responsible while offering further subsidies to the real culprits (fannie and freddie) and do nothing to help the victims while we enrich state governments? Doesn't sound like justice to me.

Lee Nason
New Bedford, Massachusetts
 

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