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?