Drumroll: Bank of America reviews several hundred foreclosure cases and finds….

Uh-oh:

The Charlotte, N.C., lender [Bank of America] discovered errors in 10 to 25 out of the first several hundred foreclosure cases it examined starting last Monday. The problems included improper paperwork, lack of signatures and missing files, said people familiar with the results. In certain cases, information about the property and payment history didn’t match….

Some of the defects seem relatively minor, according to the bank, and bank officials said they haven’t uncovered any evidence of wrongful foreclosures. There was an address missing one of five digits, misspellings of borrowers’ names, a transposition of a first and last name and a missing signature on one document “underlying” an affidavit, a bank spokesman said.

But the bank uncovered these mistakes while preparing less than 1% of the first foreclosure files that it intends to resubmit to the courts in 23 states. As the nation’s largest mortgage lender, the bank is under pressure to show that its mortgage process isn’t flawed amid revelations that many banks used “robo-signers” to approve large numbers of foreclosure documents without reading them closely.

They looked at “several” hundred foreclosures cases and found documenting errors in “10 to 25.”  That’s simply amazing.  Like, it’s hard to do that with random samplings provided we want to have a court system that works here.

Because as we discussed earlier, the damages of kinds of mistakes aren’t capped at forgetting to put a TPS cover on your report. These errors can result in excessive fees not being caught, improper recording of debts and balances. These can turn an underwater homeowner above water, saving him or her from worries of continuing problems. They can allow for a short-sale. They can mean thousands of dollars to people who are now going to be kicked out of their home.

Here’s Adam Levitin responding:

So what’s going on? I think the only way to read these two stories together is to conclude that Bank of America didn’t actually conduct much of a review during its brief foreclosure freeze. At best, they engaged in some sampling of loan files, and at worst, they merely reviewed procedures, not actual files.

Frankly, it was never credible that BofA (or GMAC) undertook a serious review of foreclosure problems. BofA has taken months, if not years, to achieve a paltry number of loan modifications; why would anyone think that they could possibly give themselves a clean bill of health on foreclosures in a couple of weeks?….

I was glad to hear Ben Bernanke announce this morning that federal regulators would be looking into the faulty foreclosure process. But how is this inspection going to work? The only way to actually answer whether we have a systemic faulty foreclosure problem is to have legally trained personnel examine a healthy sample of actual loan files on both the servicer and trustee level. Is that what the federal bank regulators are going to do? Do they even have the personnel? I don’t think bank examiners have the training to know what sort of legal documentation and procedures are required to properly consummate a foreclosure; it’s just not part of what they do. And are they going to look at the actual loan files or just talk to the servicers and get reassurances?

The credibility of the federal response rests on the investigative process; unless there are sufficiently trained personnel looking at the actual files, we won’t know the real scope of the problem, and any clean bill of health will be a white wash.

I think a simple dose of game theory helps with these things. Given that servicers are being sued by their investors, wouldn’t they want a moratorium, want the government to step in with a heavy-hand and lend credibility? Nobody believes them, and nobody has a reason to. And I can’t tell what is scarier: that Bank of America knows it isn’t credible here, and just wants to hope it goes away, or Bank of America is simply too large, complicated and poorly functioning to figure out and/or learn whether or not they have a problem here.

How’s that returns to scale in banking working out for everyone?

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10 Responses to Drumroll: Bank of America reviews several hundred foreclosure cases and finds….

  1. Pingback: Drumroll: Bank of America reviews several hundred foreclosure cases and finds…. (via Rortybomb) « Pilant's Business Ethics Blog

  2. southwerk says:

    Great stuff, guys! Very impressive. I reblogged this and am waiting for your next post.
    James Pilant

    Pilant’s Business Ethics Blog

  3. Randy says:

    My Wanderiing (and first ever) Rant:

    Upper management of the various banks simply has to be aware of the issues on this.

    So is it not in their best interest to perform (and communiicate) bullet proof tests on their loan portfolio? At what point does it reach the stage where they are unable to dodge the (legal) implications and face true consequences?

    And what is it that warrants their strategy surrounding all this mortgage mess? Why is it that they feel they have a lifeline they can depend on? If it was me, I would be running hard to get answers from any and all of the derivative companies that my company was involved with, and demanding that that facts were in front of my management team right now. I would not want to go to jail for ignorance on this issue (and give up my huge bonus!) The CEO of any company simply has to take reponsibility and ownership of major issues.

