Before the foreclosure fraud settlement was announced, I was told by high-level officials that the celebrated but still-secret HUD IG report detailing some of the crimes of the mortgage industry would be released when the settlement terms were filed in federal court. That document was indeed released today, and The New York Times reviewed it. Among other things, they find that top bank managers really were responsible for the criminal conduct:
Managers at major banks ignored widespread errors in the foreclosure process, in some cases instructing employees to adopt make-believe titles and speed documents through the system despite internal objections, according to a wide-ranging review by federal investigators.
The banks have largely focused the blame for mistakes on low-level employees, attributing many of the problems to the surge in the volume of foreclosures after the housing market collapsed and the economy weakened in 2008.
But the report concludes that managers were aware of the problems and did nothing to correct them. The shortcuts were directed by managers in some cases, according to the report, which is by the inspector general of the Department of Housing and Urban Development […]
“I believe the reports we just released will leave the reader asking one question — how could so many people have participated in this misconduct?” David Montoya, the inspector general of the housing department, said in a statement. “The answer — simple greed.”
Some of the stories are quite remarkable, and they completely contradict the party line that these were simply a series of “back-office errors.” It strikes right at the top of the chain of command, not foreclosure mill law firms or the $9-an-hour robo-signers. It’s beyond obvious who was responsible – the bank managers themselves.
For example, a vice president at Bank of America told employees that documents in her department should only be checked for “formatting and spelling errors” before being notarized (where the notary pledges that everything in the documents have been verified, not just the spelling). The underlying information was very much in question: out of 36 foreclosures from JPMorgan Chase reviewed by the HUD IG, only four of them included information on what the borrowers actually owed, and that information was wrong in three of the four cases. But employee performance reviews at BofA, for example, showed incentives almost entirely based on speed rather than accuracy.
At Wells Fargo, employees were given fake titles like “vice president of loan documentation,” when one of said employees worked at a pizzaria before getting bestowed the title. Then there’s this:
Wells Fargo’s management quashed an independent study by a manager responsible for overseeing the affidavit process. The study had started to show that the document department was critically understaffed. “The midlevel manager was directed to stop the study and return to the practice of signing affidavits without reading or verifying data,” the report said.
The usual response to the emergence of document errors at the major bank servicers was to shorten the review process rather than lengthen it.
Now, reading this will make you angry enough. But then you have to realize that banks did not have to admit wrongdoing for this conduct as part of the foreclosure fraud settlement. And all of this conduct is released and will not face any sanction beyond the settlement, certainly not of the managers who clearly directed the abuse.
The other thing to say about this is that the HUD IG review was probably the most extensive at the federal level on servicer abuse and robo-signing. And even that was relatively inadequate, dealing with just a small amount of loan files. There really has still been no thorough investigation into the conduct at these servicing operations in this period. We only have fairly rough sketches of it. But the sketches are brutal enough.