Thursday, April 14, 2011

Regulators sit on fence, banks get whitewashed

U.S. says lenders must pay for wrongful foreclosures
The federal government on Wednesday ordered the nation's largest banks and mortgage servicers to identify and compensate borrowers whose homes were taken in wrongful foreclosures.

In Palm Beach County, 51,518 foreclosures were filed during that period.

Shari Olefson, a Fort Lauderdale attorney who represents banks, called the orders "fluff" and questioned how long it would take to determine wrongdoing in individual foreclosures.

"I don't know what 'improperly foreclosed on' means because at the end of the day, if someone isn't paying their mortgage, they should be foreclosed on," said Olefson, who wrote the 2009 book Foreclosure Nation: Mortgaging the American Dream. "If you're in default, it's proper to foreclose on you."

But homeowner advocates criticized the much-anticipated agreements Wednesday, saying they impose no financial penalties and are vague about what kind of foreclosure practices would garner reparations and what those reparations would be.

"This is a huge whitewash to shut everyone up and continue the status quo," said Palm Beach County homeowner advocate Lisa Epstein, who writes a blog called Foreclosure Hamlet. "The end result will be a lot of frustrated people requesting restitution that will probably be denied."

Mortgage Lenders Get A Slap On The Wrist
... bank regulators attempted to punish the banks for such practices today but I’m not so sure they succeeded.

The Office of the Comptroller of the Currency, the Federal Reserve and the Office of Thrift Supervision announced today a settlement with the 14 largest U.S. mortgage servicers including Bank of America, Citibank, HSBC, JPMorgan Chase, MetLife Bank, PNC, U.S. Bank, and Wells Fargo.

The settlement doesn’t fine the banks for any of the wrongdoing but instead lists ways they need to improve their mortgage and foreclosure proceedings.I’ll stop there with the banker bashing that Dimon hates so much and instead take a minute to bash the OCC for getting in bed with the banks.

When you have to tell a bank not to purposely confuse borrowers and to communicate with them instead of keeping them in the dark about what you’re really doing to their mortgage something is wrong. No. Something is up.

Last month, a state financial regulator testified before the House Oversight Committee about his efforts with state attorneys general to gather data from subprime servicers. In his testimony, the regulator revealed that the data fell short of its potential to reveal foreclosure problems because the Office of the Comptroller of the Currency forbade national banks from providing loss mitigation data to the states.

(Check out Matt Stoller’s piece about the OCC cover up: Comptroller of the Currency Orders National Banks to Cover Up Foreclosure Scandal)

Now, a month later, the OCC and other regulators have basically announced that the foreclosure problems weren’t that bad,and that the bank can figure out how to resolve the residual problems on their own. The banks, I’m sure, couldn’t agree more.

Analysis: U.S. banks still face big foreclosure risks
In March, the OCC and other bank regulators bolted from a joint effort by the 50 states' attorneys general and multiple federal agencies to reach a "global" settlement with the servicers on terms tougher than those favored by the OCC.

OCC spokesman Robert Garsson said there had not been any intent to undercut the other regulators, or protect the banks at the expense of consumers. Referring to the banks' practices in servicing mortgages, he said, "From our perspective there's a process that's broken and needs to be fixed. Our enforcement orders will accomplish that."

In reality, within their states, the attorneys general have stronger powers than federal regulators to prosecute wrongdoing involving foreclosures. Foreclosures mainly are governed by state, not federal law. And the attorneys general have authority under state law to bring both criminal and civil cases for violations such as submitting false affidavits, creating false mortgage assignments, and forging signatures.

They also can bring lawsuits in state courts demanding restitution to homeowners and new requirements -- potentially stricter than those imposed by the OCC -- for handling foreclosures and loan modifications. Attorneys general in Florida and New York already have investigations well under way, and have subpoenaed law firms that handle large numbers of foreclosures for the major banks.

Federal bankruptcy courts oversee foreclosures for homeowners who are in bankruptcy. The U.S. Trustees Office, an arm of the Justice Department that oversees the integrity of the bankruptcy courts, has launched actions in bankruptcy courts around the country alleging that representatives of the banks committed fraud on the courts by knowingly submitting forged and fraudulent documents.

The U.S. Trustees office is working with local federal prosecutors in some areas, potentially leading to a series of criminal prosecutions.

Investor trusts that purchased securitized mortgages have filed large numbers of lawsuits against the banks, alleging that they never actually turned over to them the mortgages that they had bought. The suits claim that the banks never provided the documents legally required to turn over ownership.

A rapidly increasing number of state courts and federal bankruptcy judges around the country have begun to routinely throw out foreclosure cases when the banks cannot produce authentic documents showing who owns the mortgages. The courts' actions have slowed or halted foreclosures in areas subject to those rulings. RealtyTrac, which publishes foreclosure statistics, said the court decisions were largely responsible for a 27 percent decline in foreclosures from a year earlier.

U.S. judge to sanction LPS for lying to court
A federal bankruptcy judge in New Orleans said she will impose sanctions on Lender Processing Services, after concluding that the mortgage servicing company deliberately committed fraud on the court in a foreclosure case, by giving false testimony and submitting a "sham" affidavit.

The judge granted a motion by the U.S. Trustee's Office for sanctions, and said she would decide on financial and other penalties against LPS later, after holding a hearing.

Her opinion in the bankruptcy of Ron and LaRhonda Wilson, also sharply criticized the entire mortgage servicing industry.

"One too many times, this Court has been witness to the shoddy practices and sloppy accountings of the mortgage service industry," she wrote.

Related reading:
In Financial Crisis, a Dearth of Prosecutions Raises Alarms

Why Isn't Wall Street in Jail?

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