2010 United States foreclosure crisis
The 2010 United States foreclosure crisis, sometimes referred to as Foreclosure-gate or Foreclosuregate, refers to a widespread epidemic of improper foreclosures initiated by large banks and other lenders. The foreclosure crisis was extensively covered by news outlets beginning in October 2010, and several large banks, including Bank of America, JP Morgan, Wells Fargo, and Citigroup temporarily responded by halting their foreclosure proceedings in some or all states. The foreclosure crisis caused significant investor fear in the U.S. A 2014 study published in the American Journal of Public Health linked the foreclosure crisis to an increase in suicide rates.
One out of every 248 households in the United States received a foreclosure notice in September 2012, according to RealtyTrac.
Early signs of trouble
In the spring 2010, news stories begin to emerge detailing erroneous foreclosures and evictions, including banks variously foreclosing on homes which were paid for without a mortgage, accidentally foreclosing on the wrong home, and providing fraudulent documentation in courts.
"Robo-signing" is a term used by consumer advocates to describe the robotic process of the mass production of false and forged execution of mortgage assignments, satisfactions, affidavits, and other legal documents related to mortgage foreclosures and legal matters being created by persons without knowledge of the facts being attested to. It also includes accusations of notary fraud wherein the notaries pre- and/or post-notarize the affidavits and signatures of so-called robo-signers.
In 2009, Maine attorney Thomas Cox pointed out the wide-scale practice of robo-signing in depositions taken of GMAC's Jeffrey Stephan and other robo-signers. News outlets reported that on September 14, 2010, Jeffrey Stephan testified that he had signed affidavits which he hadn't actually reviewed on behalf of Ally Financial Inc. This revelation led to increased scrutiny of foreclosure documentation. The practice was apparently common in the mortgage industry. In the weeks following the robo-signing revelation, other large banks came under fire for employing robo-signers as well, including JPMorgan Chase and Bank of America.
In the fall of 2010, major U.S. lenders such as JP Morgan Chase, Ally Financial (formerly known as GMAC), and Bank of America suspended judicial and non-judicial foreclosures across the United States over the potentially fraudulent practice of robo-signing.
On September 21, 2010, HousingWire ran an article citing defects in affidavits used in some foreclosure cases at Ally Financial, formerly known as GMAC Mortgage."This situation with GMAC isn't limited to GMAC," Margery Golant, of Golant & Golant, a foreclosure law firm in Boca Raton, Fla., said in an interview with HousingWire reporter Jon Prior. "All the mortgage servicers do the same thing. They have people either on the inside or through outsourcers that we call Robo-signers. They just sign everything in sight, but the legal system requires that they actually know the information."
On July 18, 2011, the Associated Press and Reuters released two reports that robo-signing continued to be a major problem in U.S. courtrooms across America. The AP defined robo-signing as a "variety of practices. It can mean a qualified executive in the mortgage industry signs a mortgage affidavit document without verifying the information. It can mean someone forges an executive's signature, or a lower-level employee signs his or her own name with a fake title. It can mean failing to comply with notary procedures. In all of these cases, robo-signing involves people signing documents and swearing to their accuracy without verifying any of the information."
Role of MERS
The Mortgage Electronic Registration Systems, known as MERS, is a privately held company that operates an electronic registry designed to track servicing rights and ownership of mortgage loans in the United States. Since the 2010 crisis, 62 million mortgages are held in the name of MERS, and MERS has initiated thousands of foreclosures in the United States, claiming to be the mortgagee of record. Lawyers have contended in court that MERS has no legal right to initiate a foreclosure, because MERS does not own the loans in question. U.S. lending laws state that only the owner of a loan can initiate a foreclosure. Class action law suits against MERS are pending in California, Nevada, and Arizona. State courts remain sharply divided on the propriety of this practice. State supreme courts in Maine, Arkansas, and Kansas have ruled against MERS right to file for foreclosures. MERS has however won court cases in other states such as Michigan, affirming its right to initiate foreclosures in those states. For example, the Third District Court of Appeals in Florida ruled, in 2007, that "... it is apparent - and we so hold - that no substantive rights, obligations or defenses are affected by the use of the MERS device, [so] there is no reason why mere form should overcome the salutary substance of permitting the use of this commercially effective means of business."
Attempted legislative fix
In an apparent attempt to resolve some of the issues with missing, lost, and sometimes fraudulent paperwork both the United States House of Representatives and the United States Senate passed H.R. 3808 which would force courts to recognize out of state and electronic notarizations. The bill passed the Senate through a verbal vote, and wasn't publicly debated. President Barack Obama, fearing "unintended consequences on consumer protections" utilized his veto powers, at first using a pocket veto by simply not signing the bill, and later by issuing a more formal protective-return veto.
The Interstate Recognition of Notarizations (IRON) Act of 2010 would have required “any Federal or State court to recognize any notarization made by a notary public licensed by a State other than the State where the court is located when such notarization occurs in or affects interstate commerce.” The bill, written by U.S. Rep. Robert Aderholt (R-AL) to help court stenographers in his district alleviate issues with getting courts in other states to accept depositions notarized in Alabama, came under criticism in October 2010 from homeowner advocates who said it would have made it easier for mortgage processors to foreclose on homeowners without proper documentation or chain of title.
