The latest stumble in the foreclosure mess -- and probably not the last -- has been the revelation that huge numbers of sworn affidavits have been improperly signed. This is not a one-time whoopsie of the type we all make. This is a large-scale practice in which tens of thousands of affidavits were improperly signed, meaning big fees were earned and large numbers of people lost their homes.
In practical terms the affidavits will be corrected and the overwhelming majority of foreclosures will be justified because owners failed to make their payments. That, however, is not the point. First, you can bet that among such a large number of foreclosures some were flat-out wrong and the result was that innocent families were thrown out on the street. Second, we have numerous trial lawyers standing ready at a moment's notice or the squeal of an ambulance tire to take on such cases. Third, any family that improperly lost their home will likely get millions of dollars in damages and remedies.
So why did this happen? Writing in the esteemed Week In Review published each Sunday by the New York Times, Eric Dash raises the question of "who is really at fault?" and answers this way:
The foreclosure system, which became like Lucy and Ethel, overwhelmed at the chocolate factory. As millions of homeowners fell behind on their mortgage payments, the banks were overwhelmed. Their loan collection operations were designed to process regular payments, not handle the specialized needs of troubled borrowers.
Computer systems were outmoded; the staff lacked the training and numbers to respond properly to the flood of calls. Traditional checks and balances on documentation slipped away as filing systems went electronic, and mortgages were packaged into bonds at a relentless pace. To make matters worse, many tasks were outsourced, with little oversight by the banks or their federal regulators.
The banks say they tried valiantly to cope, including hiring more employees. Even so, many acknowledge that they were caught flat-footed. (See: A Paperwork Fiasco, October 24, 2010)
I read this and thought: You're pulling our leg, right?
If the banks were "overwhelmed" then they were overwhelmed selectively. They certainly had no trouble staffing mortgage subsidiaries and selling as many toxic loans as possible. No staff shortage then, no worries about old computers or untrained staff. Indeed, according to the just-released book, The Monster: How a Gang of Predatory Lenders and Wall Street Bankers Fleeced America--and Spawned a Global Crisis by Michael W. Hudson, a former reporter with the Wall Street Journal, in case after case lenders wanted to hire the least-experienced mortgage loan officers they could find, people who would be entirely unfamiliar with any notion of lending norms.
In addition, of course, big banks have no trouble finding staff or computers to sell credit cards and student debt, obligations they love to market.
Missing Checks & Balances
Mr. Dash tells us that "traditional checks and balances on documentation slipped away as filing systems went electronic." Okay, and who was and is at fault for the loss of such checks and balances?
Then we learn that "to make matters worse, many tasks were outsourced, with little oversight by the banks or their federal regulators." This is a bonanza of upside-down logic. If the banks could outsource activities that made profits why can't they outsource services that might save homes? As to our well-paid regulators, the only less observant group you could possibly find would be a gaggle of long-comatose geese.
And let's be clear. Not all banks sold toxic loans. Most community banks didn't and neither did most credit unions and S&Ls.
"The banks," says Mr. Dash, "say they tried valiantly to cope, including hiring more employees. Even so, many acknowledge that they were caught flat-footed."
The #1 group in the country that should have been prepared for foreclosures were the very people who created toxic loans and lowered application standards. Does anyone really think that the massive number of foreclosures we have today was not anticipated by various lenders?
The foreclosure crisis is no surprise despite repeated claims to the contrary. And even if we agree that brilliant people on Wall Street did not know what was happening with the toxic mortgages they created, marketed and sold the foreclosure crisis is not new. RealtyTrac reports that foreclosure notices have been at the rate of 300,000 per month for 17 months in a row -- and that was as of July! We're now up to 19 months in a row.
Nineteen months in a row and bankers are still under-staffed! Has no banker noticed the very large number of intelligent, articulate, educated people who are now looking for work -- some of whom no doubt have experience in finance, accounting and administrative tasks? Could not some Wall Street bonus money be diverted to hire people and upgrade computers?
It would be the valiant thing to do....
Posted originally with OurBroker.com, an indpendent source of real estate, mortgage and foreclosure news and information.