Banks Halt Foreclosures Amid Document-Signing Fraud

If you read the NY Times on Saturday, you may have caught the article, “Largest U.S. Bank Halts Foreclosures in All States” in which Zillow’s Chief Economist, Dr. Stan Humphries, weighed in on Bank of America’s move to halt foreclosures in all 50 states.

Today, Humphries wrote a blog post titled,  “Bubble, Bubble, Toil and Trouble in the Foreclosure Market” in Zillow Real Estate Research section in which he looks more deeply into the problem and what it means for the mortgage industry.

Background:

Let’s take a step back and take a look at how we got here. There has been talk of serious problems with foreclosure practices since a federal judge held that Deutsche Bank lacked standing to foreclosure in 14 cases because it could not “produce the note” –  proving that it had been assigned the rights in the mortgages when they were securitized.

And, in recent weeks, it has been reported that several banks may have inappropriately signed off or, ‘robo-signed,’ on foreclosures before going through the proper steps. Because of this, several banks have announced plans to suspend foreclosures.

Banks that are temporarily freezing foreclosures:

• Bank of America (BOA) announced on Oct.  8 that it is stopping all foreclosure sales in the U.S. However, it will not stop the foreclosure process in the 27 states where courts are not required in the foreclosure process.
• On Oct. 7, it was learned PNC Financial suspended sales of foreclosed homes for 30 days.
• JP Morgan Chase & Co. said on Sept 29 that they were stopping 56,000 foreclosures to verify that its employees signed the documents properly.
• Ally Financial (previously known as GMAC) said on Sept. 20 that it was halting evictions in 23 states after an employee of Ally said in a deposition that he had signed papers swearing he had personal knowledge that foreclosures where verifiable and justified when, in fact, he was just signing papers put in front of him, an act known as “robo-signing.”

Where will it go from here? Who is doing what?:

• According to Barron’s, Citigroup and Wells Fargo may be the next major banks to announce they are suspending foreclosures.
• According to Bloomberg Businessweek, attorneys general in about 40 states may announce a joint investigation into foreclosures at the largest banks and mortgage firms.
• The Senate Banking Committee will hold hearings after next month’s elections to look into allegations that the nation’s largest lenders have improperly foreclosed on struggling borrowers.

Additional questions and answers:

Q. I see that some banks are only halting foreclosures in 23 states, what is the significance of the 23 states?

A. According to CNBC, “Twenty-three states, however, require banks to go to court to get a foreclosure order. These are the “judicial states.” In these states, banks are typically required to produce a sworn and notarized affidavit of a loan officer and submit the mortgage documents. Often, however, judges will issue foreclosure orders without the mortgage documents so long as the borrower doesn’t contest this point. ”

Q. Will the government step in and stop the foreclosure processes entirely?

A. No. Obama’s top adviser, David Axelrod, announced on CBS’s Face the Nation program on Sunday that there will not be a national foreclosure freeze. In addition, in a statement from the Securities Industry and Financial Markets Association, “It would be catastrophic to impose a system wide moratorium on all foreclosures and such actions could do damage to the housing market and the economy.”