State attorneys general led by Iowa’s Tom Miller are in talks that may lead to the announcement of a coordinated probe as soon as Oct. 12, said the person, who asked not to be named because an agreement wasn’t completed. The number of states may change because several are deciding whether to join, the person said. New Mexico Attorney General Gary King said yesterday in a statement that his office will join a multi-state effort.

Lawyers representing the banks expect a widening investigation, according to Patrick McManemin, a partner at Patton Boggs LLP, a Washington-based law firm that represents banks, loan servicers and financial institutions. Bank of America Corp., the biggest U.S. lender, yesterday extended a freeze on foreclosures to all 50 states.

“We are aware of or involved in a large number of investigations that lead us to believe there are in the neighborhood of 40 state attorneys general who have initiated investigations or expressed an interest,” McManemin said in a telephone interview.

Justice Department

Officials in at least seven states have already announced probes into claims that employees at home lenders and loan servicers signed court documents without ensuring the information was accurate. On Oct. 7, Miller said in a statement that he was working with state officials, banking regulators and the U.S. Justice Department to launch a coordinated review. Attorneys general in Ohio and Connecticut have said some of the practices may amount to fraud.

The Senate Banking Committee plans to hold a hearing Nov. 16 to investigate mortgage servicing and foreclosure practices, according to its website.

“American families should not have to worry about losing their homes to sloppy bureaucratic mismanagement or fraud,” the panel’s chairman, Connecticut Democrat Christopher Dodd, said in a statement. “Regulators at the federal, state and local levels have a responsibility to uphold the law and protect consumers from unfair foreclosure.”

Frozen Foreclosures

Bank of America, JPMorgan Chase & Co. and Ally Financial Inc. already froze foreclosures in 23 states where courts supervise home seizures, amid allegations that employees used unverified or false data to speed the process. Litton Loan Servicing LP, a mortgage-servicing business owned by Goldman Sachs Group Inc., said yesterday it’s halting some foreclosures to review how they’re handled.

Senate Majority Leader Harry Reid, a Democrat from Nevada, called on other banks and mortgage firms to follow Bank of America’s lead and “review their practices to ensure that they are not unfairly targeting homeowners in Nevada and across the nation,” according to a statement yesterday.

“There are reasons for these procedures and those are to make sure the banks own the homes they are foreclosing on,” Robert Lawless, a professor at the University of Illinois College of Law in Champaign, said in a telephone interview. “At the same time I don’t think it is going to be a tidal wave of relief for homeowners. My bet is that there will be a delay.”

Vickee Adams, a spokeswoman for San Francisco-based Wells Fargo & Co., and Mark Rodgers, a spokesman for New York-based Citigroup Inc., said the companies were still processing foreclosures. Thomas Kelly, a spokesman for New York-based JPMorgan, and Gina Proia, spokeswoman for Detroit-based Ally, declined to comment.

Homes Taken

Lenders took possession of a record 95,364 homes in August and issued foreclosure filings to 338,836 homeowners, or one of every 381 U.S. households, according to RealtyTrac Inc., an Irvine, California-based data vendor.

“If you have a national moratorium on foreclosures, that’s a problem,” Paul Miller, an analyst for FBR Capital Markets Corp. in Arlington, Virginia, said in a phone interview. “The longer you drag out foreclosures the longer it takes to get through” the housing slump, he said.

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The action by bank will increase pressure on other lenders to declare their own moratoriums. Lawmakers and state law enforcement officials have been widely calling for such halts. JPMorgan Chase, GMAC Mortgage and the PNC Financial Services Group have already halted foreclosures and foreclosure sales.

Representative Edolphus Towns, the New York Democrat who is chairman of the House Committee on Oversight and Government Reform, applauded Bank of America’s move and said, “I expect to see every other responsible banking institution follow their lead.”

Last week, Bank of America halted foreclosures in 23 states where evictions need court approval, saying it was reviewing its filings in the wake of disclosures about improperly prepared documents. Those states include Florida, Illinois and New York.

Bank of America services 14 million loans. More than 14 percent of those loans are past due or already in foreclosure.

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Rep. Nancy Pelosi, the House speaker, and 30 other Democratic representatives from California told the Justice Department, the Federal Reserve and the comptroller of the currency that “it is time that banks are held accountable for their practices.”

In a request for an investigation into questionable foreclosure practices by lenders, the lawmakers said that “the excuses we have heard from financial institutions are simply not credible.”

