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'Robo-signing" comes under scrutiny

A sign for GMAC Mortgage Corporate Headquarters in Horsham, Pa.

TEXT OF STORY

Kai Ryssdal: How many stories have you heard about struggling homeowners whose mortgage servicers don't call back? Or that lose their applications for a loan modification? All the time, right? OK, here's one about a big mortgage servicer that's been too efficient with paperwork. Foreclosure documents to be specific. Ally Financial, an underwriter of this broadcast, has stopped foreclosures and evictions in 23 states after it discovered that employees had approved some foreclosure documents without reading them. Without making sure that the information that led to the foreclosures was right. At Ally, one guy signed off on 10,000 cases in a single month. The bank says it was just a technical defect and that there was no fraud.

Our senior business correspondent Bob Moon looks at the broader implications.


Bob Moon: It wasn't supposed to work this way. When mortgages started being sliced up, packaged and sold to many different investors, a wave of foreclosures wasn't part of the equation. Neither, it seems, was keeping track of where so many original deeds ended up.

Iowa Assistant Attorney General Patrick Madigan heads a national foreclosure prevention task force.

Patrick Madigan: Just the sheer number of foreclosures, the sheer amount of paperwork, has overwhelmed the system. I think that's undeniable.

What that representative of mortgage servicer Ally now admits is that he didn't really personal verify the paperwork in each case. And banking consultant Bert Ely says that problem is almost certainly shared by other big mortgage servicers.

Bert Ely: Are they able to proceed with these foreclosures where they don't have all the paperwork, and have not been able to properly dot all the I's and cross all the T's?

Ely says attorneys for homeowners are pressing this paperwork issue in a growing number of cases, but it's unclear how many other loan servicers might have skipped legal steps.

At the University of Pennsylvania's Wharton School, real estate finance professor Susan Wachter says without that paperwork, any foreclosure can't proceed.

Susan Wachter: That's the beginning and the end. One has to document that one has ownership before one can take possession.

And from the perspective of struggling homeowners, she says, if more banks put foreclosures on hold, it buys precious time to wait out the market until they can sell.

Wachter: If housing prices do bottom, as we certainly hope they will, obviously this is giving more breathing time.

Wachter puts it this way: Facing possible foreclosure is always better than facing certain foreclosure.

I'm Bob Moon for Marketplace.

About the author

Bob Moon is Marketplace’s senior business correspondent, based in Los Angeles.
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@ James Morgan from Charlotte: Actually, there are people complaining about exactly that. Here's one such example: http://www.americanconsumernews.com/2010/03/bank-of-america-hijacks-parr...

There are hundreds to thousands more. Simply do a search on google of "foreclosure on wrong home" or the like. If you had bothered to even do an ounce of research before shooting your mouth off you could have saved yourself the embarrassment.

to Kim from LA: You might be suing and irate, but the fact is that you likely have not made your mortgage payment in some time, thus you are in default on your note and the bank CAN foreclose. Take some personal responsibility for your predicament instead of wating the cout's time. The real issue here is NOT about robo-signing. No one is complaining that the wrong house was foreclosed on or that a borrower who actually makes their mortgage payment has been foreclosed upon. The REAL issue here is that this whole "scandal" was created by a bunch of crooked attorneys looking to delay foreclosure actions all the while making some nice fees out of all of this. Don't blame the bank's, blame the attorney's.

DOLLARS TO DONUTS ALMOST NO ORIGINAL LENDER STILL HOLDS ANY PAPERWORK SINCE MORTGAGES WERE BUNDLED AND SOLD ELSEWHERE. I DOUBT ANY FORECLOSURE ATTEMPTS WILL HOLD UP. GOOD LUCK.

This is just friggin' unreal. I am SUING Chase/US Bank for this very THING right now in Los Angeles Superior Court...but CHASE already EVICTED me from my house!!!
Chase, as a servicer, FORGED documents (assignment of deed of trust) like they were the officers of MERS (who was the beneficiary on my 1st mortgage-which is a problem in and of itself)...
I am suing them for wrongful foreclosure, fraud etc.
This PRACTICE is RAMPANT by the banks and servicers and is JUST NOW coming to light for many...after THOUSANDS of people have WRONGFULLY been kicked out of their homes!!!
Wow...for me...too little too late!
Hope that CHASE and US BANK will be BUYING me a new home when they have to settle with me!!!!

Sadly this happens far too often. Regulation is only so effective, and usually too little, too late. The solution is that homeowners need to educate themselves. They need to know who owns their loan and who the parties are that are involved in the foreclosure process, so that they know who to respond to and how. Knowing this information and understanding the foreclosure process could help them stop illegal foreclosures.

For example, part of the requirements of the Nevada Foreclosure Mediation Process requires that the lender show documentation that they are the true current owner of the loan, and have the legal authority to foreclose on the home. Lenders can be prevented from foreclosing if they do not provide all of the documentation.

We've written a series of free guides and ebooks to help homeowners better understand their options. They're available at no cost at http://www.WhatsAllTheHype.com (use code "NPR10").

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