Tag Archives: JPMorgan Chase

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ECONOMY: Investigating Foreclosure Fraud


Yesterday, all 50 state attorneys general opened a joint investigation into the ongoing foreclosure fraud scandal that has led some of the country’s biggest banks to suspend foreclosures, as they sort out whether or not they improperly threw borrowers out of their homes. Multiple banks — including Bank of America, JP Morgan Chase, and Wells Fargo — have reportedly had foreclosure documents approved by “robo-signers”: employees who were signing thousands of foreclosure documents a day, without verifying basic information. In many cases, as the Associated Press reported, these employees had no experience with mortgage banking at all. According to employee depositions, “financial institutions and their mortgage servicing departments hired hair stylists, Walmart floor workers and people who had worked on assembly lines and installed them in ‘foreclosure expert’ jobs with no formal training.” One bank employee reportedly said, “I don’t know the ins and outs of the loan, I just sign documents.” But the extent of the banks’ problems extends beyond robo-signed paperwork to lost and forged documents and, as Reuters’ Felix Salmon reported, knowingly selling investors mortgage bonds they knew were toxic. “The financial institutions would be well served by working with us to get it cleaned up,” said Ohio Attorney General Richard Cordray. “And they’d also be well served to think about reaching negotiated resolutions with borrowers in cases where they’ve created exposure for themselves by committing fraud upon the courts.”

FRAUDULENTLY FORECLOSING: According to a report from the investment bank Morgan Stanley, “as many as 9 million U.S. mortgages that have been or are being foreclosed may face challenges over the validity of legal documents.” In Florida alone, “a recent sample of foreclosure cases in the 12th Judicial Circuit of Florida showed that 20 percent of those set for summary judgment involved deficient documents.” In other instances, dubious notarizations were used to approve foreclosures (leading President Obama to veto a bill that would have forced every state in the country to accept out-of-state notarizations). At the moment, the extent to which unlawful foreclosures were approved is unknown, but JP Morgan Chase yesterday set aside $1.3 billion to cover potential legal costs stemming from the foreclosure scandal. As the Washington Independent’s Annie Lowery reported, “CEO Jamie Dimon tried to reassure call participants by saying there is ‘almost no chance we made a mistake‘ with foreclosures,” but the bank, in addition to the money to cover legal fees, put $1 billion into its mortgage-repurchase reserves, which it uses “to buy back bad mortgages it packaged and sold to investors or the government-sponsored entities, Fannie Mae and Freddie Mac.” “Every homeowner that’s in foreclosure now should be questioning,” Matthew Weidner, an attorney who defends homeowners in foreclosure cases, told Bloomberg News. “This entire system is now a great big question mark.” The banks’ actions not only call into question the legal status of foreclosures, but undermine due process and the rule of law when it comes to property rights. “In a nation of laws, contract and property rights, there is no room for errors,” wrote The Big Picture’s Barry Ritholz. “So what does it mean if banks have been systemically, fraudulently and illegally undermining this process?”

THE POLITICAL RESPONSE: The White House yesterday signaled its approval of the attorneys general’s investigation, with Press Secretary Robert Gibbs saying, “We’re supportive of getting to the bottom of the process and insuring that these banks are following the legal process for making these decisions.” However, the administration has thus far refused to endorse the idea of a national foreclosure moratorium — suggested by some congressional Democrats — due to the potential for “unitended consequences.” The Federal Housing Finance Agency (FHFA) has also released a four-step plan for banks to follow as they look into their foreclosure processes. “I intend to maintain our focus on addressing this issue in a manner that is fair to delinquent households, but also fair to servicers, mortgage investors, neighborhoods and most of all, is in the best interest of taxpayers and housing markets,” said acting FHFA director Edward DeMarco. While many congressional Democrats have called for investigations into the banks’ actions and a bi-partisan group of attorneys general have called for foreclosure moratoriums in their respective states, Congressional Republicans have been largely silent on the issue. Sen. Richard Shelby (R-AL) is one of the few Republicans to call for an investigation, saying “the regulators should determine exactly what occurred at these institutions and make those findings available to the [Senate] Banking Committee without delay.” Banking Committee Chairman Chris Dodd (D-CT) has scheduled a hearing to examine the banks’ practices for November 16.

DEFANGING THE WATCHDOG?: Could some of these problems with the banks been avoided? Elizabeth Warren, who is heading the newly created Consumer Financial Protection Bureau (CFPB), thinks so, saying “had a similar agency been in place three years ago” this problem could have been nipped in the bud. “Little problems are a lot easier to fix than great big problems,” Warren said. The CFPB will have the mandate “to oversee and write rules for mortgage servicers, though it is not staffed or set up yet,” and having one agency in charge of this will be a distinct improvement, as right now at least four agencies have some jurisdiction over mortgage servicers, with none of them looking out specifically for the interests of homeowners. This lackluster and balkanized oversight of the servicing industry helps to explain why companies passed off bogus paperwork and allegedly committed fraud on the court for as long as they did,” wrote Mother Jones’ Andy Kroll. “This is where a consumer protection bureau dedicated to proactively safeguarding American consumers comes into play.” “Moving forward with the regulations under the Consumer Finance Protection Bureau makes a lot of sense. This is a reminder of why those kinds of rules are necessary,” said Harvard Business School Professor Nicolas Retsinas. But the CFPB may have a hard time getting off the ground, as some Republican members of the House Financial Services Committee have already made clear they want to deny the agency funding. Rep. Jeb Hensarling (R-TX) has announced his intention to defund the agency entirely, as he believes it “assaults the liberties of the consumer.”

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ECONOMY: Fighting Back On Foreclosures


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.