The five banks that agreed to a $25 billion settlement to resolve fraudulent foreclosure claims consistently hindered a government watchdog's investigation into those practices, according to a report released on Tuesday by the Department of Housing and Urban Development's inspector general's office.
The findings, based on a review of foreclosure practices at Bank of America, JPMorgan Chase, Wells Fargo, Citigroup and Ally Financial over a two-year span from October 1, 2008 to September 30, 2010, essentially confirm what has been reported extensively for nearly two years. Bank employees, in order to speed foreclosures, signed hundreds of legal documents a day without reviewing the accuracy of the foreclosure information, notarized signatures on documents that purported to verify a bank's legal right to foreclose without ever checking whether that was true, and hired law firms that forged signatures en masse -- all with the encouragement of management.
The report was issued by the HUD's Office of Inspector General a day after the government finally filed in federal court documents that set the terms of the banks' settlement to resolve a 16-month foreclosure investigation. The Department of Justice used the HUD review in negotiating the settlement.
Though the report describes a pattern of misconduct that appears widespread, it fails to quantify the damage to homeowners or, ultimately, how many home loans were affected. It also clearly reflects the frustration that investigators felt in conducting the review. Even as negotiators for the banks were fighting to win the best possible deal, their lawyers were stonewalling other government investigators trying to ascertain the scope of the "robo-signing" abuses.
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.
In other words, Wells Fargo did not want the government to talk to employees who might discuss wrongdoing. Eventually, the bank allowed investigators to talk to the remaining employees -- but only on the condition that bank management and attorneys attend the interviews as "facilitators." This condition resulted in delays that may have limited the effectiveness of the interviews, 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.
Bank employees interviewed by the inspector general's office described a range of pervasive abuses that happened with the consent, and in some cases, active encouragement of management.
Wells Fargo employees testified that they signed up to 600 documents a day without attempting to verify whether any of the information was correct. Employees that notarized documents, including sworn statements that purported to verify a bank's legal right to foreclose on a home, told investigators that they notarized more than 1,000 documents a day -- often without having witnessed the signature of the documents. The bank also relied on low-paid, unskilled workers to do the reviews: a former pizza restaurant worker, department store cashier, and a daycare worker, to name a few.
A vice president at Bank of America testified that she only checked foreclosure documents for formatting and spelling errors. Employees in India supposedly verified judgment figures in foreclosure documents, but none of the U.S. employees interviewed by the inspector general could explain how that process was supposed to work. One former employee described signing 12 to 18 inch stacks of documents without review.
Employees at Wells Fargo and Bank of America testified that they complained about the pace and lack of care given to reviews, but instead of relief, were told to sign even faster. One Bank of America notary said his target was set at 75 to 80 documents an hour, and he was evaluated on whether he met that target. One notary even notarized her own signature on a few documents.
Abuses at the other banks -- JPMorgan Chase, Citigroup and Ally Financial -- appear just as pervasive. Citi, for example, routinely hired law firms that "robo-signed" documents. An exhibit included with the report shows eight different versions of one attorney's signature -- all apparently signed by different people.
"The matters raised in the report cover observations that are two-four years old and they have been addressed," said a statement emailed by Wells Fargo spokeswoman Vickee Adams. "Wells Fargo has made significant strides with implementing a number of changes in line with industry and regulatory servicing standards."
Citigroup has implemented procedures to ensure "that no foreclosure goes forward based on an inaccurate or defective affidavit," according to a statement emailed by spokesman Mark Rodgers.
“The memorandum references activities from over a year ago that have been addressed as we do all we can to modify loans when possible and to ensure foreclosures are fair when they are unavoidable," said Bank of America spokesman Richard Simon in an email.
Ally Financial spokeswoman Gina Proia responded in a statement, "As we have stated previously, we regret that possible procedural deficiencies with respect to certain affidavits occurred; however throughout reviews of this matter, there was no evidence of someone being foreclosed on without being in significant default of their loan."
JPMorgan Chase did not immediately respond to a request for comment.