You can find the HUD IG reports on servicer abuse here. They created one for each bank involved. And they really are incredible, describing a pattern and practice of abuse that is quite extraordinary. They paint a picture of constant demand on the back offices of the major servicers to simply produce more and more foreclosure documents, with no regard for accuracy or even rudimentary knowledge about the loans. And this led to the processing of false documents used in court to kick people out of their homes. The classic takeaway, from the JPMorgan Chase review, is this:
We reviewed 36 affidavits for foreclosures in judicial States to determine whether the amounts of borrowers’ indebtedness were supported. Chase was unable to provide documentation for the amounts of borrowers’ indebtedness listed on the affidavits for all except four. When we reviewed the four affidavits, three were inaccurate. Specifically, the amounts of the borrowers’ late charges and accumulated interest did not reconcile with the information in Chase’s mortgage servicing system. In discussions with Chase’s assistant vice president for default support services, he indicated that he did not know why the amounts did not agree. Further, Chase’s vice president and assistant general counsel mentioned that when Chase reverified selected affidavits for the Office of the Comptroller of the Currency, the amounts on the selected affidavits agreed with the information in its system.
35 out of 36 is an impressive error rate. And I love the “re-verification” for OCC; it reminds me of the “ta-da” documents that bank lawyers just happen to find for the court after their initial fraud is discovered.
Marcy Wheeler notes in the Wells Fargo document that these reports were passed on to DoJ at least a year ago:
Based upon the results of our review, Wells Fargo’s practices may have exposed it to liability under the False Claims Act for submitting the claims for insurance benefits to FHA without following HUD requirements. We provided our preliminary findings to DOJ for its assessment and determination on any potential liability issues.
So DoJ sat on this information for at least a year, preferring to use it to negotiate a settlement than in a criminal inquiry. And this investigation, however limited, showed that the pattern and practice came right from the top, from the executives themselves.
And if they couldn’t prosecute on the False Claims Act, they certainly had potential on obstruction of justice. Here’s a clip from the JPMorgan Chase review:
Our review was hindered by Chase’s reluctance to allow us to interview employees outside the presence or involvement of its management staff or attorneys; therefore, the effectiveness of those interviews was limited. On a number of occasions during the interviews, Chase’s management or attorneys clarified statements provided by staff. In addition, Chase did not provide read-only access to its mortgage servicing systems, which would have allowed us to independently verify the amounts on the affidavits and assess the reliability of the data to facilitate a better understanding of Chase’s internal controls.
Chase was unable to provide electronic production records for all operations specialists during our review period. Chase’s production records, prepared using Microsoft Excel, identified the persons who prepared each foreclosure package and signed the affidavits. However, for the records provided, all of the data fields were not always complete, and Chase did not provide a point of contact, who could explain and clarify the data. Further, Chase provided the production reports nearly 4 months after our initial request. As a result, it was not possible to know whether Chase omitted from the records information that was relevant to our review.
At the very least that requires more study, perhaps with subpoenas. And as Ben Hallman reports, this was pretty uniform across the major banks surveyed by the HUD IG:
Wells Fargo provided a list of 14 affidavit signers and notaries — but then stalled while the bank’s own attorneys interviewed them first. The bank then tried to restrict access to just five of those employees. The reason? “Wells Fargo told us we could not interview the others because they had reported questionable affidavit signing or notarizing practices when it interviewed them,” the report says [...]
Bank of America only permitted its employees to be interviewed after the Department of Justice intervened and compelled the testimony through a civil investigation demand. Even so, the review was hindered, the report says.
“On a number of occasions, Bank of America’s attorneys refused to allow employees to answer questions, stopped them in the middle of clarifying information already provided, or counseled them in private before allowing them to provide a response. Further, [the bank] would not permit an effective walk through of its document execution process that would have facilitated an understanding of its process.”
The investigation into Citigroup’s mortgage division was “significantly hindered” by the bank’s lack of records. Citigroup simply did not have a mechanism for tracking how many foreclosure documents were signed.
Both JPMorgan Chase and Ally Financial refused to provide access to some employees or documents or otherwise impeded the investigation, according to the report.
You can’t say that the banks didn’t know what they were doing. They stonewalled and stalled and obstructed federal investigations – even a mild one like this from the HUD IG – and in the end, they got a pretty good deal in the settlement. Crime pays.