COMMENTARY: by JONATHAN FOXX
Jonathan Foxx, former Chief Compliance Officer of two publicly traded financial institutions, is the President and Managing Director of Lenders Compliance Group, the first full-service, mortgage risk management firm in the country.
In each of the first two meltdowns, many people believe that regulators failed to enforce existing regulations - even if some of those regulations were inadequate or dysfunctional. But this third meltdown has occurred for the most fundamental of all reasons: not complying with the execution of affidavits! This is basic legal process. What good are implementing statutes already on the books, if the entities subject to those laws do not comply with them?
The culprits? Lenders, and only the lenders, and nobody but the lenders.
By now most of you know that GMAC, JPMorgan Chase, and Bank of America have put tens of thousands of foreclosure processes on hold. When news first came out about this recently, many in the industry had no idea why this happened! Yet my conversations with several industry leaders indicate, sadly, that they were disappointed but not surprised. Disappointed - because this debacle further delays financial recovery and creates even more uncertainty; and, not surprised - because banks have made this kind of mess before, placing expediency over exacting regulatory compliance, and should have known better - given their own culpability in the financial and mortgage meltdowns.
As I write, the aforementioned 3 companies have suspended foreclosures in 23 states; Fannie Mae has issued a Lender Letter (LL-2010-11) that directs all of its servicers "to immediately undertake a review of their policies and procedures relating to the execution of affidavits, verifications, and other legal documents in connection with the default process;" the OCC has ordered its regulated banks to review foreclosure processes for flaws in their document management systems; and, Old Republic National Title Insurance, certainly one of the country's largest title companies, has advised that it would not insure title to GMAC and JPMorgan Chase foreclosures (thereby imperiling clear title). Rippling through the states, some AGs are now calling for a moratorium on all foreclosures in their states.
Plaintiffs' attorneys must be positively gleeful!
And a new term has crept into the vernacular: "robo-signing." Briefly put, this is a technique - if you want to call it that! - which a lender's servicer uses to approve foreclosure cases without personally reviewing the underlying foreclosure documents or without signing affidavits pursuant to required legal procedures. A lender seeking foreclosure must file a specified affidavit in many states' courts. And, of course, such affidavits attest to various facts about the subject foreclosures, such as a description of the lender's legal standing to foreclose. The affidavit is attested to by the bank's representative, who submits the affidavit in support of motions for summary judgment in states with judicial foreclosure processes. But "robo-signing" short cuts this procedure by having the individuals executing these affidavits on behalf of the servicer "sign" the documents en masse without inspecting the attested documents, without actually having the personal knowledge of information contained in the affidavits - and without determining that the affidavits were notarized in accordance with applicable requirements!
I suppose an argument can be made that this situation will eventually straighten out and most foreclosures will be completed in the fullness of time. This is a procedural matter that will require a legal solution. Most foreclosures are not going to be reversed, once this legal mess gets disentangled, although regulatory oversight may be considerably strengthened.
At this point, it seems that lenders did not willfully evade compliance. Taking short cuts - Maybe. We'll all find out soon enough the extent of legal culpability and any willful failure to comply with the law. But perception is a critical issue - especially when we are dealing with the heart wrenching condition of foreclosure.
One has the sense that yet another avoidable situation in our industry could really have been avoided.
At a time of lowered consumer confidence in the economy in general and the mortgage industry in particular, it is incumbent on all of us - the market participants - to police ourselves better and hold ourselves to the highest standards.
Let's not allow ourselves to be 'called out' again like this!
So, What Do You Think?
I would welcome your comments and views.
Please feel free to email me at any time.
LENDERS COMPLIANCE GROUP is the first full-service, mortgage risk management firm in the country, specializing exclusively in mortgage compliance and offering a full suite of hands-on and automated services in residential mortgage banking.