As many as 40 US state attorneys general are expected to join forces to announce an investigation into the mortgage-servicing industry on fraudulent foreclosures to pressure financial institutions to rewrite large numbers of troubled loans.
Mortgage document fraud by "robo-signing"
The move comes amid recent allegations that mortgage-servicers, which include units of major banks such as Bank of America submitted fraudulent documents in thousands of foreclosure proceedings nationwide.
The banks have countered saying that the document issues are technical and mostly the result of papers approved by so-called robo-signers with little review—and don't reflect substantive problems with foreclosures.
Foreclosures on hold, as banks heed the consequences.
Members of the US Congress have called for a suspension of all foreclosures until the documentation issue is resolved.
Some are saying that mortgage servicers that have lied to courts by filing incorrect paperwork and should suffer the consequences of their fraudulent actions.
The attorneys' general immediate aim is to determine the scale of the document problems and correct them. But several of them have said that the investigation could force the lenders and servicers to agree to mass loan modifications or principal forgiveness schemes.
Other possibilities include financial penalties or changes in mortgage servicing practices.
Mortgage lenders and servicers have largely resisted reducing principal on mortgages, instead focusing on interest-rate reductions or term extensions. Banks say they are worried about lawsuits from investors, some of whom could lose money in a principal write down.
A recent action by Massachusetts attorney general successfully pressured Bank of America to reduce mortgage-loan balances by as much as 30% for thousands of borrowers, using the threat of a lawsuit to get a settlement, though documentation problems were not at issue then.
The States could use their respective laws against unfair and deceptive acts and practices, and well as actions under states' various foreclosure laws or tighten those laws.
In 2008, Bank of America settled charges brought by 15 attorneys on accusations of predatory lending in its Countrywide Financial unit, granting loan modifications worth $8.4 billion to thousands of homeowners. That may be the tip of the iceberg if these new actions have bite.
Ohio became the first State to sue a mortgage servicer, when he filed suit against GMAC Mortgage LLC. The suit named GMAC employee Jeffrey Stephan, an alleged "robo-signer," who said that he signed off on thousands of court documents related to foreclosures without even reading them.
Mortgage Lenders and Mortgage Servicers suspend foreclosures
GMAC announced that it was suspending foreclosures in the 23 U.S. states where judges are required to sign off on them.
J.P. Morgan Chase and Co.'s home mortgage unit and Bank of America have both suspended house foreclosures, with the Bank of America now suspending foreclosures in all 50 states of the US.
Some State attorney generals would like to look beyond the narrow issues raised by the robo-signing, with claims that servicers are initiating foreclosures while the lenders are in the process of modifying the loans.
Author: Mr Mortgage
Author: Mr Mortgage
