When the House Speaker got involved in the foreclosure fraud mess and called for investigations of the lending industry, the media took notice. And this is becoming a bipartisan affair. The Justice Department announced that they’re looking into the matter. Democratic Senators like Robert Menendez and Al Franken have continued to put on the pressure. In addition to Democratic officials in Maryland, Texas Attorney General Greg Abbott, a Republican, ordered the suspension of all foreclosures in his state, a huge move. And take a look at the comment from John Boehner’s spokesman on this situation:
Michael Steel, a spokesman for House Minority Leader Rep. John Boehner (R-Ohio), said, “At a time when economic uncertainty and unemployment are putting great pressure on homeowners and the housing market, it is imperative that we get all of the facts about this situation, and quickly.”
I think we’re close to politicians calling for a nationwide foreclosure moratorium, including in non-judicial foreclosure states. The AFL-CIO is already there. One analyst told WaPo “Right now, there’s no question we’re headed into a moratorium period.”
The tipping point could be California, the largest state in the union but also one where a judicial sign-off is not required for foreclosures. But one state lawmaker thinks he’s found a formula to get a moratorium called.
Attorney General Jerry Brown has already asked Ally Financial and JPMorgan Chase to suspend their foreclosure operations, but neither lender has responded to Brown’s request, and the foreclosures have continued. (If you know of one, contact the AG’s office here). Brown can easily say that the companies are refusing to comply, and he could institute an injunction. But the state regulatory agencies have a role to play here as well.
Assemblyman Ted Lieu (D), who ran in the Democratic primary for Attorney General this year, and who has been the leader in the state legislature on the foreclosure issue, yesterday sent letters to the Department of Financial Institutions and the Department of Corporations, who between them regulate all the top mortgage lenders in the state. He requested that they use their power to institute a mandatory foreclosure moratorium for failure to comply with two state laws.
SB 1137, passed in 2008 with Lieu as a co-author, requires lenders to meet or call the homeowner and talk to them and advise them of ways to avoid foreclosure before any eviction. The lender then has to declare this in writing. In addition, the California Foreclosure Prevention Act requires lenders to certify that they have a modification program in place for the borrower to access, or the regulatory agency can implement a 90-day foreclosure moratorium.
“An aggressive commissioner could go to, say, BofA, and say ‘I don’t believe you’re following through, so I’m imposing a moratorium unless you prove to me you’re taking these steps,’” said Lieu in an interview with FDL News. While the authority in the Foreclosure Prevention Act is clear, with respect to SB 1137, the Attorney General could file what is known as a 17.200, an unfair business practice claim. “Even a DA could possibly do it,” said Lieu. “And the remedy could be a moratorium, or to pay huge damages that would make it an effective moratorium.”
Lieu cautioned that both of these steps aren’t easy, and would require some fortitude on the part of the regulator. “But otherwise you have a meaningless law if there’s no remedy for it,” Lieu said.
Lieu said that the problems with the foreclosure documentation reminded him of the problems with false documentation in the subprime mortgage market in the run-up to the crisis. “What ran through my mind is, the more things change… But the other thing this shows, we’ve been in this foreclosure crisis for a number of years, and the banks haven’t hired enough capacity to get the job done,” Lieu concluded. He hoped that this could be the stick to get the lenders back to the negotiating table to avoid foreclosures by offering realistic modifications to the borrowers. The enormous potential liability of the lenders if they cannot get judges to move foreclosures could become a powerful motivator. Otherwise, millions of homes would remain in limbo.
The industry fears a moratorium, because of the effect it would have on the overall housing market, chilling people from buying foreclosure properties because of questions about the title ownership. “My view is, who bears the burden for that,” Lieu insisted. “The lenders made a lot money going through that process, and they should face consequences. If that makes them have enormous difficulty, so be it.”