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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.
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