It would seem the $#!@ has really hit the fan lately with the sloppy documentation (or sometimes complete lack of documentation) banks have been keeping as they package, re-package, and transfer the ownership of various mortgages between each other.
I’m not going to go into the details of the mess that has finally come to the national media’s attention over the last few weeks since you can read excellent coverage on the subject from any number of other sources. As usual, I recommend Calculated Risk as a great starting point. However, there is one local angle on this story that has come up in the last few days that are worth mentioning on these pages.
On Wednesday, Attorney General Rob McKenna sent a letter to most mortgage trustee companies in our state (they’re the ones that process most foreclosures), basically requesting that they double-check to make sure they’re following the law.
Our office has been investigating lenders, mortgage servicers and local trustees. We have discovered that problems related to foreclosure processing are not limited to the national banks and mortgage services. In Washington, we have found evidence that foreclosure trustees appear to be ignoring laws specific to our state and may be regularly using some of the same questionable practices used by national banks…
Your role as foreclosure trustee is to ensure that each foreclosure you conduct is completed in good faith and in full compliance with the law. Because Washington State law allows foreclosure without court oversight, you are the party most responsible for ensuring that foreclosures are done properly. Consequently, I ask you to suspend all foreclosures in which you have not yet confirmed that all foreclosure-related documents were lawfuly signed, that the chain of ownership is clear and has been revealed to you in full, and that state consumer protection requirements have been followed.
Of course, the trustee companies are going to claim (and are already claiming) that they already are following the law.
Tor Hagen, a spokesman for Northwest Trustee Services, said his firm had no comment on its business practices or those of the mortgage servicers it contracts with.
Karen Gibbon, a trustee who handles several hundred foreclosures a year, said she hadn’t seen evidence of “robo-signing” in her practice.
What else would you expect them to say? “Oh whoops, sorry. We were totally making junk up, but now that you asked nicely, we’ll make sure we actually do this right.” Yeah right.
So what’s the end game? The way I see it, There are really only two possible outcomes that will result from this whole mess.
- Banks are saddled with a load of extra costs in processing foreclosures.
- Politicians come up with yet another bailout of some sort for the banks.
Given the current political climate against any further bailouts, option #2 does not seem very likely, at least not until after the election. Of course Congress already tried to slip one version of that plan through (receiving bipartisan support), so who knows, really. Option #1 seems like the most likely scenario to me, which means even more time will be added to a foreclosure process that already averages a year or more in most parts of the country (full article). Many foreclosures that have already been processed may even need to be completely “re-done” by the banks.
End result: banks lose more money, non-paying home borrowers get a little more time to live rent-free, and eventual bottom in the housing market is pushed even further out.
One thing that most likely will not happen is for the many hundreds of thousands of people who could not afford to pay their mortgages to somehow get to keep (or get back) “their” homes. If you’re not paying the debt you took out to buy an overpriced home, you will eventually lose that home. It’s just a matter of how long it will take, and how much it will cost the bank to properly repossess the home.