September 26, 2018

U.S. stakes out ‘robo-signing’ strategy

U.S. stakes out ‘robo-signing’ strategy

No moratorium, but problem servicers will face ‘full force of the law’

Originally posted on Inman News

A national, blanket moratorium on foreclosures would do more harm than good, but the Obama administration “will respond with the full force of the law” when problems in loan servicers’ foreclosure procedures are found, Secretary of Housing Shaun Donovan said today in spelling out the administration’s approach to the robo-signing controversy.

Issues raised by “robo-signing” — in which employees for loan servicers have admitted to signing court affidavits in foreclosure filings without personal knowledge of what was in the documents — are “priority number one” for a Financial Fraud Enforcement Task Force formed last year to coordinate actions by federal and state law enforcement agencies, Donovan said in a blog post.

In addition, the Federal Housing Administration and Federal Housing Finance Agency have launched reviews to make sure servicers are in full compliance with the law, and the Office of the Comptroller of the Currency has directed seven of the nation’s largest servicers to review their foreclosure processes and fix any problems, Donovan said.

“The message all these institutions are sending is the same: banks must follow the law — and those that haven’t should immediately fix what is wrong,” Donovan said.

At least six loan servicers — Bank of America, Wells Fargo, GMAC Mortgage, JP Morgan Chase, PNC Financial Services Group Inc. and Litton Loan Servicing — are reviewing their procedures and filings in 23 states where courts have jurisdiction over the foreclosure process, and some have voluntarily suspended or curtailed foreclosure proceedings in those states.

Bank of America and GMAC Mortgage have expanded their reviews to non-judicial foreclosure states, and Bank of America has temporarily halted foreclosure sales in all 50 states. So far, loan servicers say their reviews haven’t turned up evidence that borrowers were foreclosed on improperly.

The Wall Street Journal reports that banks are still initiating foreclosures in states where they are conducting reviews, but in some cases are not seeking final judgments or moving forward with sales of foreclosed properties. Bank of America’s moratorium only covers foreclosure sales scheduled between Oct. 9 and Oct. 31, because the bank expects to wrap up its review by then, the Journal reported.

In the mean time, title insurers are seeking warranties from lenders for insuring title on some foreclosed and real estate owned (REO) properties, like those Bank of America has agreed to provide for the nation’s largest title insurance underwriter, Fidelity National Financial Inc.

“Given the problems that have already been found and admitted to by some servicers, the Obama Administration fully supports the voluntary moratoria that are already in place and others should they be deemed necessary,” Donovan said.

But with foreclosed homes making up 25 percent of all home sales, a blanket moratorium on foreclosure sales would hurt homeowners and homebuyers alike, Donovan said.

Another unintended consequence of a blanket moratorium on foreclosure sales is that “it could cause servicers to take their eyes off the ball when it comes to helping at-risk homeowners stay in their homes” through loan modifications, Donovan said.

Donovan said foreclosure starts are down by 30 percent from a year ago, with 3.3 million families receiving restructured mortgages with more affordable monthly payments in the last 18 months — more than double the number of foreclosures completed during the same period.

According to data aggregator RealtyTrac, a record 102,134 properties became bank-owned last month.

But the robo-signing controversy has slowed the flow of foreclosed properties onto the market, and there’s speculation that a joint investigation by attorneys general in all 50 states will force banks to buy back billions of dollars in loans from investors, Bloomberg reports.

Shares in four large banks that service the majority of U.S. mortgages — J.P. Morgan Case & Co., Citigroup Inc., Bank of America Corp. and Wells Fargo & Co. — lost $49.3 billion in value last week, Bloomberg reported, as analysts try to gauge the impacts of the crisis.

JP Morgan Chase CEO Jamie Dimon said last week the controversy will be “a blip in the housing market” if it is resolved in a matter of weeks. If it goes on longer, Dimon said in a conference call with investors, “it will have a lot of consequences, most of which would be adverse on everybody.”