Massive new fraud coverup: How banks are pillaging homes — while the government watches

WEDNESDAY, APR 23, 2014

When financial crimes go unpunished, the root problem of fraud never gets fixed — and these are the consequences

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Eric Holder (Credit: AP/J. Scott Applewhite)

 

Joseph and Mary Romero of Chimayo, N.M., found that their mortgage note was assigned to the Bank of New York three months after the same bank filed a foreclosure complaint against them; in other words, Bank of New York didn’t own the loan when they tried to foreclose on it.

Glenn and Ann Holden of Akron, Ohio, faced foreclosure from Deutsche Bank, but the company filed two different versions of the note at court, each bearing a stamp affirming it as the “true and accurate copy.”

Mary McCulley of Bozeman, Mont., had her loan changed by U.S. Bank without her knowledge, from a $300,000 30-year loan to a $200,000 loan due in 18 months, and in documents submitted to the court, U.S. Bank included four separate loan applications with different terms.

All of these examples, from actual court cases resolved over the last two months, rendered rare judgments in favor of homeowners over banks and mortgage lenders. But despite the fact that the nation’s courtrooms remain active crime scenes, with backdated, forged and fabricated documents still sloshing around them, state and federal regulators have not filed new charges of misconduct against Bank of New York, Deutsche Bank, U.S. Bank or any other mortgage industry participant, since the round of national settlements over foreclosure fraud effectively closed the issue.

Many focus on how the failure to prosecute financial crimes, by Attorney General Eric Holder and colleagues, create a lack of deterrent for the perpetrators, who will surely sin again. But there’s something else that happens when these crimes go unpunished; the root problem, the legacy of fraud, never gets fixed. In this instance, the underlying ownership on potentially millions of loans has been permanently confused, and the resulting disarray will cause chaos for decades into the future, harming homeowners, investors and the broader economy. Holder’s corrupt bargain, to let Wall Street walk, comes at the cost of permanent damage to the largest market in the world, the U.S. residential housing market.

By now we know the details: During the run-up to the housing bubble, banks bought up millions of mortgages, packaged them into securities and sold them around the world. Amid the frenzy, lenders failed to follow basic property laws, which ensure legitimate transfers of mortgages from one legal owner to another. When mass foreclosures resulted from the bubble’s collapse, banks who could not demonstrate they owned the loans got caught trying to cover up the irregularities with false documents. Federal authorities made the offenders pay fines, much of which banks paid with other people’s money. But the settlements put a Band-Aid over the misconduct. Nobody went in, loan by loan, to try to equitably confirm who owns what.

Now, the lid banks and the government tried to place on the situation has begun to boil over. For example, Bank of America really wants to exit the mortgage servicing business, because it now finds it unprofitable. The bank entered into a deal to sell off all the servicing for loans backed by the Government National Mortgage Association (often known as Ginnie Mae). But Ginnie Mae refused the sale, because the loans Bank of America serviced are missing critical documents, including the recorded mortgages themselves.

If you’re a mortgage servicer, and you don’t possess the recorded mortgage, you probably aren’t able to foreclose on that loan without fabricating the document. And Ginnie Mae made it clear that the problem could go beyond Bank of America. “I don’t mean to sound like we’re picking on BofA,” Ginnie Mae president Ted Tozer told trade publication National Mortgage News. “I can’t say if it’s just BofA or not.” Incredibly, this would represent the first time a government agency has actually examined loan files under its control to search for missing documents, seven years after the collapse of the housing bubble and four years after the recognition of mass document fabrication.

Any effort to fix the system would start by reforming MERS, the electronic database banks use to track mortgage trades (and avoid fees they would incur from county clerks with every transfer). MERS was part of a broad settlement in 2011 with federal regulators, and they promised to improve the quality control over their database to avoid errors and fraudulent assignments. Three years later, the fixes haven’t happened, and four senior officers brought in to comply with the settlement have left. MERS then tried to hire a consultant to manage the settlement terms whom U.S. regulators found unqualified for the job.

The database still tracks roughly half of all U.S. home loans, and banks fear that without changes, they might have to – horrors – actually go back to recording mortgages individually with the county clerks! You know, the property law system that the nation somehow survived under for more than 200 years.

Link to full article here

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Abandoned homes haunt Florida’s housing market

By Kimberly Miller

Florida’s real estate market remains haunted by

decaying and abandoned properties

even as new foreclosures slow 

and home values rise. 

Zombie

These so-called “zombie” foreclosures — properties forsaken by both the bank and borrower — number 54,900 statewide, including 14,600 in Palm Beach, Broward and Miami-Dade counties, according to a new report from RealtyTrac.

The concentration in Florida makes it tops in the nation for zombie foreclosures, with South Florida ranking first among large metro areas.

Illinois has the second highest number of vacant foreclosures by state at 15,510, followed by New York with 10,880. Among metro areas, Tampa-St. Petersburg ranks second nationally, with Chicago coming in third.

“The reality is that new foreclosure activity is no longer the biggest threat to the housing market,” said Daren Blomquist, RealtyTrac vice president. “The biggest threat from foreclosures going forward is properties that have been lingering in the process for years, many of them vacant with neither the homeowner nor the lender taking responsibility for maintenance and upkeep.”

Many of the homes are stuck in limbo because banks filed to foreclose on them years ago, but then walked away from the case after realizing it didn’t make financial sense to take the home back, said Nicole Clowers, director of the U.S. Government Accountability Office.

Clowers and Blomquist spoke Tuesdayduring a housing conference sponsored by the Federal Reserve Bank of Cleveland.

New foreclosure filings nationwide were at their lowest level in February since December 2005, according to RealtyTrac. In Florida, new foreclosures were down 53 percent from the same time last year, while Palm Beach County’s clerk’s office recorded just 518 new cases in February_ a 49 percent drop from 2013.

It’s still unclear, however, whether the drop in Florida foreclosures is a permanent change or a temporary trend while banks catch up to a new law that went into effect in July.

U.S. Postal Service information on vacancies was used to study the issue of abandoned foreclosures. But the Government Accountability Office also had access to bank records, leading it to the conclusion that lenders will walk away from a foreclosure if it’s too costly to repossess.

“In some cases they initiate the foreclosure and then realize it’s going to be a money-losing venture and stop,” Clowers said.

Suburban Lake Worth resident Mike Herndon doesn’t know if that’s what happened to a moldering house in his neighborhood on Burlington Court, but he’s frustrated the home isn’t being maintained by the bank or owner.

JPMorgan Chase filed to foreclose on the home in 2010, according to Palm Beach County court records. Herndon said the owner left soon after. The most recent court action taken was in July 2013, but there is still no final judgment. A message to Chase was not returned by deadline.

The Burlington Court home has slowly deteriorated. A leak in the roof turned into a large hole that different property maintenance firms have repeatedly tried to cover with a tarp. Last Thursday’s heavy winds pulled the tarp off again, taking roof tiles with it.

Palm Beach County put a $50-a-day lien against the home in July.

“I have been writing letters and emails for the better part of three years trying to get this property taken care of,” Herndon said.