Last Updated Sep 2, 2011 10:00 AM EDT
That's the gist of an agreement New York's top banking regulator has struck with the investment bank, its Litton Loan Servicing unit and Ocwen Financial (OCN), which is buying Litton, to resolve allegations that the firms illegally "robo-signed" documents filed in foreclosure cases. Under the deal with the state's banking department, Goldman also has to write down a total of -- steel yourselves -- $13 million in mortgage principal for New York homeowners. Notes TheStreet.com's Philip van Doorn:
So Goldman got off cheaply this time, coughing-up $13 million in principal reductions, while the company and Ocwen have agreed to do what they should have already been doing.Oh, you mean not breaking the law? Stickler. But if you think Goldman is getting off easy, consider what the Federal Reserve is doing (the squeamish should look away). The agency announced today that Goldman must hire an independent consultant to review Litton's past foreclosure practices. I mean, you know how rude consultants can be (someone get Goldman CEO Lloyd Blankfein a glass of water, for crying out loud!).
Been there, done that
The only problem with such promises is that they don't count for much. In April, the nation's 14 largest mortgage servicers signed so-called consent decrees with the government vowing to stop robo-signing. Since then, at least five of those banks and servicers -- Bank of America (BAC), GMAC Mortgage, HSBC Bank USA, OneWest and Wells Fargo (WFC) -- have been caught filing dodgy foreclosure documents. And here is what American Banker, a trade pub not exactly known for its hostility to the financial industry, had to say this week about persistent robo-signing:
Several dozen documents reviewed by American Banker show that as recently as August some of the largest U.S. banks, including Bank of America Corp., Wells Fargo & Co., Ally Financial Inc., and OneWest Financial Inc., were essentially backdating paperwork necessary to support their right to foreclose.Can we still call it "robo-signing" if the robot isn't around anymore?
Some of documents reviewed by American Banker included signatures by current bank employees claiming to represent lenders that no longer exist.
Why robo-signing persists
The reason such legal agreements, whether at the state or the federal level, won't halt illegal foreclosures is that they ignore the rubber stamp-wielding elephant in the room -- loan servicers often don't have the original mortgage notes, assignments and other required documents. Otherwise, they would've submitted the legit paperwork during foreclosure proceedings instead of continuing to commit fraud against the courts in defiance of federal cease-and-desist orders.
Pervasive fraud, it's worth remembering. Robo-signing was -- and almost certainly remains, considering the evident lack of documentation proving chain of custody in many foreclosures -- a national crisis. Mike Konczal notes that in my hometown of New York City, banks and mortgage servicers moving to foreclose on bankrupt homeowners couldn't prove they had the right to repossess the properties in 92 percent of the claims. Nine out of 10!
Asking companies to comply with the law is no substitute for enforcing it. Promises, after all, are made to be broken.
Image from Flickr user Respres via Wikimedia Commons, CC 2.0