Robo-signing: No real victims?
With a multibillion-dollar victims fund at stake, state attorneys work on a deal with mortgage servicers.
This post comes from Marilyn Lewis of MSN Money.
Was robo-signing such an outrage if there were actually no victims?
That's the question facing the 50 state attorneys general as they close in on a two-part deal with mortgage lenders over the robo-signing scandal.
In a surprise development, a Federal Reserve consumer advisory panel last week concluded that there really were no victims from lenders' shoddy foreclosure practices.
The Fed's report isn't yet public. The story only saw the light of day because an enterprising reporter at The Huffington Post, Shahien Nasiripour, talked with sources on the panel who said that "a months-long internal investigation into abusive mortgage practices by the Federal Reserve found no wrongful foreclosures."
The panel's report says people who lost their homes from bad bank foreclosure practices would have lost them anyway. They were behind on their mortgage payments.
- Calculator: How much house can you afford?
Consumer advocates on the panel disagreed, however, arguing that "the definition (of victim) should be expanded to include foreclosures in which the wrong party brought the foreclosure action or cases that involve significant errors in foreclosure documents, like an inflated past-due amount, for example." Their point was that foreclosures could have been avoided among people behind on payments.
Our story so far
American Public Media recaps how the scandal started last fall:
Employees or contractors of several major banks have testified in court cases that they signed, and in some cases backdated, thousands of certifying documents for foreclosures. Major banks including Bank of America Corp., JPMorgan Chase Co. and Ally Financial Inc.'s GMAC Mortgage have halted foreclosures at some point because of flawed documents.
Some big banks halted foreclosures while they investigated their servicing operations. (Servicers collect your mortgage payment and start foreclosure when they don't get it.)
The federal government didn't seem inclined to move against the servicers, so the 50 state attorneys general waded into the game on the side of consumers.
- Calculator: Should you rent or buy?
Many aspects of banking and mortgage-lending are regulated by the states. That gives state attorneys power to sue. With that leverage, they've been talking for months with the mortgage servicers, trying to come up with a two-part settlement.
Part One would make mortgage providers agree to clean up sloppy foreclosure practices and do modifications more quickly. On this front, the AGs, along with some federal agencies, last week delivered. Here's their 27-page list of demands (posted at Scribd) for improvements at mortgage-servicing companies.
A pile of cash
Part Two is the tough part. It involves requiring banks and servicers to establish a 9/11-type victims fund -- $20 billion and $30 billion are numbers that have been tossed around.
But if there really are no victims, should there a victims fund?
Possibly. Tom Miller, the Iowa attorney general who has led the states' efforts, told HousingWire last fall about hopes for such a fund:
"We view this as a chance to solve some or much of this problem that has built over the last three years," Miller said. "We want to figure out a way that leaves the situation a lot better than when the mess started."
A recent Washington Post editorial says the AGs and the Obama administration want a fund "to help write down the principal balances of the 22.5 percent of U.S. homebuyers who owe more than the market value of their homes."
The Post objects:
The prospect of qualifying for a principal reduction might induce some borrowers to quit paying, known as "strategic defaulting." Twenty billion dollars' worth of extra mortgage relief is probably too little to make a major impact on the three-quarters of a trillion dollars in negative home equity. But it might be enough to trigger strategic defaulting -- and sow frustration and resentment among homeowners who don't get a piece of the action.
It's a tough call. As The Wall Street Journal pointed out recently, "some economists warn that rising numbers of underwater borrowers will drag on housing markets and the economy for years unless more is done to help them."
Readers, what do you think?
Even if there are no victims of robo-signing, should the banks pay a penalty -- like a punitive judgment in a court case -- to discourage them from running roughshod over borrowers again?
Would using bank money to bail out underwater homeowners pull us out of the housing swamp? Even if it's unfair to those who've kept up their payments, would be it worth it to put this recession behind us?
Or would it just make things worse by encouraging more strategic defaults?
More from MSN Money:
And to answer the question about ROBO signing, yes they did that too. I have no record of all my paperwork where the BancorpSouth loan underwriter or anyone else from this bank sign the original loan papers.
There is a difference between the fact there have been few erroneous foreclosures and saying that there are no victims.
It is never OK to present a falsified document to a court of law.
All citizens are victims if this practice is allowed to occur.
The article discusses cases where the wrong party has foreclosed - if it is the wrong party then there are victims
Yes, the banks should pay a penalty, and yes, it should be punitive enough to motivate them to fly right in the future. Enough with rich/powerful organizations and people getting away with what would land the rest of us in jail. It's a safe bet my bank wouldn't accept post dated documents (checks) from me with a smile.
If the worry is strategic defaults, how about targeting this money to people like me who have kept current on mortgage payments despite significant hardship (husband became disabled & last year we spent 30% of my gross on medical bills with more to come). We can't afford our house payment but don't qualify for the current relief programs because we've given up nearly everything to keep current.
Copyright © 2014 Microsoft. All rights reserved.
Fundamental company data and historical chart data provided by Morningstar Inc. Real-time index quotes and delayed quotes supplied by Morningstar Inc. Quotes delayed by up to 15 minutes, except where indicated otherwise. Fund summary, fund performance and dividend data provided by Morningstar Inc. Analyst recommendations provided by Zacks Investment Research. StockScouter data provided by Verus Analytics. IPO data provided by Hoover's Inc. Index membership data provided by Morningstar Inc.
ABOUT SMART SPENDING
LATEST BLOG POSTS
Your Easter celebration, from ham and eggs to spring clothes, will take a bigger toll on your wallet this year.
VIDEO ON MSN MONEY
BLOGS WE LIKE
MUST-SEE ON MSN
- Video: Easy DIY smoked meats at home
A charcuterie master shares his process for cold-smoking meat at home.
- Jetpacks about to go mainstream
- Weird things covered by home insurance
- Bing: 70 percent of adults report 'digital eye strain'