Yesterday, with the first significant veto of his administration, President Obama rejected the “Interstate Recognition of Notarizations Act of 2010” — a bill that would have forced states and federal courts to accept notarizations from any notary public in the country, as opposed to only those by state residents. What’s wrong with making paperwork easier? Usually nothing, except an increasing number of Americans are losing their homes via foreclosure due to paperwork errors by banks rushing to expedite the foreclosure process. Some banks aren’t even reading foreclosure forms, with the result being a large and growing number of wrongful foreclosures being pushed through the judicial system. The bill would have made such wrongful foreclosures even easier to accomplish, adding to the already problematic foreclosure problem Americans face. Since more Americans lost their homes in August than in any other previous month, the widespread problems plaguing the foreclosure business must be addressed. Moreover, systematic problems causing so many Americans to lose their homes needs to be tackled head-on.
PAPERWORK PLUNDER: Earlier this month, Nancy Jacobini called 911 in a panic from her locked bathroom after she heard what sounded like someone breaking the front door to her Florida home. When police arrived, they didn’t find a masked intruder, but rather someone hired by JP Morgan Chase, who said he was changing the locks because Jacobini had been foreclosed upon. There was a larger problem beyond the bank’s intrusive tactics, however: Jacobini was behind in her payments, but the bank had not actually foreclosed on her home. Sadly, paperwork snafus are plaguing the mortgage industry and the millions of Americans facing foreclosure. After several recent news reports about the work of “robo-signers” — bank officials who were routinely signing thousands of foreclosure applications without ever reading them — many banks were forced to stop foreclosures all together and re-evaluate their practices. Bank of America announced today that it is suspending foreclosures in 50 states, and PNC Bank, JP Morgan Chase and Ally Financial have also halted foreclosures. Stories abound about bank officials not even reading the foreclosure forms — Bank of America’s action came after the Associated Press reported that a bank official admitted in a bankruptcy case that she signed 7,000 to 8,000 foreclosure documents a month and “typically” did not read them “because of the volume.” A Chase official, Beth Ann Cottrell, said that she and her co-workers approved 18,000 foreclosures every month without any personal knowledge of the documents. The Washington Post reported the case of Jeffrey Stephan, a Pennsylvania man who signed detailed foreclosure forms for GMAC Mortgage at the rate of one per minute. And a Wells Fargo executive admitted in a deposition that he only checked the dates on the up to 150 foreclosure documents that he signed daily. Unsurprisingly, these tactics have led to a large number of wrongful foreclosures, where households who have not defaulted on their mortgages are foreclosed upon. Considering that the mortgage crisis was caused at least in part by predatory lenders snowing over consumers with excessive, complicated fine print, it’s ironic that the same industry is failing to read it themselves when taking away people’s homes. (Or, as Jon Steward acidly put it last night, “You’re the [expletive] people who came up with fine print in the first place!”)
GOVERNMENT TAKES ACTION: These banks shut down their foreclosures in the face of aggressive and appropriate government inquiry. House Speaker Nancy Pelosi (D-CA), joined by many Democratic and Republican members of Congress, are calling for not only an investigation into the banks’ practices but also a wider moratorium on foreclosures. A bipartisan group of attorneys general is also demanding answers — for example, Texas Attorney General Greg Abbott, a Republican, is asking 30 lenders to stop foreclosures until they can prove it’s being done legally. Even Congressional Republicans like Alabama Sen. Richard Shelby are demanding investigations. Obama’s veto of the notary public bill was almost surely motivated by concerns that too many people were already losing their homes under paperwork that was proceeding too quickly. The legislation has been languishing in the Senate for months and was likely not designed to help banks speed along foreclosures, but on September 27 it quickly and mysteriously was passed by unanimous consent. Salon notes that perhaps “mortgage lenders pressured their allies in the Senate to pass the notarization bill in the hope that it might provide some ex post facto protection for them from the avalanche of law suits that is about to pound the mortgage industry.” Obama’s veto seemed to consider the danger that speeding along paperwork used in mortgages would be harmful, and the President repeatedly cited the need for “consumer protections” in explaining his move.
MOVING FORWARD: These wrongful “paperwork foreclosures” are unfortunately not surprising, given the enormous scale of the larger foreclosure crisis our country is facing. While the banks must vastly improve the methods by which they foreclose on homes, other banks — notably Wells Fargo — should join in the moratorium. But there are larger issues that also need to be resolved. As the Wonk Room’s Pat Garofalo notes in his column for the Center for American Progress today, there are serious flaws with the Obama administration’s signature foreclosure prevention effort, the Home Affordable Modification Program (HAMP). For one, as Garofalo and former CAP Associate Director for Housing and Economics Andrew Jakabovics first revealed, some institutions like Bank of Americas siphoned borrowers off HAMP and into its own private modification program. CAP proposes taking the modification programs out of the hands of abusive banks: by allowing housing counselors and other public entities to approve mortgage modifications directly, and if the borrower’s servicer doesn’t challenge the modification in 90 days, it automatically becomes permanent. Mortgage mediation programs — in which a bank must meet with a borrower, in the presence of a judge and housing counselors, before finalizing a foreclosure — should also be expanded in cities and states that already have them, or begun in locations where they don’t currently exist. CAP also proposes modifying the rules for Real Estate Mortgage Investment Conduits, or REMICs, those investment vehicles used to pool and securitize mortgages, in order to accelerate mortgage modifications.
Supreme Court Oral Argument Snyder v. Phelps
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