    This is a major issue, and yet it is not apparent to me that they have communicated they are doing their fudiciary duty in this case. But then as this unfolds I would think that they will either be found complicit or ignorant of the issues. Neither would be acceptable. They need to step up, fess up, and resolve the issues. Due diligence is by definition a bankers forte, failing to do it is probable reason for dismal, and/or ciminal charges.

    I just don’t understand at all what role the government is taking here. Is America so corrupt/inept that the entire financial mess is going to be dismissed by government and the people? Is it even possible for the right things to be done, or has that moment passe by forever?

    I realize that there is little that any one person/president can do, but my general feeling is that the ship is taking on a lot of water and various interest groups are working very hard to make off with their fair share in the life boats before it goes down, and I just get the feeling it is dragging down the entire world with it, and there is really no way to stop or divert the overall momentum.

    Corruption wins. Compassion takes the back seat again. The USA is without doubt the most corrupt nation on the planet that has ever existed, given thr transfers of wealth to slected groups in the last few years.

    Where are the people who work in the organizations doing the “deed” that should be stepping up. Where would they bring up the issues they see? Is there no effective whistleblower “place” for them?

    Putting bets on the likleyhood that a meaningful change within the government will occur = zero. So that would mean that the slow death continues, things continue to degrade, the polictically connected make headwind, the average person slips even more. Extremely tragic. It is apparent that this is happening now.

    Some time in the approaching future things will change and a new and more vibrant country begins to push the boundaries that used to belong to the idealism that was America’s.

    But probably by that time the defense budget has doubled, because that is the American growth industry. Many stellar and retired army personas have written on the subject of the militarization of America, and for the most part I agree with the intent they convey. Things are out of control, and the most obvious issues are relegated to the back burner while the military organiztion/momentum is persued.
    Done ranting

    • southwerk says:

      If you would bring or say something similar on my web site, Pilant’s Business Ethics Blog, I would be most pleased. If you like I will make it a direct blog post.
      James Pilant

    • Randy says:

      Oh, I also wanted to go at you from a very appreciative reader point of view. I have read your blog forever, love it, deeply respect your views and daily view your site, which is more often than you post (understandably) I find your blogs to be (usually over my head but) informative and motivating. YOU DO A GREAT JOB. Why I would even read about your daily views if you posted them. If you ever head up to Okotoks Canada I’d be happy to buy you a beer, even if I couldn’t understand you!

  4. zic says:

    A friend will be going to court today as foreclosure proceedings happen for her significant other. She’s going because of the errors she found while helping review the paperwork; fees that he’d paid that weren’t recorded, payments he’d made that weren’t shown.

    But I suspect the bigger problem is standing; do the banks in question actually have the legal standing to foreclose? In another instance, I know of a foreclosure that was initiated by a bank who wasn’t registered on the deed as the lender. Slice and dice obscured the record.

  5. Robert Bell says:

    “a TPS cover”

    Am I losing my mind or is this a reference to “Office Space”?

  6. southwerk says:

    I wish your friend all the best in the world. Good luck!
    James Pilant

  7. Fred Smith says:

    Nobody has brought up the distinct possibility that the loan servicers may well have bundled and sold each of these loans MORE THAN ONCE to differernt investors via the securitization process. THIS COULD BE THE REAL REASON THAT THERE IS NO DOCUMENTATION / PAPER TRAIL. The non-existent documentation and accounting is entirely consistent with this scenario. This means that the entire plan was a true Ponzi scheme in the worst sense. In other words, rather than selling the loan once to investors, as we have all naively been assuming, there is no reason to believe that they did not double-dip or quintuple-dip and sell the exact same loan to completely new buyers. THIS IS A LEVEL OF FRAUD THAT THE AMERICAN PUBLIC HAS NOT YET CONTEMPLATED.

    There are no new laws that are necessary. All that is necessary is for the states to FOLLOW THE EXISITING LAWS which have been around much longer than any of us, or any of the banks themselves. These laws were devised to deal with all property frauds, including the current foreclosure frauds. No more bailouts. Let the chips fall where they may.

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