Published on Global Research.ca, by Tom Eley, Oct. 18, 2010.
… The mortgage foreclosure scandal continues to deepen and spread, implicating the government as well as the banks.
Federal agencies tasked with monitoring the bank mortgage industry, including the Federal Reserve, the Office of the Comptroller of the Currency, and the Office of Thrift Supervision, did nothing to stop the abuses, even though these were clearly not isolated, but systemic problems.
“[T]here’s no sign these agencies did anything to stop any of these institutions from treating the country’s courts so contemptuously,” notes Bloomberg’s Jonathan Weil. “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.”
Weil notes that Indy Mac Bank was actually controlled by a federal agency, the Federal Deposit Insurance Corporation (FDIC), while it engaged in the illegal processing of foreclosure documents.
Courts are also implicated. Florida’s legislature last year allocated $9.6 million to create special foreclosure courts in which judges play the role of “robo-signer.” One of these judges is Victor Tobin of Broward County. The Washington Post this week found Tobin “signing off on uncontested foreclosure cases as fast as a clerk could keep them coming, only a few seconds per file. ‘Batter up,’ he said as he finished one stack and eyed the next.”
The rampant falsification of loan documents has now raised doubts over the solvency of the entire mortgage security industry. The “robo-signers” basic task was to supply affidavits to courts in lieu of the actual documents related to ownership. In many cases, this paperwork may not exist or may be lost.
During the housing bubble, when the finance industry relentlessly promoted home refinancing and teaser-rate mortgages, the resulting loans were packaged and sold in complex chains of transactions that spanned the globe, building up enormous personal fortunes in the process.
When this Ponzi scheme inevitably collapsed, the legal paperwork to lay claim to properties was not there. “Now an awful truth is becoming apparent: In many cases, the documentation doesn’t exist,” Krugman notes. “The trusts were legally required to obtain and hold the mortgage notes that specified the borrowers’ obligations. But it’s now apparent that such niceties were frequently neglected. And this means that many of the foreclosures now taking place are, in fact, illegal.”
According to analysts, it is likely that lenders will face a tidal wave of lawsuits, not only from defrauded homeowners, but also from powerful investors who purchased mortgage-backed securities from them.
On Thursday, the stocks of major US banks suffered sharp losses as result of renewed concerns over their solvency stemming from the mortgage foreclosure crisis. Wells Fargo, Bank of America, and Citigroup finished the day down more than 4 percent. The fall continued on Friday, with BOA and JPMorgan Chase shares falling more than 3 percent.
Spreads on bank credit-default swaps also grew sharply, with BOA’s reaching levels not seen since July 2009. The cost of insuring bank debt increased by over 6 percent during the week. (full text).