Round-up: The Robo-Signing Crisis

As you likely know, a number of large mortgage servicers are under scrutiny for possibly preparing fraudulent foreclosure papers. You can read our thoughts on the issue here. Since the situation keeps rapidly changing, we rounded up the latest news to help you stay informed:

Washington directs servicers to review files: “Federal regulators sought Wednesday to prevent the growing furor over improper foreclosures from escalating, pressing mortgage lenders to replace flawed and fraudulent court documents while insisting that foreclosures continue apace….The policy statement tells lenders to make sure that documents used as part of the foreclosure were properly reviewed and signed. If they weren't, lenders must work with local lawyers on a fix. This could include filing new paperwork. The FHFA's policy statement…underscores the Obama administration's opposition to a national freeze on the grounds that it could damage the economy.” (Washington Post)

Banks hired underqualified employees to sign papers, ignored signs of trouble: “As the furor grows over lenders’ efforts to sidestep legal rules in their zeal to reclaim homes from delinquent borrowers, [banks] insist that they have been overwhelmed by the housing collapse. Interviews with bank employees, executives and federal regulators suggest that this mess was years in the making and came as little surprise to industry insiders and government officials.” (New York Times)

“In one deposition taken in Houston, a foreclosure supervisor with Litton Loan couldn't define basic terms like promissory note, mortgagee, lien, receiver, jurisdiction, circuit court, plaintiff's assignor or defendant.” (Associated Press)

Moratoria pose problems in selling vacant homes: "’Foreclosed properties on hold means there's more utility bills, additional lawn mowings, more property care, and that drives expenses up especially as the volumes go up,’ said Brad Trapnell, vice president of Client Relations and Development at Energy REO Solutions, a property preservation company based in Minnesota…Robert Klein, founder and chairman of property preservation company Safeguard Properties, adds the longer a home stays vacant, the more the value and condition of the property depletes.” (REO Insider)

Scrutiny spreads: “JPMorgan Chase is expanding its review of foreclosures to 41 states as pressure builds on banks to answer allegations of document fraud. (Associated Press) “Unlike Bank of America, JPMorgan Chase and GMAC, Wells Fargo has not halted foreclosures and has maintained that it has no problems with its procedures. Yet, a sworn deposition by one of its loan documentation officers suggests otherwise. Xee Moua said she signed as many as 500 foreclosure-related papers a day on behalf of the bank. Ms Moua said the only information she had verified was whether her name and title appeared correctly.” (Financial Times)

Foreclosure document problems could harm Fannie Mae, Freddie Mac: “Banks have said a remedy will take only a few months, but some Obama administration officials are unsure whether the system can be fixed that quickly…If these freezes turn into a prolonged delay, Fannie and Freddie would face ‘billions’ of dollars in losses, since the companies wouldn't be able to sell off properties that have fallen into foreclosure, said Anthony B. Sanders, a professor of real estate finance at George Mason University.” (Washington Post)

“Until now, Fannie and Freddie have been largely bystanders in the widening foreclosure scandal, because they don't directly service loans, or handle day-to-day management of mortgages. But their use of so-called foreclosure mills…is dragging the companies into the latest crisis.” (Wall Street Journal)

New document problems could be a “doomsday scenario”: “Bank analyst Josh Rosner envisions a doomsday scenario where banks would have to stand behind most private label mortgage-backed securities (MBS) that they had believed they had no exposure to. This would be disastrous…when creating a MBS, the bank who originally provides the mortgages to borrowers sells those mortgages to a trust through a legal process called a "true sale." The trust then sells bonds to investors, which are secured by those mortgages. Due to sloppiness, that true sale may never have been legally executed in most cases.” (The Atlantic; more at Bloomberg, Naked Capitalism)