Despite Controversy, Robo-Signing Still Going Strong

Remember the robo-signer scandal, in which major banks were accused of using forged documents to foreclose on homeowners? How about the predatory loan scandal, in which the banks were accused of using deceitful marketing to sell mortgages with illegally high interest rates and fees?

You might assume that both scandals have faded into history. If so, you’d be wrong. Mortgage servicers, many of them owned by the nation’s largest banks, are still submitting forged documents in court to prove their right to foreclose, according to a recent investigation by American Banker.

And Nevada’s attorney general, Catherine Cortez Masto, went to court this week with allegations that Bank of America has broken its promise to modify mortgages in the state, asking the judge for permission to reopen the state’s original lawsuit on allegations of mortgage fraud.

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The resurfacing of these old scandals could mean big problems for big banks. According to a statement by Masto’s office, “Bank of America’s misconduct cuts across virtually every aspect of its operations—from originating to servicing and, all too often, to foreclosing on the loans and homes of Nevada consumers.”

The robo-signer scandal is rooted in a fundamental problem: During the housing boom, lenders made so many mortgages, and sold so many of the loans to investors, that they lost track of the paperwork documenting transfers of ownership, as required by law. We covered these problems back in January.

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The result: Allegations that families were being evicted from their homes illegally. That sparked a 50-state investigation by banking regulators, which recently has bogged down over a disagreement between attorneys general like Eric Schneiderman of New York, who argues the investigation has failed to probe deeply enough, versus the Obama administration, which wants to wrap up the settlement quickly.

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The administration’s efforts to end the probe soon may be complicated by news that, a year after the scandal broke, banks are still employing robo-signers to forge court documents. In one document filed in a Florida court, Bank of America assistant vice president Sandra Juarez signed a mortgage assignment on July 29, 2011 that claimed to document the transfer of ownership from New Century Mortgage Corp. to Deutsche Bank.

But New Century went bankrupt in 2007. And the Deutsche Bank trust that claims to hold the loan hasn’t received ownership of any new mortgages since 2006, according to American Banker’s investigation.

On August 11, 2011, Wells Fargo assistant secretary Nancy D. Sorenson claimed to be a nominee of Fremont Investment and Loan so she could sign a document proving transfer of a loan. Fremont hasn’t existed since 2008.

Such backdated signatures are perfectly legal, bank representatives say.

“The practice of executing assignments to confirm for the public record that mortgages were previously assigned to the trust reflects standard industry practice,” Philippa Brown, a spokeswoman for American Home Mortgage Servicing Inc., told American Banker.

Actually no, it’s fraud, consumer advocates say.

“It’s now becoming clear that fraud, deception and an utter disregard for accuracy are in part to blame for national foreclosure disaster,” Richard Cordray, then the attorney general of Ohio, said at a press conference last year in which he announced his lawsuit stemming from an investigation into robosigning. Cordray starts his confirmation process to become director of the new Consumer Financial Protection Bureau with a hearing before the Senate banking committee today.

In Nevada, the state’s original lawsuit alleged that Countrywide Financial used deceptive marketing to sell loans to the state’s residents, and that the company lied about the interest rates and fees included in those loans. Countrywide went bankrupt in 2007, and was later bought by Bank of America.

Bank of America compounded the damage, Masto alleges, by misrepresenting whether, how and when homeowners could modify their loans, and by filing fraudulent documents in court to foreclose on families.

Together, the actions by Countrywide and BofA are responsible for “stripping homeowners of their assets (including those who do not have loans originated or serviced by Defendants, but whose property values have fallen dramatically), dislocating families, blighting neighborhoods, and deeply disrupting the State’s housing market,” according to Masto’s statement.

[Related article: Robo-signing Battle Heats Up, Again]

Image: Kevin, via Flickr.com