10/19/10

Jonathan Weil on foreclosure and regulators

"Foreclosure Fiasco’s Trail Leads to Washington
 
What were banking regulators doing while some of the biggest U.S. lenders routinely filed false foreclosure documents in local courthouses around the country? In the case of IndyMac Federal Bank, it turns out the Federal Deposit Insurance Corp. was running the joint.
 
This may help explain why the mortgage-servicing industry got away with such misbehavior for so long. The government, in one form or another, was doing it, too.
 
...So- called robo-signers penned their names to untold numbers of affidavits and other foreclosure documents that proved to be false, prompting judges in some states to throw out the banks’ claims.
 
...Ally Financial Inc.’s GMAC Mortgage last month halted evictions tied to foreclosures in 23 states. Ally is majority-owned by the Treasury Department.
 
...Where were the banking regulators while all this mischief was going down?
 
For years the leaders of the Federal Reserve and the Office of the Comptroller of the Currency, among others, have been assuring the public they have onsite examiners and supervisors at all of the country’s largest banks. Before IndyMac was seized, its primary regulator had been the Office of Thrift Supervision.
 
Yet there’s no sign these agencies did anything to stop any of these institutions from treating the country’s courts so contemptuously. Perhaps the regulators were clueless. Or maybe they knew there was a problem and decided to let the banks run wild in the interest of keeping their foreclosure mills humming.
 
Whatever the case, they let the banking industry deal another huge, self-inflicted blow to its reputation. That’s the sort of damage regulators are charged with preventing, as part of their mission to preserve public confidence in the financial system. And to think Congress just gave the banking regulators, including the FDIC, even more authority under the Dodd-Frank Act. The more they fail, the more power they get.
 
...Meanwhile, it’s an open question why the mortgage servicers and their lawyers resorted to tactics such as filing bogus court affidavits. Was it just about cutting corners? Or was it because they often don’t know who owns the mortgages on which they’re foreclosing, and decided to cheat?
 
...The regulators keep blowing it. At IndyMac, though, the FDIC wasn’t just overseeing the bank. It was operating the bank. The industry’s minders have hit a new low."
 
Jonathan Weil
Bloomberg News

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