It isn’t surprising that given the potential consequences (revelation of widespread fraud, improper foreclosures, and big time difficulties straightening out the mess revealed), GMAC and other servicers have taken the “nothing to see here, drive on by” approach to reports that they forged affidavits and fabricated documents in order to be able to show courts the right sort of documents required to foreclose. Note there are depositions as far back as 2006 showing that GMAC was using improper affidavits, yet only when pressure has started to rise substantially (more lawsuits challenging standing of the party foreclosing; actions and increased interest by state attorneys general) has GMAC ‘fessed up to its main client (see here and here for more background on this story).
That means it was continuing to evict people even though its procedures did not comply with the law. Submitting false affidavits is a fraud on the court. And as we indicated earlier today, the false affidavits are symptomatic of far more serious problems with foreclosure proceedings when the mortgage is owned by a securitization entity.
Per Bloomberg:
Ally Financial Inc.’s GMAC Mortgage unit told Freddie Mac that foreclosures by the auto and home lender might have been faulty weeks before halting its own evictions, according to two people briefed on the matter.
Ally informed Freddie Mac on Aug. 25 that affidavits for court proceedings might not be valid, according to a person with direct knowledge of the matter. By Sept. 1, Freddie Mac had notified its network of lawyers and stopped related foreclosures and evictions, said the person, who declined to be identified because the matter hasn’t been formally disclosed. GMAC told agents to halt evictions in 23 states on Sept. 17.
Barney Frank, Alan Grayson, and Corrine Brown sent a nastygram to Fannie’s CEO and threatened hearings:
September 24, 2010
Michael J. Williams
President and Chief Executive Officer
Fannie Mae
3900 Wisconsin Avenue, N.W.
Washington, D.C. 20016
Dear Mr. Williams,
We are disturbed by the increasing reports of predatory ‘foreclosure mills’ in Florida working for Fannie Mae servicers. Foreclosure mills are law firms representing lenders that specialize in speeding up the foreclosure process, often without regard to process, substance, or legal propriety. According to the New York Times, four of these mills are both among the busiest of the firms and are under investigation by the Attorney General of Florida for fraud. The firms have been accused of fabricating or backdating documents, as well as lying to conceal the true owner of a note.
Several of the busiest of these mills show up as members of Fannie Mae’s Retained Attorney Network, a set of legal contractors on whom Fannie relies to represent its interests as a note-holder. The network also serves as a pool of legal talent that represents Fannie in its pre-filing mediation program, a program designed to facilitate communication between borrowers and servicers prior to foreclosure. In other words, Fannie Mae seems to specifically delegate its foreclosure avoidance obligations out to lawyers who specialize in kicking people out of their homes.
The legal pressure to foreclose at all costs is leading to a situation where servicers are foreclosing on properties on which they do not even own the note. This practice is blessed by a legal system overwhelmed with foreclosure cases and unable to sort out murky legal details, and a set of law firms who mass produce filings to move foreclosures as quickly as possible. At the very least, we would encourage you to remove foreclosure mills under investigation for document fraud from the Fannie Mae’s Retained Attorney Network. We also believe that Fannie should have guidelines allowing servicers to proceed on a foreclosure only when its legal entitlement to foreclose is clearly documented. In addition, these charges raise a number of questions for us about the foreclosure process as it pertains to Fannie Mae’s holdings.
Why is Fannie Mae using lawyers that are accused of regularly engaging in fraud to kick people out of their homes? Given that Fannie Mae is at this point a government entity, and it is the policy of the government that foreclosures are a costly situation best avoided if there are any lower cost alternatives, what steps is Fannie Mae taking to avoid the use of foreclosure mills? What additional steps is Fannie Mae going to take to ensure that foreclosures are done only when necessary and only in accordance with recognized law? How do your servicer guidelines take into account the incentives for fraud in the fee structure of foreclosure attorneys and others engage in the foreclosure process? What mechanisms do you employ to monitor legal outsourcing?
We look forward to your responses and to understanding more about these disturbing dynamics in future hearings.
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http://www.housingwire.com/2010/06/02/delayed-mortgage-liquidation-hikes-risk-of-rmbs-write-downs
Could you translate this, Yves?
I’m not Yves, but let me try. I think I may speak just enough jive to make sense of things.
An essential feature of mortgage backed securities is allocating the risk of default/early payment from the most junior tranche to the most senior tranche. The more junior tranches in an MBS are supposed to absorb losses first, and, thus, they act as a buffer to prevent the most senior tranche from ever seeing loss.
According to the article, attempts to help debtors meet their obligations is causing senior tranches to absorb losses (write-downs) that theoretically they would not have had to absorb otherwise. If that pesky government had just let foreclosures happen in their normal course, the senior tranche would not have had to absorb any losses.
That’s my reading of it, anyway.
Seems like a bit of persuasion masquerading as news.
Tao:
I find most ‘news’ meets the description of rhetoric you indicated. Thanks for the translation!
Here is Fannie’s “retained attorney” list:
https://www.efanniemae.com/sf/technology/servinvreport/amn/pdf/retainedattorneylist.pdf
I, for one, will be sending Rep. Frank and my Congressman a list of recent cases where the Fannie foreclosure mills in my state have been sanctioned by the court for their bad faith, dilatory conduct, cooked up assignments, etc.
Fire ’em all, what say you out there?
Let’s not forget that GMAC received massive government assistance. Or that its former chairman, J. Ezra Merkin, was a prime enabler of the Madoff scam via his “hedge funds.”
This is what it means to save the system with taxpayer money?
These processes were well established long before the US bailed out GM, and extend to other servicers as well. But yes, as we have said, a proper private investor in distressed assets (the bank bailouts as well as GM) would have thrown out old management and been more inquisitive and intrusive going forward.
Today’s Orange County Register
Attorney General Jerry Brown has ordered GMAC Mortgage to suspend foreclosures in the Golden State until it proves it’s complying with the law
Moonbeam is a political animal. I wish he had a better record on following through. I have emailed my representative about this,she is facing re election and may get a clue. I want these peope given a choice of 20 years in prison or 5 years cleaning Baghdad’s sewers with a toothbrush. And I am a Real Estate Broker,something I mentioned to my Rep.
BREAKING!!! FORECLOSURES COMING TO A HALT IN FLORIDA???
PENDING INVESTIGATIONS OF MILLS!
http://stopforeclosurefraud.com/2010/09/24/foreclosures-to-come-to-a-halt-in-florida-we-wrote-they-read-it/
I am getting a headache trying to think how they are going to turn this sows’ ear into a silk purse but they seem to keep the merry-go-round spinning somehow….absolutely amazing.
I hope I am not near any of the structural parts when she blows…..
Also prefer not to be in the path of the explosion. But this made me wonder whether the rubber is finally, finally, fiiiiinally starting to hit the road:
Alan Grayson(U.S. rep from Fla) was on NPR on 10/18/2010 and indicated at that time that much of this problem falls at the feet of whoever decided back in 2002 to privitize the Mortgage and Foreclosure process. With privitization came the decision move the process to online only and to skip over necessary signatures & authorization (by Notary or otherwise) in order to save money and to hurry the process to completion. Thus loosing track of WHO??? actually holds the mortgage and making it virtually impossible to trace owhnership of the property in question.
Of course the “Madoff’s of Foreclosure” have made billions
of this I’m sure, while the taxpayer is sitting at the gate wondering what happened!!!
Who’s idea was it that brought this Stupendous debacle???