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Scams & Fraud
by Carole Fleck, AARP Bulletin, October 7, 2010
President Obama won't sign a bill that would make it more difficult for homeowners to successfully challenge foreclosures, according to the White House. His decision comes at a time when major mortgage lenders' foreclosure procedures are under scrutiny in multiple states for possible fraud.
At a press conference Thursday, White House spokesman Robert Gibbs said the president would veto the bill because of its "unintended consequences on consumer protection."
The bill, H.R. 3808, was passed by the Senate last week and by the House in April. In an effort to streamline foreclosure procedures, it required federal and state courts to accept certain documents that had been notarized out-of-state.
Businesses pushed for the bill because they said it was too easy for homeowners to challenge notarized documents in court when the notaries were licensed out-of-state.
But consumer advocates say the bill would have taken away an important method for homeowners to challenge a foreclosure.
The bill was passed just as some of the largest banks and mortgage servicers temporarily halted foreclosures in some two dozen states amid reports involving faulty procedures for reviewing some of their foreclosure documents.
At issue is the practice of "robo signing," in which thousands of documents are signed quickly by processors without proper review. Some of those may have resulted in unwarranted foreclosures.
Past foreclosures have now been called into question. Ally Financial (formerly GMAC), Bank of America Corp. and JPMorgan Chase say they're reviewing how many documents tied to foreclosures might have been filed improperly.
Ira Rheingold, executive director of the National Association of Consumer Advocates, has called for a national moratorium on foreclosures until mortgage servicers prove they aren't violating the law in their procedures and wrongly evicting people from their homes.
"It's all about speed for the servicing industry because that's how they get paid, by moving people into foreclosures quickly, and the rule of law be damned. If they don't have to bother with the legal requirements, they can foreclose a lot quicker," he says. Often "the accounting is wrong, the charges are inappropriate; the sloppy paperwork that existed in making the mortgage still exists."
In response to the growing scandal, the Justice Department is looking into whether mortgage lenders have been evicting homeowners using flawed court papers, Attorney General Eric Holder said Wednesday.
Also on Wednesday, Ohio's attorney general filed suit against Ally Financial, alleging that it violated state fraud laws in handling foreclosure cases. Fannie Mae, the government-created mortgage finance agency, has also ordered its servicers to review their foreclosure processes to make sure their affidavits were properly reviewed and signed.
National civil rights groups, including the Leadership Conference on Civil and Human Rights, the National Fair Housing Alliance, National Council of La Raza, the NAACP and the Center for Responsible Lending, called for an immediate national moratorium on foreclosures. It should last "until lenders demonstrate that they are adhering to all existing laws, regulations and contractual guidelines" concerning the foreclosure legal process, the groups said.
"We cannot allow this injustice to continue," said Michael Calhoun, president of the Center for Responsible Lending. "Mortgage servicers and lenders must work to preserve homeownership when possible; when not possible, they must follow the law when foreclosing."
Carole Fleck is a senior editor at the AARP Bulletin.
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