Mortgage paperwork mess: Next housing shock?

Scott Pelley reports how problems with mortgage documents are prompting lawsuits and could slow down the weak housing market

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"It was a common practice in the last few years to flood the courts with these documents," Lynn Szymoniak told Pelley.

A look at some of the junk the courts were flooded with shows that sometimes the document mill didn't even bother to fill in the names of the supposed owners.

To them, it seemed like a joke.

"Instead of the name of the bank here that was acquiring the loan, this one says, 'Bogus Assignee for intervening assignments.' That's who acquired the loan," Szymoniak pointed out.

"This was an actual document that was in litigation?" Pelley asked, looking at the document.

"Yes," she said. "And what corporation assigned this loan? A corporation identified as 'A Bad Bene.' Excuse me? When I saw that I was just absolutely amazed."

"What does that mean, 'A Bad Bene'?" Pelley asked.

"It could possibly mean a bad beneficiary. I have no idea what it meant. Here's Linda Green. And this time, instead of being a Vice President of American Home Mortgage Servicing, she's Vice President of A Bad Beanie," Szymoniak said.

Szymoniak says that the banks whose paperwork was handled by the Docx forgery mill include Wells Fargo, HSBC, Deutsche Bank, Citibank, U.S. Bank and Bank of America. We contacted all of them. Each said it farmed out its mortgage servicing work to other companies and it was those mortgage servicing firms that hired Docx.

Docx was owned by a company called LPS, a $2 billion firm that calls itself the nation's leading provider of mortgage processing services. LPS told us that when it found out about the phony signatures in 2009, it shut Docx down. The FBI and several states are investigating.

There were a million foreclosures last year. And there will be another million this year - those lawsuits are forcing open those bundled, mortgage-backed securities that Wall Street cooked up in the mid 2000s, and exposing a lack of ownership documents all across the country.

"It's astonishing to me that this had become as pervasive as a problem that it is," Sheila Bair, the chairman of the Federal Deposit Insurance Corporation (FDIC) told Pelley.

"It got sloppy," he remarked.

"It got very sloppy," she agreed.

As FDIC chairman, Bair is one of the government's top banking regulators.

"You just described it as pervasive," Pelley pointed out.

"Yeah. It is pervasive. It absolutely is pervasive. It was just a matter of cutting corners, not spending enough money and not having quality controls," she said.