Robo-signing Your Foreclosure Notice

Harold Meyerson of the American Prospect has written an article so compelling, I will need more than one blog entry to do it justice. The name of the article, "The Man the Banks Fear Most," was written on April 23, 2012 and explores the crusade of New York State's attorney general, Eric Schneiderman, against the banking industry. 

Mr. Meyerson is not alone in his perception of Mr. Schneiderman. Several months earlier, Linette Lopez had written an article for Business Insider entitled, "Meet NY Attorney Eric Schneiderman, The Man Who Could Be Wall Street's New Worst Nightmare."

So who is Eric Schneiderman and what does he stand for? I see him as a political crusader, working to preserve the rights of the underdog, fighting against Big Business and the banking industry. 

According to Mr. Meyerson:

In February 2011, one month after he’d been sworn in as New York state’s attorney general, Eric Schneiderman sat down with the staff attorney who’d been delegated to track the negotiations that the 50 state attorneys general and the Obama administration were conducting with five of the country’s biggest banks. A few months earlier, the story had broken that the banks had been “robo-signing” thousands of notices foreclosing on homes. Instead of assessing how far behind in their payments the homeowners had fallen or seeking to modify the terms of their mortgages, the banks had employed junior staffers, some hired right off the street, to sign hundreds of foreclosure documents daily, though the banks’ title to many of the properties was uncertain. Even when the banks’ claims to ownership were clear, robo-signing violated numerous state laws requiring due diligence before a bank can foreclose on a home.
The scandal had prompted a number of banks—Bank of America most prominently—to suspend their foreclosures for a while. The Justice Department, the Department of Housing and Urban Development, and the state attorneys general had initiated talks with Bank of America, as well as JPMorgan Chase, Citibank, Wells Fargo, and Ally Financial to arrive at a settlement for these abuses. As the only state law-enforcement official with direct jurisdiction over Wall Street, Schneiderman had been named to the committee the attorneys general had established to negotiate with the banks.  

One of the scapegoats in the housing crisis is MERS, as The New York Times explained on February 3, 2012:

The Mortgage Electronic Registration System, or MERS, is owned by banks and financial firms. It was created during the housing boom to smooth the process of turning mortgages into complex securities--and to allow lenders to avoid paying registration fees to counties each time the mortgage changed hands. It is the nation's largest electronic mortgage tracking system.

In the fall of 2010, as evidence mounted that many foreclosures may have been mishandled, the system was faulted for sloppiness and questions were raised about whether it was used to sidestep legal requirements. The rising calls for halts to foreclosures suggested that the new approach could in fact have created huge new vulnerabilities for lenders.

This is a very nuanced issue. MERS saved a lot of money over the short term, but over the long run, its weaknesses are being exploited. I suggest that even if MERS were not an issue and the foreclosure process was handled flawlessly, Attorney General Schneiderman would find another reason to financially compensate homeowners who are struggling. The implication is that these homeowners have been misled. And because they were misled, they are not responsible for their actions...and should not be held accountable. According to this reasoning, the banks are accountable. MERS is a convenient scapegoat; nothing more.

In the future, as I've written before, new homeowners should be required to sign a document that says, in big bold letters: "I am aware that the value of my home may go down. I acknowledge that I can afford to pay this mortgage, even when the rates go up." Homeowners will be required to engage in the same process as a first time visitor to a doctor, filling out reams of paperwork that acknowledges the risk of the medical care that may be provided. This doesn't eliminate malpractice claims, but it keeps them under control. 

But my solution for the future doesn't resolve the problem at hand. Negotiations ensued between the government and the banks. What would the banks be willing to give up and what would they ask for in return? According to Mr. Meyerson:

 It wasn’t just foreclosing on homes without the required due diligence on which the banks wanted a pass. They wanted a release from any crimes they may have committed in originating unsound mortgages and then bundling those mortgages into securities that they assured investors were safe, even when they knew otherwise, and unloading them at a profit—at times, even betting against them. They wanted a release, that is, from all liability for the misconduct that had plunged the United States into the deepest and most intractable recession since the 1930s.

Schneiderman had some leverage in the negotiations, however:

 Schneiderman, though, brought leverage of his own: Given his jurisdiction over Wall Street, he knew that the banks would not agree to a deal without his signature. He also had the authority to launch an investigation by himself. New York has the strongest securities-fraud law in the land, the 1921 Martin Act, which empowers its attorney general to investigate and prosecute financial fraud by subpoenaing any document from anyone doing business in the state and to call people in for questioning with no right to counsel and no right to avoid self-incrimination. It gives the attorney general the right to file either civil or criminal charges at any time.

A wealth of information about AG Schneiderman exists on the Internet. This includes information that was written by Mr. Schneiderman and his followers. For example, one website is devoted to the New York State Mortgage Settlement: www.nysmortgagesettlement.com. A photo of a quiet, residential neighborhood graces the top of every page. Here is how they explain the issue of foreclosure and the settlement that followed:

In New York State, an average of 1 in 10 mortgages is at risk of foreclosure. The appropriate number of individuals living in homes that are either in or facing foreclosure exceeds the populations of Buffalo, Rochester, and Syracuse combined. Earlier this year, New York, along with 48 other states and the federal government, reached a landmark $25 billion agreement to reform the abusive servicing and foreclosure practices of the nation's five largest mortgage servicing banks...The settlement represents a first step, providing a down payment to struggling homeowners, as well as to some who have already been the victims of wrongful foreclosure.

I wondered about A.G. Schneiderman's other accomplishments. I didn't need to look much further than www.ag.ny.gov to find out. According to this site, the attorney general announced a "$45 Million Nationwide Settlement With Skechers To End Deceptive Advertising Of Its 'Toning' Shoes." 

I bought a pair of those shoes. My wife bought a pair of those shoes. And neither one of us is more toned or physically fit than we were before we bought them...or if we are, the shoes had nothing to do with it. Fortunately, I can call a toll free number, 866-325-4186, and maybe get my money back.

Upon reflection, I've been trying to figure out the difference between being misled by greedy mortgage lenders and being misled by greedy sneaker salesmen. So far, I haven't come up with an answer.