Officials from the federal agencies declined to comment.

Texas Attorney General Greg Abbott sent letters to 30 lenders demanding they stop foreclosures, evictions and the sale of foreclosed properties until they can provide assurances they are proceeding legally.

Both developments indicated that scarcely two weeks after the country’s fourth-biggest lender, GMAC Mortgage, revealed that it was suspending all foreclosures in the 23 states where the process requires judicial approval, concerns about flawed foreclosures have mushroomed into a nationwide problem.

Last week, JPMorgan Chase and Bank of America joined GMAC in suspending foreclosures in the states where they must be approved by a judge. The judicial states do not include California or Texas. But Abbott, the Texas attorney general, told lenders in letters dated Oct. 4 that if they used so-called “robo-signers” — employees who signed thousands of foreclosure affidavits a month falsely attesting that they had reviewed the material — it would be breaking Texas law.

As a result, he wrote, “the document and therefore the foreclosure sale would have been invalid.”

The three lenders who are at the center of the controversy, GMAC Mortgage, JPMorgan Chase and Bank of America, declined to comment.

Other lenders singled out by Abbott include Wells Fargo, CitiMortgage, HSBC and National City.

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The August 2010 Making Home Affordable servicer report indicates that homeowners with Bank of America who have been denied a permanent home loan modification or a trial modification have increased in number of those who have seen their home enter foreclosure. The August report states that Bank of America has 6,261 foreclosure completions, through July of 2010.This number is up from the previous month which had Bank of America foreclosure completions at 2,310.

While recent news indicates that Bank of America has stopped foreclosure proceedings in some states in order to review their validity, foreclosures remain a problem for many and will likely be a problem for some in the near future. Economic troubles like unemployment continue to be a driving cause behind housing troubles and have necessitated that mortgage servicers create more plans that may help homeowners avoid the foreclosure process.

Bank of America is said to be one of the mortgage servicers who offers alternative home loan modification plans for individuals who may be disqualified from or unable to benefit from the Making Home Affordable Program. While there are complaints that these in-house modifications are not as low-cost as those from the governmental modification plan, more homeowners are reported to have gotten a home loan modification from private financial institutions than from the Obama Administration’s modification plan.

Also, certain foreclosure alternative programs like deed in lieu of foreclosure plans have allowed homeowners who face the inevitable loss of their home to avoid the foreclosure process, homeowners are calling for more action to be taken so that fewer individuals will lose their home. Yet, until the employment situation and our nation improves, servicers like Bank of America can only attempt to find affordable modification options for homeowners through either private assistance plans or the Home Affordable plan, in the hopes that homeowners can meet their mortgage payments at the present time.

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JPMorgan’s move Wednesday makes it the second major company to take such action this month, underscoring a growing legal problem. The issue could stall an already overloaded foreclosure process.

Still, analysts don’t expect the delays to reduce the number of foreclosures over the long run.

“It will probably slow things down for a couple months while these documents are reviewed,” said Rick Sharga, a senior vice president at foreclosure listing service RealtyTrac Inc. “It won’t stop things.”

But if the problems turn up at more of the largest mortgage companies, a foreclosure crisis that’s already likely to drag on for several more years could persist even longer.

GMAC Mortgage LLC last week halted certain evictions and sales of foreclosed homes in 23 states to review those cases. The company said it found procedural errors in some foreclosure affidavits.

After GMAC’s announcement, attorneys general in California and Connecticut told the company to stop foreclosures in their states until it proves it’s complying with state law. The Ohio attorney general this week asked judges to review GMAC foreclosure cases. And in Florida, the state attorney general is investigating four law firms, two with ties to GMAC, for allegedly providing fraudulent documents in foreclosure cases.

The issue is also gaining attention on Capitol Hill. Last week, Rep. Barney Frank, D-Mass. and two other lawmakers wrote to Fannie Mae, urging the government-controlled mortgage giant to stop working with so-called “foreclosure mill” law firms under investigation for document fraud.

“Why is Fannie Mae using lawyers that are accused of regularly engaging in fraud to kick people out of their homes?” the lawmakers wrote.

A Fannie Mae spokesman said the company is reviewing the issue.

JPMorgan acknowledged Wednesday that its employees signed some affidavits about loan documents without personally verifying the files. These affidavits verifies the accuracy of the loan information, including who owns the mortgage.

JPMorgan spokesman Kelly said the bank believes the information in the affidavits is accurate, and that the affidavits were prepared by “appropriate personnel.”

