Foreclosure scandal, Part 3: ‘Big mess’ spreads to other industries
[Editor's note: Part 1 is here; Part 2 is here.]
The foreclosure scandal has gone nationwide, following President’s Obama’s pocket veto of a related bill and Bank of America’s Oct. 8 announcement that it will halt–indefinitely–foreclosures in all states, not only those in the so-called judicial states.
The announcement from BOA, often referred to as the nation’s largest bank, says it “will stop foreclosure sales,” but The Los Angeles Times reports that the bank “hasn’t halted all foreclosure proceedings, however. If a borrower is delinquent, the bank is still issuing notices of default and pursuing efforts to modify certain borrowers.”
As discussed in Part 2 of this series, BOA had earlier joined Ally (formerly, GMAC Mortgage) and JP Morgan Chase in halting the types of foreclosure actions that, collectively, have come to be known as the “robo-signing scandal.”
Although some media outlets and industry observers have been downplaying the issue as a self-admitted, pervasive-yet-simple-oversight that can be easily cured in the near-term, others are digging up little-known contractual clauses and system-wide “glitches” that may damage the housing market for many months, if not years.
Reactions run the gamut
During the weekend, a significant–and sometimes surprising–variety of perspectives emerged.
White House senior adviser David Axelrod on Oct.10 told CBS’s “Face the Nation” that the administration “opposes a moratorium on home foreclosures, but wants problems involving improper paperwork resolved as quickly as possible, senior adviser David Axelrod said,” according to a CNN report filed the same day: ” ‘I’m not sure about a national moratorium,’ Axelrod said . . . . He said valid foreclosures with proper paperwork should go forward, and that questionable foreclosures need to be addressed right away.”
Curiously, some leading Dems including Senate Majority Leader Harry Reid disagreed with the White House, but a GOP leader seemed to agree–but for reasons different than those cited by FHA Commissioner David Stevens, presumably speaking as a senior housing official for the Obama administration.
According to another Oct. 10 post, at ThinkProgress.com, “On Fox News Sunday, Rep. Debbie Wasserman-Schultz (D-FL) called for a nationwide moratorium on foreclosures, saying ‘it’s absolutely imperative that we keep people in their homes.’ House Minority Whip Eric Cantor (R-VA) disagreed strongly, however, saying he was ‘just perplexed’ at Wasserman-Schultz’s answer, and that ‘people have to take responsibility for themselves.’ ”
Stevens responded to The Washington Post by e-mail and was quoted in this Oct. 11 piece:
“We believe freezing foreclosures for all banks in all states, whether we have reason to believe them to be in error or not, is simply not the prudent step to take in this fragile housing market,” he said.
With approximately one in four homes sold in the second quarter in foreclosure, administration officials worry that a moratorium could have a significant impact on the economic recovery.
“While we understand the eagerness to make sure that no American is foreclosed upon in error, we must be careful not to over-reach and apply a remedy that will make the underlying problem of foreclosures worse,” he added.
Impact spreading, but how far, how deep?
The effects on Fannie and Freddie also remain unclear, but The New York Times reports not only that BOA’s “action is likely to increase pressure on other lenders to declare their own moratoriums,” but also that “Fannie Mae is postponing deals on homes with mortgages previously serviced by Bank of America, real estate agents said. Fannie Mae representatives declined to return numerous calls for comment.”
Another major concern is that the freeze seems to be extending to title companies, which may be reluctant–or even refuse–to provide title insurance for questionable deals. The ripple effect could damage a housing market in the crucial stages of re-emergence.
Wall Street Journal downplays severity
Perhaps predictably, the Wall Street Journal is taking a Tempest-in-a-Teapot tack–and seemed in quite the hurry to get its opinion out there to calm the waters. Posted with an Oct. 9 dateline, the WSJ on Oct. 8 wondered whether it really matters which nameless, back-office employee signs the paperwork, as long as the homeowner either ponies up the back payments right away–or clears out:
Talk about a financial scandal. A consumer borrows money to buy a house, doesn’t make the mortgage payments, and then loses the house in foreclosure—only to learn that the wrong guy at the bank signed the foreclosure paperwork. Can you imagine? The affidavit was supposed to be signed by the nameless, faceless employee in the back office who reviewed the file, not the other nameless, faceless employee who sits in the front.
The result is the same, but politicians understand the pain that results when the anonymous paper pusher who kicks you out of your home is not the anonymous paper pusher who is supposed to kick you out of your home. Welcome to Washington’s financial crisis of the week.
Not content to stop just short of labeling distressed homeowners as deadbeats, the Journal goes on to smear Pelosi, Obama and, well, heck…the entire “crew (Mr. Shelby excepted) that ran roughshod over its own transparency rules—not to mention the established customs of the House and Senate—to restructure American medicine . . .”
Apparently, Obama’s sin was to use his powers of pocket veto–that is, merely holding without signing, such that the bill expires–to shelve a measure that would have allowed states to legally recognize each other’s notarizations. But, for one, it didn’t stop with human-generated notarizations (talk about robo-signing); two, given the mess that the lenders in particular and Wall Street in general have brought upon themselves, it doesn’t seem prudent to proceed with such a bill until the scandal gets sorted out.
And of course the Journal fails to mention that Great Recession that has its roots buried deep into Wall Street’s financial engineering DNA, yet the paper remains ever-ready to attempt to divert blame to people who need to move out of “homes they can’t afford . . . .”
As for its claim that the Journal can’t find “a single case so far of a substantive error” on behalf of lenders, all we can say is their researchers must be sitting on their hands.
Bank sends contractor to break into a home
For a quick example, a recent “recommended” headline on CNN’s home page pulled up this CNN news blog, “Bank breaks into home – over mortgage payments.”
Notice the date: Oct. 8. Perhaps the break-in to the home (which, apparently, was not yet even in foreclosure) by the contractor hired by Chase bank did not occur before the scandal emerged into national view. But certainly it was reported recently enough that even a Journal intern could find it on Google or Yahoo!
The Wall Street Journal most certainly has the resources to report on complex–even complicated–financial matters. Whether the Journal served us well leading up to the meltdown is another question. We provide more examples in the next installment.
As discussed in Part 1 of this series, the so-called “Produce The Note” or “Show Me the Note” movement can be traced to at least 2004, when a Florida-community-based, legal-aid lawyer first noticed shortcomings in the legal framework of foreclosure proceedings.
In Part 4, we”ll get into that history and explain some of the leading theories about what all this means to homeowners across the foreclosure spectrum, from those who have lost homes, to those facing foreclosure, and those who about to close on a foreclosure sale.
[Editor's note: Part 1 of this series is here; Part 2 is here.]
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The bankruptcy reform act of 2005 increased the complexity of the law, but if you are overwhelmed by debt, filing for bankruptcy protection may be your most pragmatic alternative. If you are facing foreclosure of your home (sometimes referred to as your “primary residence,” as opposed to a second home, or “vacation home”), bankruptcy protection may be your best route to saving the home. If you are struggling with medical bills, you may be in a special category for setting debt aside, and if you have problems with credit-card debt, you should be aware that some of those laws have changed recently, too.
Whatever you do, before making major, life-changing financial decisions, consider consulting a trained, experience attorney. If you think your home is a candidate for a short sale, be sure to ask your attorney about it–it could greatly affect your standing and strategy for starting over.
For bankruptcy basics, please see:
Bankruptcy FAQ
Introduction to Chapter 7
Introduction to Chapter 13
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Tags: Nationwide, Nationwide Moratorium