Here’s an update to last week’s revelation from San Francisco Recorder-Assessor Phil Ting, that an overwhelming percentage of foreclosure documents he reviewed were found to be at least partially flawed. The two members of Congress who represent San Francisco want Attorney General Eric Holder to convene an investigation. That consists of Jackie Speier and the Minority Leader of the House:
The report, based on a review of a random sample of mortgage loans that entered into foreclosure between January 2009 and October 2011, found that 99 percent of the San Francisco mortgages reviewed showed irregularities in the foreclosure process, and 84 percent showed potential violations of California non-judicial foreclosure laws. In addition, foreclosures involving mortgages that were part of the Mortgage Electronic Registration System (MERS), which are more likely to have been securitized, showed a high rate of conflicting information regarding the actual beneficiary, which raises questions about whether homeowners were denied their due process rights. We find these findings very troubling.
Because the report does not specify the mortgage servicers involved, it is not possible to determine whether affected borrowers can seek remedies under provisions in the multi-state mortgage settlement. However, even if some borrowers can seek redress through the settlement process, or through private rights of action, the irregularities and violations cited in the report convince us that further investigation at the Federal level is warranted to determine whether any violations of Federal civil and criminal laws might have occurred.
The Assessor-Recorder has already referred the report’s findings to California Attorney General, Kamala Harris, for her review. We believe the severity of the report’s conclusions also warrant a thorough review at the Federal level by the Task Force.
I’m guessing that this finding, that the foreclosure process is, in the words of the person who conducted the foreclosure review, “utterly broken,” does not come at a propitious time for federal officials, who are busily trying to convince everyone that they did the right thing with the settlement. But of course, at least some of the massive errors that Ting’s study uncovered can no longer be prosecuted by Kamala Harris, because they fall under the settlement.
Because this study has such wide-reaching effects – so much of it points to the fact that nobody knows the true owner of a large percentage of residential mortgage properties – the self-appointed defenders of order have taken to criticizing it. Some, like Housing Wire’s Paul Jackson, would rather deny the existence of the study, and their critiques border on the deranged. But the typical critique can be found in this article from the LA Times, trying to tame the masses, and tell them not to worry, the system is working just fine:
The “Foreclosure in California” report released by the San Francisco Assessor-Recorder this week seemed to confirm all those bad things we’ve heard about mortgage lenders.
The report identified “one or more irregularities in 99%” of the foreclosed loans it reviewed. Sounds bad. But that doesn’t necessarily mean that these homeowners were making payments on time and unfairly booted from their homes without cause.
Many of the irregularities stem from the fact that lenders routinely sell the loans they write to other firms and investors, the report showed. They just don’t always fill out the proper paperwork in assigning these loans to the new note holders.
That can lead to confusion over who had the legal right to process the foreclosure. But it doesn’t mean the foreclosure itself was unwarranted.
Oh, that’s all! It’s just “confusion over who had the legal right to process the foreclosure.” Just a technicality concerning the laws of property ownership that have been in place in this country for 300 years. Nothing to see here! The deadbeats are still deadbeats! Go watch “Pawn Stars,” America! Your mortgage-industrial complex has the matter well under control.
It’s tedious having to repeat myself on this point, so I’ll just link back to my reaction to Diana Olick’s very similar argument from a while back. And I’ll add the words of Lou Pizante, the company partner of Aequitas Compliance Solutions, who conducted the study for Phil Ting:
What’s at issue here is compliance with California’s laws relating to non-judicial foreclosure. These are statutory requirements that, in many respects, are rather technical. Why, then, should inadvertent violations provide windfall remedies to reckless borrowers?
First, its important to understand foreclosure in California. Lenders in California rely almost exclusively on the non-judicial foreclosure process, also called statutory foreclosure. This is an expedited process where homes are sold without court approval. Therefore, there is frequently little, if any oversight. Because of this, courts have generally required strict compliance with statutory requirements affording borrower’s due process.
Now, there is plenty of public evidence showing that not all distressed borrowers are reckless deadbeats. We know that some borrowers did not receive fair and accurate disclosures, as required by federal law, explaining the payment and other material terms of their mortgage. Furthermore, the report reveals that a lot of lender’s foreclosing on homeowners don’t appear to own the underlying loans. The fact that homeowners borrowed something, on some terms, from someone should not be enough to rob them of their due process right.
To say most of these borrowers are deadbeats and can be denied their due process rights seems pretty lousy to me. It’s like saying that there might be a falsely accused guy on death row, but—hey—he probably killed someone.
With state and federal officials either unwilling or unable to come to terms with the broken mortgage industry, we’re increasingly seeing these local officials stepping to the fore, embarrassing the law enforcement community by showing vast amounts of evidence that their county recording offices are crime scenes. We may even see increasing amounts of lawsuits bubble up from the local level. In Warren County, Kentucky, officials may join a class action lawsuit against banks for avoiding mortgage transfer fees when they recorded transfers privately with the electronic database MERS. I think we’ll see more of this, with the locals picking up where the feds and the state bigwigs fear to tread.