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NY joins national foreclosure work group

Victims of foreclosure and their supporters are shown taking part in a March 2009 rally on Capitol Hill in Washington, D.C. Attorneys general in all 50 states on Wednesday launched a joint investigation into allegations that mortgage companies mishandled documents and broke laws in foreclosing on hundreds of thousands of homeowners. Lauren Victoria Burke for The Associated Press/File

New York is joining the rest of the nation in a bipartisan mortgage foreclosure working group being led by Iowa Attorney General Tom Miller.

It is part of a coordinated national effort by states to review the practice of so-called robo-signing within the mortgage servicing industry.

Robo-signing, as defined by New York Attorney General Andrew Cuomo, is the filing of affidavits that falsely attest the signer had personal knowledge of facts presented in foreclosure proceedings.

Cuomo formally announced his own investigation Tuesday, calling on all banks who use robo-signers to immediately suspend all foreclosure actions in the state. His office had no further comment today.

Rebecca Case-Grammatico, senior attorney, who supervises Empire Justice Center’s Foreclosure Prevention Unit, said she is glad lenders are finally being scrutinized, but simply backtracking and reviewing documents is not going to solve the underlying problem.

“Those of us in the industry have known for years that these robo-signers have existed,” she said. “It’s refreshing that this steamroller of an industry is being looked at and being held to the same standards that the borrowers are being held to.”

Rebecca Case-Grammatico

Case-Grammatico helps low-income homeowners navigate their way through the foreclosure process. She said Empire Justice Center is less concerned about who has standing in terms of proper paperwork filing than whether clients have the means to pay their mortgages and have the potential to stay in their homes.

New York requires a 90-day foreclosure notice on all home loans under a nearly year-old law that extended the provisions of the Foreclosure Prevention and Responsibility Lending Act of 2008, which Case-Grammatico helped to draft and get passed. The original act applied mainly to sub-prime loans.

New York also requires mandatory settlement conferences between borrowers and lenders, which Case-Grammatico said work to level the playing field and enable borrowers to force banks to the negotiating table — one of the strongest protections the state provides consumers, but Case-Grammatico said more can be done.

By far the greater problem in the current economy is the lack of funding available to legal services providers representing low-income homeowners who are facing foreclosure, she said.

Banks generally are unresponsive and have given borrowers the run-around, Case-Grammatico said, telling them to fill out certain paperwork then, after a 90-day review, telling them the papers accepted were incomplete or additional forms are required.

“When we go into these settlement conferences, … the lenders are not responsive,” Case-Grammatico said. “Borrowers will be rejected for a modification offer or a solution because they didn’t submit all of the documents that weren’t given to them. … Meanwhile, the foreclosure clock is ticking away.”

Some lenders claim borrowers are not filing paperwork properly as a stall tactic, but Case-Grammatico said only a small minority of homeowners go that route.

Where we are

According to the New York State Banking Department, Monroe County is now seventh in the state, with 5,811 pre-foreclosure notices filed between Feb. 13 and Aug. 31 — 4.3 percent of the statewide total.

Calls for a national or statewide moratorium on all foreclosure sales will not solve the problem, Case-Grammatico said.

“We need to get these houses back on the market and into a performing asset again,” Case-Grammatico said. “Stalling the process, allegedly to make sure the proper owner owns the home, is not going to fix the bigger problem.”

In many cases, a home’s original loan was acquired by another lending institutions — frequently it has been transferred many times over — making it more difficult to determine who owns a property or whether the true property owner still exists.

The New York State Banking Department, one of 36 state bank and mortgage regulators participating in the multi-state investigation, issued its own statement Wednesday, noting letters were sent to 20 mortgage servicers registered to do business in the state. Those companies are being asked to conduct internal reviews of their foreclosure practices and suspend foreclosure actions until a thorough analysis is complete.

The department also wants to know what steps are being taken to review the lenders’/lienholders’ foreclosure processes in New York; the results of the review, including a description of the process for verifying affidavits; what corrective actions have been taken, if any; what measures have been taken to ensure affidavits comply with New York state laws; and the status of pending foreclosures and measures taken to suspend foreclosure actions pending review.

Jane Azia, the department’s director of consumer protection, said the department has received complaints on issues similar to those raised by Case-Grammatico, and they are of “great concern to us.”

She said the 2008 Act requires mortgage loan services to be registered with the department. In July, the department adopted a set of mortgage-servicing and business-conduct rules to make servicers more responsive to complaints. Copies are available online at www.banking.state.ny.us. The rules, which took effect Oct. 1, are binding on any mortgage servicers doing business in New York state.

“I think the issues have been flagged,” Azia said. “Consumer representatives have raised it so it’s not particularly new. I think the fact that admissions [of illegal document review practices] in various depositions have brought it all to the forefront.”

Michael P. Smith, president of the New York Bankers Association said his group has worked with the state “to mitigate the problems that are created by foreclosures.”

“New York has some of the strongest mortgage laws in nation,” Smith said.

New York ranks 40th in the nation when it comes to the number of homes in foreclosure, he said. Smith said the association supports the foreclosure conference process and has pledged support to the judiciary and legal aid for borrowers.

Smith said the association is not hearing from its members about robo-signing-related problems. He pointed out that, until a couple of years ago, most home loans were not made by banks.

“We have acquired some of the lenders and some of the problems,” he said. “Ultimately, banks do not want to become owners of property. It’s not in their interest. All properties have to be maintained until sale is made. It’s quite a significant responsibility attached to the lender. Our members are complying and responding.”

Smith said the association believes lienholders and lenders should be given the chance to enact a voluntary moratorium on foreclosures, both statewide and nationally, which a number of the association’s members — including JPMorgan Chase and Bank of America — already have instituted. GMAC/Ally Financial and PNC, which are not association members, also enacted voluntary moratoria.

“What these institutions have done, and what is being done, is the proper way to deal with this situation,” he said. “I think a number of prominent officials have made it very clear that they understand to put a vast blanket moratoria is not the right approach.”