Yesterday, the San Francisco Assessor-Recorder, Phil Ting, released the results of a cursory review of foreclosure documents, finding widespread irregularities in the vast majority of them. The documents included foreclosures from 2011, after the point at which the banks allegedly “fixed” their foreclosure document problems.
Assessor-Recorder Phil Ting in partnership with mortgage investigation firm, Aequitas, announce the findings from an audit of 382 San Francisco homes that went through foreclosure during 2009, 2010, or 2011. The audit shows that 84% of sampled foreclosures contain at least one clear violation of California’s foreclosure laws. The results provide quantifiable support for greater mortgage industry oversight and legislative change.
The audit began last fall after irregularities and compromised documents were discovered as homeowners facing foreclosure came to the Assessor-Recorder’s office looking for property records in order to modify their loans or refinance. A county recorder’s office is responsible for keeping the official public records of property ownership and state law dictates how the mortgage industry must file those records.
“When it became clear that property records were severely undermined, a red flag was raised,” says Assessor-Recorder Phil Ting. “Those records are supposed to be filed with this office and many were simply missing or had serious inconsistencies. How can we expect homeowners to have a fighting chance of saving their homes when they can’t even find who currently owns their debt?”
It’s incredible to me how the smallest players could so quickly uncover evidence of foreclosure fraud, and the large institutional regulators choose not to even try. Registers of deeds and county recorders like Ting, Jeff Thigpen and John O’Brien have done more investigative work than most federal agencies. Abigail Field, a freelance reporter working for Fortune, did more by going to the local courthouse and finding that Countrywide did not properly engage in the securitization process of sending notes to trusts than practically any Attorney General. As Adam Levitin says, this shows that the only barrier to a real investigation of the mortgage industry is will.
The San Francisco City Assessor’s audit also serves as a benchmark for evaluating the Federal-State servicing settlement. The San Francisco City Assessor managed to accomplish in a few months what the Federal government and state Attorneys General weren’t able to do in nearly a year and a half with far greater resources at their disposal: perform a credible investigation of foreclosure documentation with serious implications about the securitization process in general. That’s a lot of egg on the face of Shaun Donovan, Eric Holder, Tom Miller, et al. The SF City Assessor report shows that it really wasn’t so hard for a motivated party to undertake a serious investigation. And that raises the question of why the largest consumer fraud settlement in history proceeded with virtually no investigation.
The lack of investigation was the compelling criticism that led the NY and DE AGs to stay out of the settlement for quite a while. I’ve never heard an answer as to why no serious investigation. As the SF City Assessor’s audit shows, the documentation is all a matter of public record. It’s not that hard to do, especially if you have the resources of the federal government. So the resources were there. The capability was there. So why no investigation? The answer has to lie with lack of motivation. Were the Feds and AGs scared of what they would find if they delved too deeply into the issue?
As Levitin points out, Ting uncovered more serious irregularities than just robo-signing. He found that the public assignments differed from what was represented to investors in SEC filings, a clear case of securities fraud. Ting also found that the foreclosure data didn’t match MERS records on the loans, which breaks the chain of title and really drives a stake through the heart of the public land recording system in America, something that separates modern civilization from its antecedents, according to economist Hernando de Soto. Ting also found that 59% of the assignments he looked at were filed after the Notice of Default. In other words, the documents were essentially generated after the decision to foreclose. 59% of all documents were back-dated, too.
Gretchen Morgenson has a good story in the New York Times about all of this, as does Yves Smith. In general terms, there are parts of the mortgage business, unseemly parts, that most state and federal regulators don’t want to deal with. They don’t want to regulate in those areas because it would show the banks to be operating a massive criminal enterprise. And nobody wants to deal with the Gordian knot of broken chain of title. They just don’t want to go there. Levitin chalks it up to a social problem, with the political leadership of the country too close to the financial leadership, “and unwilling to call out criminal acts by their peers.” There’s also an economic worldview element, as people like Tim Geithner cannot envision waking up to a world without Bank of America. So rampant criminality, and the destruction of the largest market in the world, gets swept under the rug.
Hoping at this late date for some meaningful action on these issues seems like a pipe dream, but this data would be useful to the RMBS working group investigation, and I hope Eric Schneiderman read his New York Times this morning.