7 major lenders ordered to review foreclosure procedures

A top federal bank regulator said Thursday that he has directed seven of the nation's largest lenders to review their foreclosure processes after learning about the widespread mishandling of homeowner evictions by the industry.

John Walsh, acting director of the Office of the Comptroller of the Currency, told lawmakers during a hearing on the financial regulatory overhaul enacted this summer that some lenders "clearly had deficiencies" in their system for foreclosures.

The banks contacted by regulators include J.P. Morgan Chase, which announced Wednesday that it was freezing 56,000 foreclosures after finding errors in its preparation of documents, according to OCC spokesman Kevin Mukri. Other lenders contacted include Bank of America, Citibank, HSBC, PNC Bank, U.S. Bank and Wells Fargo.

"We both want to see that they fix the processing problems but also to look to see whether there is specific harm [that has been caused] in individual cases," Walsh said.

Revelations about widespread paperwork problems with foreclosures led Ally Financial, another major lender, to suspend evictions last week in 23 states where a court order is required to seize a property. Since then, the industry's handling of foreclosures has come under close scrutiny from regulators, with attorneys general in several other states calling for Ally to halt foreclosures.

The paperwork problems range from potentially forged documents to bank employees who never read borrowers' files before signing off on an eviction.

Walsh made the remarks in response to questions from Christopher J. Dodd (D-Conn.), chairman of the Senate banking committee, about the spreading problem with foreclosure processing.

The irony continues.

Chase was buying mortgages out of bankruptcy court for pennies on the dollars then since they were not listed as a BK creditor, they would come after you again to foreclose twice on you, fail and collect insurance on the deal.

Thanks. That is so under the radar most of us would have never heard of it.

This is going to turn into a very interesting situation. At least in states where foreclosures must go before a judge.

It is pretty clear that in the mortgage trading mania of the past decade nobody kept up with their paperwork, and the proof of who actually held a note is either missing or forged in many, many cases.

This may result in millions of homeowners getting to live in their houses essentially for free as their mortgage goes into legal limbo. Frankly it makes me feel like a sap for paying mine on time every month for the past 15 years.

What people are missing is this.

No original note = no obligation, no right to sell or foreclose property. Think selling your neighbor’s car without having the title or bill of sale.

Original notes of a huge proportion of mortgages were destroyed in securitization process. Think 40 - 60% of original mortgage notes destroyed. Lenders have been skating past judges who turned their heads aside when a ‘lost note’ affidavit and bond were presented, or dis-allowed a ‘produce the note’ defense as in California. You would think as a judge when you saw your ‘lost note’ excuse from a lender a fourth or fifth time you might suspect some fraud was being played on the court. Florida figured it out first, but their ‘rocket docket’ foreclosure adjudications have been at a rate of hundreds a day for months now. They will all have to be reviewed and possibly returned to foreclosed owner if original notes not found.

Any property sold by someone who did not have the original note has a cloud on its title. Title companies are refusing to insure lenders like BAC (Bank America). Chase recently bought its own title insurance company.

Likely if you have a mortgage your loan is securitized. The best thing you can do to protect yourself is to request a true copy of the note from your loan servicer. Any balking or delay, and likely your original note has gone through the shredder as well. This is a protected consumer right in most states.

And expect to receive a manufactured note from your request. This is a prevalent practice to hide the fact that your servicer does not hold the original note, but only an image of it taken just before it went thru the shredder.

It really is THAT bad.

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