The bank asked judges not to enter judgments against homeowners facing foreclosure until it completes its review of the problem. JPMorgan expects the process to take a few weeks.

The way mortgages are packaged and sold to many investors as securities can make it hard to determine who has the right to foreclose on a homeowner.

In some states, lenders can foreclose quickly on delinquent mortgage borrowers. But 20 states use a lengthy court process for foreclosures. They require documents to verify information on the mortgage, including who owns it. Florida, New York, New Jersey and Illinois are the biggest states with this process.

Christopher Immel, a Florida lawyer who represents homeowners, said people who already have lost homes could sue their lender, alleging errors in documents.

In August, a judge in Duval County, Fla., ruled that JPMorgan could not foreclose on two homeowners. The reasoning was that Fannie Mae carried the mortgage on its books and JPMorgan Chase only collected payments on the loan. JPMorgan Chase had identified itself as the owner of the loan.

More lawsuits could come soon.

In May, JPMorgan employee Beth Ann Cottrell said in a deposition that she and her staff of eight signed about 18,000 legal documents a month without reviewing every file. In a similar testimony, GMAC employee Jeffrey Stephan said he signed 10,000 documents a month without personally verifying the mortgage information.

“It’s very realistic to believe that this is a standard practice in how they go about foreclosures in certain states,” said Immel, whose law firm took Cottrell’s and Stephan’s depositions.

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The irresponsible foreclosure practices of banks have been in the headlines. Employees of bothGMAC and JPMorgan Chase (JPM) have admitted to signing off on foreclosure documents without actually having read them. The reports have led to renewed questions about the banks’ foreclosure practices.

But as usual, the no holds barred winner in the irresponsible bank tricks department is BofA (BAC).

The bank recently foreclosed on a Florida property that doesn’t even have a mortgage, the Sun Sentinel of Fort Lauderdale reported. The foreclosure was started in 2008 by Countrywide, the notorious subprime mill the bank acquired in a fire sale that year. It continued with the proceedings even after the current owner, Jason Grodensky, paid cash for the house last December.

“I feel like I’m hanging in the wind and I’m scared to death,” said Grodensky. “How did some attorney put through a foreclosure illegally?”

BofA admitted the mistake and is fixing it at its own expense, a spokeswoman tells the paper. But you’d have to say this isn’t the bank’s first turn at unfunny foreclosure tricks.

Last year, BofA locked out one Texas homeowner and turned off his power in a foreclosure proceeding. BofA eventually conceded that Alan Schroit owned the house outright, but not before he had the pleasure of returning to the house and finding 75 pounds of spoiled fish in the fridge.

In another 2009 case, the bank went a step further. Not satisfied simply to lock out a Pittsburgh-area homeowner, Angela Iannelli, who was current on her payments, the bank decided to shut off the utilities and take her pet parrot. She is suing the bank, which apologized for the “stress” its errors caused, though surely BofA was privately pleased with itself for at least having targeted someone with an actual mortgage.

The BofA response in these cases seems to be to say that mistakes happen.

“We sincerely apologize to the homeowners affected for the confusion and stress these errors have caused,” a spokeswoman said in the Schroit case. “We are working aggressively to improve our process through formal training, enhanced checklists and improved communication.”

Not aggressively enough, it seems. Barry Ritholtz says at his blog that the only way the banks will ever learn is if they lose big judgments in court – a notion that seems to be borne out by another aspect of the Schroit debacle.

He reached an undisclosed settlement, his attorney said. Court documents showed that Schroit wanted compensation that would be “adequate to deter BOA’s arrogance.”

So much for that.

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Some of the nation’s largest mortgage companies used a single document processor who said he signed off on foreclosures without having read the paperwork – an admission that may open the door for homeowners across the country to challenge foreclosure proceedings.

The legal predicament compelled Ally Financial, the nation’s fourth-largest home lender, to halt evictions of homeowners in 23 states this week. Now Ally officials say hundreds of other companies, including mortgage giants Fannie Mae and Freddie Mac, may also be affected because they use Ally to service their loans.

As head of Ally’s foreclosure document processing team, 41-year-old Jeffrey Stephan was legally required to review cases to make sure the proceedings were justified and the information was accurate. He was also required to sign in the presence of a notary.

In a sworn deposition, he testified that he did neither.

The reason may be the sheer volume of the documents he had to hand-sign: 10,000 a month. Stephan had been at that job for five years.

