Mortgage Servicing Fraud
occurs post loan origination when mortgage servicers use false statements and book-keeping entries, fabricated assignments, forged signatures and utter counterfeit intangible Notes to take a homeowner's property and equity.
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FDIC’s Bair: Millions of Foreclosures Could Be ‘Infected’

Bloomberg News
FDIC Chairman Sheila Bair

The head of the Federal Deposit Insurance Corp. is warning that flaws may have “infected millions of foreclosures” and questioned whether other regulators’ inquiries into problems at the nation’s mortgage-servicing companies have been thorough enough.

“We do not yet really know the full extent of the problem,” FDIC Chairman Sheila Bair said Thursday in written remarks submitted to a hearing of the Senate Banking Committee. “Flawed mortgage-banking processes have potentially infected millions of foreclosures, and the damages to be assessed against these operations could be significant and take years to materialize.”

Federal and state officials launched numerous investigations last autumn after revelations that, to process foreclosures, banks used “robo-signers” who didn’t review documents prepared by their colleagues. Banking regulators’ have said their reviews of a sample of 2,800 foreclosure cases have found a small number of improper foreclosures.

Acting Comptroller of the Currency John Walsh said last month that the problems were limited in scope. They include cases that shouldn’t have gone forward under a law blocking foreclosures on military personnel, ones in which the borrower was in bankruptcy and cases in which borrowers were already on the verge of having their loans modified.

But Ms. Bair, who is departing her position in July, argued that other regulators likely missed homeowners who should have been provided loan assistance but who were improperly denied such help. The FDIC, she said, has found a “not insignificant” number of such cases. “There needs to be much more aggressive action,” she told lawmakers.

Under consent orders that 14 banks and thrifts reached with regulators in March, financial institutions are required to hire a consultant to review their foreclosures over the past two years to identify any borrowers who were harmed by foreclosure-processing problems.

Ms. Bair, however, questioned whether those reviews will truly be independent. Such consultants “may have other business with [banks] or future business they would like to do with them,” Ms. Bair said. “This is a huge issue.”

Federal Reserve Chairman Ben Bernanke, in response to questions from lawmakers at the hearing, didn’t address this criticism directly, but reiterated that regulators plan to fine banks as a result of the inquiry into foreclosure problems. He noted that the foreclosure crisis is “at some level” a problem of bank regulation, but noted it is “also a macroeconomic problem.”

Ms. Bair also raised the possibility that banks may be forced by government-controlled mortgage giants Fannie Mae and Freddie Mac to buy back more defaulted loans.

Fannie and Freddie have been pressing banks to do so, and numerous investors have filed lawsuits with similar demands. “A significant amount of this exposure has yet to be quantified,” she said in her prepared remarks.


Wolfgang wrote: What you folks have missed is that, in cases of Indentures and “securitized mortgages” sold into trust pools, the Wall Street entities that did this ALSO purchased “insurance” in the form of “credit-default swaps” on the pools.

When the “Obligor” on the “Note” (to the extent it can even be identified) fails to remit for three months (remember banks telling homeowners they had to miss 3 payments to qualify for a loan mod), the Trustee of the Trust demands payment of the entire principal from the insurer (which is why AIG and Radian Insurance went bust). As these contracts were “non-recourse,” i.e. without subrogation onto the Note, the payment did not require that the “Note” be handed over to the insurer.

So what happens? The “note” is fully paid (by the insurer), but is not stamped “Paid.” So the Wall Street hustlers then set up some subsidiary outfit (for example, DLJ Mortgage Capital, a paper front for Credit Suisse) and dump the “Note” in there, and then go file a foreclosure, representing to the Court that the Note is not paid. In fact, the Note is fully paid - just not by the homeowner.

So what? It matters not under the U.C.C. who pays the Note: you, your rich uncle, your church group, whatever: “Paid” is still “Paid.”

The guys who are laughing literally at the Bank are the guys who foreclose and flip the house, stuff the fresh cash into big bonus checks for themselves, and collect twice on the same Note. Sometimes, they have figured out how to collect THREE TIMES on the same Note.

Why did all this happen? Because some really smart guys a decade ago decided to go work on Wall Street at Goldman Sachs et al instead of going into some intellectual pursuit, say chemistry research or physics. In the old days, only the “C” students went to work for banks; they were too dull to figure out these intricate scams. Now the “A” guys go, forget their morals, and screw the system. 

Society’s answer: PUT THEM IN JAIL.

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