The attorneys general of all 50 states and the District of Columbia have banded together to investigate the practice of “robo-signing” and other concerns that have arisen about banks and mortgage processing firms.
Iowa Attorney General Tom Miller is heading the group, which also includes banking regulators from 40 states to probe potentially flawed foreclosures nationwide. The group’s goal is to look into whether employees at banks and foreclosure processing firms signed court documents that had unverified or false information in an attempt to speed up the process.
“We want to make sure this never happens again,” Miller said. “There is no excuse for this.”
The group will start with the three major banks that have already indicated robo-signing occurred in some foreclosure cases.
“This isn’t some sort of fishing expedition,” Maryland Attorney General Douglas F. Gansler said. “Some of the biggest banks in the country have said, ‘We’ve got a problem here.’”
The group’s initial focus is to gather information about how the foreclosures are carried out. As for whether the investigation would lead to fines, Miller said the states would be willing to look at alternatives to financial penalties. He said those alternatives could include having the lenders provide more resources to those in danger of losing their homes and increasing the number of loan modifications.
Miller said the group asked the three banks — Bank of America, Ally Financial and JPMorganChase — to put a moratorium on foreclosures until the issues are resolved. He said the response has been “varied.” He added that a nationwide halt on foreclosures was not being sought.
“We’re not calling on everyone, at this point, to be engaged in a moratorium,” Miller said.
Bank of America said Friday it was halting foreclosures and foreclosure sales nationwide. And, on Tuesday, JPMorganChase and Ally subsidiary GMAC Mortgage, which had already halted foreclosures in 23 states, agreed to expand their review of documents to all 50 states. But, the banks are still only halting foreclosures in the original 23 states. Wells Fargo & Co. and PNC said this week they would not halt foreclosures but would review documents.
At the state level, there has been a mixed response as to whether or not to implement a moratorium. Ohio Attorney General Richard Cordray, who filed a lawsuit last week against Ally, said Wednesday in a statement, that he does not favor a nationwide freeze of all foreclosures; he does, however, believe that courts should not enter any foreclosure orders based on fraudulent evidence.
Cordray’s lawsuit seeks to halt potentially illegal foreclosure practices. It also asks that a judge stop sales of any foreclosed homes involving paperwork filed by a GMAC employee who signed hundreds of faulty documents. And it aims to toss out foreclosure judgments on homes that haven’t yet sold. The lawsuit seeks damages for consumers and civil penalties of $25,000 for each violation. If similar cases were brought in all 50 states, it could total billions of dollars in damages and fines for lenders and others involved in foreclosures.
Attorney General Andrew Cuomo said this week his office was calling on all banks that use robo-signers to immediately suspend all foreclosure actions in the state. The New York State Banking Department said Wednesday that 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.
In Maryland, Gansler said he hoped a moratorium of sorts would be implemented to prevent people from losing their homes due to an error.
“The large nationwide service providers should suspend actual evictions for 60 days or so, until they review the processes to make sure they’re not using robo-signers,” Gansler said. “There is a strong possibility of people getting kicked out of their homes because someone didn’t properly review an affidavit.”
However, the attorneys general stressed that the goal is not to do away with foreclosures, just to make sure they are being carried out correctly.
“This is not a silver bullet to keep millions of people in their homes that otherwise wouldn’t,” Miller said.
Said Gansler: “Foreclosures are legal, that needs to be remembered. If people aren’t paying the banks, then foreclosure is an option. This is all about procedure, not whether someone should or shouldn’t be foreclosed upon.”
Arnold Kling, a member of the Mercatus Center at George Mason University’s Financial Markets Working Group and a former economist with the Federal Reserve, said the result might be federal legislation outlining how foreclosures should be conducted.
“There is going to have to be some legislation passed to clarify the foreclosure process,” Kling said. “But, with the atmosphere the way it is, no politician is going to want to touch legislation that could be seen as making it easier for banks to foreclose on homes.”
Also Wednesday, federal regulators said all mortgage companies that work with Fannie Mae and Freddie Mac will have to review foreclosure documents and refile them if they spot problems. That will affect most of the industry, because Fannie and Freddie own or guarantee about half the nation’s home loans.
In cases where no problems turn up, foreclosures “should proceed without delay,” the Federal Housing Finance Agency, the agency that regulates Fannie and Freddie, said.
Daily Record Staff Writer Denise M. Champagne and the Associated Press contributed to this article.