Bad Robot: Big Banks Are Still Faking Home Loan Documents

Last Updated Jul 19, 2011 1:22 PM EDT

After getting caught last year falsifying legal documents as part of conducting illegal foreclosures, big banks promised never to do it again. In April, more than a dozen large mortgage servicers also signed agreements with financial regulators pledging to stop "robo-signing," as the practice is known, and to fix their foreclosure procedures. The result, Reuters reports:
[S]ome of the biggest U.S. banks and other "loan servicers" continue to file questionable foreclosure documents with courts and county clerks. They are using tactics that late last year triggered an outcry, multiple investigations and temporary moratoriums on foreclosures.

In recent months, servicers have filed thousands of documents that appear to have been fabricated or improperly altered, or have sworn to false facts.
At least five of those banks and servicers -- Bank of America (BAC), GMAC Mortgage, HSBC Bank USA, OneWest and Wells Fargo (WFC) -- have recently filed documents of "questionable validity," according to the wire service. Same goes for other major servicers that didn't sign on to the government settlement.

Looking for Linda Green
The Associated Press finds similar evidence that banks continue to engage in robo-signing, with staffers rubber-stamping documents they haven't read and faking signatures:
County officials in at least three states say they have received thousands of mortgage documents with questionable signatures since last fall, suggesting that the practices, known collectively as "robo-signing," remain widespread in the industry....
The documents have come from several companies that process mortgage paperwork, and have been filed on behalf of several major banks. One name, "Linda Green," was signed almost two dozen different ways.
Green is a former employee with a mortgage processor that was closed last year. The company doesn't exist, yet her name keeps showing up on new loan documents being filed in Essex County, Mass. How bad is it? The county's registrar of deeds describes his office as a "crime scene." Even the president of the Mortgage Bankers Association is forced to concede that loan servicers "continue to cut corners."

'F' for fake
Why is this still happening? One obvious answer is weak government enforcement. The consent decree worked out this spring let financial firms off easy. No penalties were imposed. Banks and servicers only had to commit to improving their foreclosure procedures, with regulators essentially taking the companies at their word. The firms were also given latitude in choosing how they would comply with the order.

But Reuters's Scott Paltrow pinpoints a deeper cause -- loan servicers often fake documents simply because they don't have the originals. In the rush to issue and securitize loans during the housing boom, financial firms routinely failed to provide promissory notes, mortgages and other key documents to the investors that bought the securities. Says one expert:
"The banks have completely screwed up property records," says L. Randall Wray, an economics professor and senior scholar at the University of Missouri-Kansas City.
Beyond the injustice to homeowners, that is the root sin in robo-signing: You can't prove who owns what. Since we live, in theory, in a land with property rights, that is a monumental problem. And not just for people facing foreclosure. If you decide to buy or sell a home, any evidence of forged paperwork can kill the deal. More broadly, without proper documentation ownership comes down not to who can show title for a home in a court of law, but to who can afford a lawyer. Un-American? You bet.

Federal and state legal officials are close to reaching a major settlement with mortgage lenders over their foreclosure misdeeds. The Justice Department is reportedly pushing to exempt the companies from a legal harm as part of the deal. In light of these latest revelations, that would be a travesty.

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