Late yesterday, I had the opportunity to speak with Richard Cordray, Ohio’s Attorney General, who became the first to sue a mortgage lender over incidents of foreclosure fraud. The lawsuit against GMAC Mortgage and its parent company Ally Financial seeks damages for individual violations of fraudulent documentation of up to $25,000 per incident, additional restitution for homeowners, and an immediate injunction on all foreclosure activities by GMAC/Ally in the state. In addition, Cordray sent letters requesting meetings with other top lenders in the state, seeking information on their foreclosure activities. A lightly edited transcript of our conversation follows.
Q: So have you heard anything from these other lenders with whom you sought meetings, any news to report there?
Richard Cordray: Just yesterday we transmitted the letters, and I’m on the road today. I wouldn’t expect to hear within 12 hours. But we hope to hear from them shortly.
Q: How big can this get? I calculated out that if this were standard practice in the mortgage lending industry going back to 2005, with the 450,000 foreclosures in your state, the cost to the industry overall would be over $11 billion dollars.
Cordray: I’m not making the assumption that all the foreclosures filed in Ohio are using false affidavits. We do know through depositions about certain robo-signers. It may be that way for every foreclosure. It may not be. That will come out during discovery. But I think we’re on strong legal grounds to treat each separate case of false affidavits as a separate incident.
Q: What are the main goals for this lawsuit with GMAC?
Cordray: So, what we’re trying to achieve: first of all, GMAC has said they will put forth an unspecified pause while they sort out procedural infirmity. It wasn’t clear what pause meant. Does it apply only to foreclosure evictions, or does it apply to pending cases in the system? How long will this pause last? So our preliminary injunction would put those questions under the supervision of the court, to stop any foreclosures from GMAC until the court satisfies itself. Then as you mentioned, we seek damages for false affidavits, and other provisions as part of case, which will be sorted out in due course. The consumer restitution, we left that unspecified, and it will be refined by discovery.
Q: Do you know of any GMAC/Ally foreclosure operations that are ongoing, despite their claim that they have stopped those processes?
Cordray: We don’t know. They have pledged their willingness to have a pause. Does that mean filing no new foreclosures, or just about ones in the pipeline, or ones where they’ve already filed papers? It’s just very vague. So it should be put under the supervision of the court.
Q: But you haven’t heard any specific complaints from constituents with GMAC mortgages being foreclosed?
Cordray: We may well have those complaints. But the big picture is, what we’re seeing is very disturbing. GMAC has committed a systematic fraud on the courts of Ohio. You put that together, it should be put in a court’s hands. We shouldn’t rely on the same folks who have defrauded courts. Doesn’t seem right to me.
Q: Knowing what you know about this issue, as a citizen and not the Attorney General would you join the call of many to have a nationwide moratorium until this gets worked out?
Cordray: I don’t want to jump the gun. I don’t want to start leaping to wild conclusions. There is an indication that this was an industry wide practice. But it might not be. We will see where it goes. We’ll get to those conclusions, through the discovery process.
Q: How long do you expect all of this to play out, both with the lawsuit and the meetings with the other servicers?
Cordray: Our letter to Bank of America and JPMorgan, where there are already indications of the same processes, asked for a response within 3 days of transmitting letters. We were not quite as pointed with Citi and Well, because they have not yet admitted the same problems. We suspect that everybody was doing similar things. And we’re looking to hear back quickly. As for the court filing, we are moving as quickly as we can on a preliminary injunction.
Q: What are you hearing from other AGs across the country about this? What has there reaction been?
Cordray: Among the AGs, there’s a lot of concern with what people are seeing and hearing. Nobody’s very comfortable with the notion that people are committing fraud upon the court on a deliberate and systematic basis. This is not just about sloppy paperwork.
Q: I’m sure you heard about the President’s veto yesterday of a bill that may have made it harder for individuals to challenge foreclosure documents. It’s a moot point now, but do you think it would have had an impact on your case?
Cordray: We’re not clear that it would’ve had an impact on the case. We understood that the bill was about out -of-state affidavits. If that’s all, it wouldn’t have had the slightest impact. I don’t imagine the Congress would have said to a court, accept fraudulent evidence in your case. It is a little harder to enforce sanctions on an out-of-state signer, however. But if it did nothing more than put out-of-state signers on the same footing, that would not implicate any of this.
On a more personal note: Attorney General Cordray is going to need some time to prosecute this case. But he has an election coming up in a little over 3 weeks, against former Senator Mike DeWine. The latest poll shows him slightly behind, 44-38. It is imperative that Cordray and his team be given the time to reach discovery in this case and untangle the crooked web everyone suspects is at the heart of the mortgage lending industry. If you feel strongly about this issue, here’s Richard Cordray’s campaign website, which includes ways to help out. He never said a word about this in the interview, but I’m sure he could use the help.