How the nation’s foreclosure system became reliant on the tedious work of a few corporate bureaucrats is still a matter that mortgage lenders are trying to answer. While the lenders may have had legitimate cause to foreclose, the mishandling of the paperwork has given homeowners ammunition in their fight against foreclosure and has drawn the attention of state law enforcement officials.

Ally spokesman James Olecki called the problem with the documents “an important but technical defect.” He said that while the papers were “factually accurate,” he conceded that “corrective action” may have to be taken in some cases and that others may “require court intervention.”

Olecki said the company services loans “from hundreds of different lenders,” but he declined to provide names.

Spokespeople for Fannie and Freddie confirmed Tuesday after inquiries from The Washington Post that they use Ally, formerly called GMAC, to oversee some mortgages. The companies have launched internal reviews to assess the scope of any potential issues.

Ally, Fannie and Freddie – all troubled mortgage companies that received extraordinary bailouts by the federal government during the financial crisis – declined to say how many loans might be affected. The Treasury Department, which owns a majority stake in Ally and seized Fannie and Freddie in 2008, also declined comment.

Fannie and Freddie, created by Congress to finance mortgages and encourage homeownership, have in recent years been repossessing houses at record numbers. Fannie alone reported recently that 450,000 of its single-family loans were seriously delinquent or in the foreclosure process as of June 30. That’s nearly 5 percent of all the loans it guarantees.

Lawyers defending homeowners have accused some of the nation’s largest lenders of foreclosing on families without verifying all of the information in a case, but it has been hard for them to stop foreclosure proceedings.

Ally’s moratorium comprises only the 23 states – none in the Washington area – that mandate a court judgement before a lender can take possession of a property. But if Stephan signed documents related to foreclosures in states without this requirement (it’s unclear if he did), it could help a much broader range of borrowers.

Iowa Assistant Attorney General Patrick Madigan, chair of a national foreclosure prevention group composed of state attorneys general and lenders, said the fallout from the Ally review could be enormous because Stephan’s actions could be considered an unfair and deceptive practice.

“If servicers are submitting court documents that aren’t true or that have not been verified, that is of great concern,” Madigan said.

Stephan’s job at Ally was arguably one of the least enviable in the mortgage business: formally signing off on foreclosure papers that his company would submit to the courts to get approval to evict delinquent homeowners and resell their homes.

From his office in suburban Philadelphia, Stephan oversaw a team of 13 employees that brought documents to him for his signature at a rapid clip. Stephan did not respond to messages left at his work and home.

His official title was team leader of the document execution unit of Ally’s foreclosure department, but consumer advocates call him the company’s “super robot signor” or “affidavit slave.”

In sworn depositions taken in December and June for two separate court cases involving families trying to keep their homes, Stephan revealed his shortcuts when reviewing the files. He said he would glance at the borrower’s names, the debt owed and a few other numbers but would not read through all the documents as legally required. He would then sign them. The files were packed up in bulk and sent off for notarization several days later.

Stephan testified he did not know how the “summary judgment” affidavits he signed were used in judicial foreclosure cases.

At the rate Stephan was reviewing files, if he worked an eight-hour day he would have had an average of only 1.5 minutes for each document.

“A ridiculous amount of time for something so critically important,” said Thomas Cox, an attorney in Maine who was one of those who deposed Stephan. He added that Maine and Florida law enforcement officials are investigating the matter.

Stephan was the only employee signing papers for foreclosures that were to be submitted to courts that did not involve bankruptcies. The latter cases, which were more complex, were handled by a separate department.

Olecki said Stephan still works for Ally but added, “We can not comment further about his position.”

While several large lenders contacted by The Post declined to talk about the document review process for foreclosures, attorneys working on behalf of homeowners said the setup at Ally was not unusual.

Christopher Immel, an attorney in Florida who deposed Stephan for a case in Palm Beach County, said he thinks Stephan was not a rogue employee but one that was performing his job responsibilities as the company told him to do.

“GMAC has a business model to do this, and Stephan was just one small part of it,” Immel said. “He was under the impression it was okay to do this.”

http://www.washingtonpost.com/wp-dyn/content/article/2010/09/21/AR2010092105872_pf.html

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After mixed reviews more proof is showing that forensic loan audits do work. Between law suites against MERS one of the largest loan servicers and individual cases. The largest factor is to keep pressure on your bank and coupled with a loan audit forcing your lender to act. The case above shows exactly this.

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