The first version of the IRON Act (H.R. 1979), sponsored by Aderholt in 2005, passed the House of Representatives in December 2006. The same bill was later sponsored by U.S. Sen. Tom Carper (D-DE) and introduced in the U.S. Senate Judiciary Committee as S.2083 in 2007, but it ultimately stalled. The bill was again sponsored by Aderholt (R-AL) and introduced in the U.S. House of Representatives as H.R. 3808 on October 14, 2009. It passed by voice vote in the House on April 27, 2010. The bill was co-sponsored by Rep. Bruce Braley (D-IA), Rep. Mike Castle (R-DE) and Rep. Artur Davis (D-AL). The bill was voted on in the U.S. Senate on Sept. 27 at the urging of Senate Judiciary Chairman Patrick Leahy (D-VT). Leahy’s staff said that they had received calls from “constituents” pressing for passage of the bill. But Leahy may have supported the bill after being lobbied by notaries at a September event in D.C. honoring President Calvin Coolidge.
Sen. Robert Casey (D-PA), who was ushering through many pieces of last-minute legislation on behalf of the Democratic leadership on the final day before the Senate adjourned for recess, moved the bill from the Judiciary committee for a vote. Sen. Jeff Sessions (R-AL) helped gather Republican support for the bill. The Senate then passed the bill by unanimous consent without debate. Aderholt said that he and supporters “were surprised that it came through at the eleventh hour there” in the Senate. President Obama vetoed the bill on Oct. 8, following outcry from homeowner advocates and increased scrutiny from the press.
Ohio’s Secretary of State, Democrat Jennifer Brunner, emerged as one of the earliest critics of the bill, calling the timing of its passage “suspicious.” Brunner organized opposition to the bill, urging citizens to call and email the President and tell him not to sign the act. CNBC senior editor John Carney called the bill “mysterious” and wrote that the bill “might bail out banks such as GMAC, JP Morgan Chase and Bank of America from their foreclosure gate troubles.”
Aderholt defended his bill in a statement: “There is absolutely no connection whatsoever between the Interstate Recognition of Notarizations Act of 2010 and the recent foreclosure documentation problems… The bill expressly requires lawful notarizations, and in no way validates improper notarizations. Enforcement of legal notarizations is a state responsibility and I fully support each state attorney general vigorously prosecuting all notarization fraud.”
Legal action against banks
National Mortgage Settlement
On February 9, 2012, it was announced that the five largest mortgage servicers (Ally/GMAC, Bank of America, Citi, JPMorgan Chase, and Wells Fargo) agreed to a historic settlement with the federal government and 49 states. The settlement, known as the National Mortgage Settlement (NMS), required the servicers to provide about $26 billion in relief to distressed homeowners and in direct payments to the states and federal government. This settlement amount makes the NMS the second largest civil settlement in U.S. history, only trailing the Tobacco Master Settlement Agreement. The five banks were also required to comply with 305 new mortgage servicing standards. Oklahoma held out and agreed to settle with the banks separately.
Joseph A. Smith, Jr., the North Carolina Commissioner of Banks, was tapped to be the Settlement Monitor. He created the Office of Mortgage Settlement Oversight (OMSO) to ensure the banks were providing relief to homeowners and complying with the new mortgage servicing standards as required by the NMS.
National SunTrust Settlement
The Federal government together with state attorneys general in 49 states and the District of Columbia reached a settlement in 2014 requiring SunTrust Mortgage, Inc., to provide $500 million in various forms of relief to borrowers. The United States District Court for the District of Columbia entered the Consent Order on September 30, 2014. The consent order addressed SunTrust's alleged misconduct regarding its mortgage servicing and foreclosure practices. SunTrust was also required to create a 40 million dollar fund for the approximately 45,000 SunTrust borrowers who were foreclosed upon between January1, 2008 and December 31, 2013. In addition, SunTrust was required to adhere to significant new homeowner protections. The consent order required that SunTrust follow the servicing standards set up by the 2012 National Mortgage Settlement (NMS) with the five largest banks.
Ocwen National Servicing Settlement
The Consumer Financial Protection Bureau (CFPB), together with attorneys general and state banking regulators in 49 states, and the District of Columbia obtained a Consent Judgment requiring Ocwen Financial Corporation—who at the time, was the largest nonbank mortgage loan servicer in the country—and its subsidiary, Ocwen Loan Servicing, to provide $2 billion in first lien principal reduction to underwater borrowers. The consent order addressed Ocwen’s misconduct during the mortgage servicing process. It also covered two companies previously purchased by Ocwen, Litton Loan Servicing LP (“Litton”) and Homeward Residential Holdings LLC (previously known as American Home Mortgage Servicing, Inc. or AHMSI). Ocwen was also required to pay $125 million to the nearly 185,000 Ocwen, Litton, and Homeward borrowers who had been foreclosed upon and well as being required to adhere to significant new homeowner protections.
- Bankruptcy remote – a desired feature of vehicles like REMICS
- Chain of title
- Financial crisis of 2007–08
- Occupy Homes – a protest movement in order to save foreclosed homes.
- Real estate mortgage investment conduit (REMIC)
- Shadow banking system
- "Will Bankers go to Jail for Foreclosure-gate?". Time. October 19, 2010. Retrieved October 21, 2010.
- "Administration Shifts Focus on Foreclosure-Gate". October 20, 2010. Retrieved October 21, 2010.
- Segal, David (October 17, 2010). "White house urges calm on foreclosures". New York Times. Retrieved October 18, 2010.
- LaCapra, Lauren (October 18, 2010). "Foreclosure crisis: home equity loan time bomb". The Street. Archived from the original on 22 October 2010. Retrieved October 18, 2010.
- "Investor fears grow over foreclosure mess". Reuters. October 14, 2010. Retrieved October 18, 2010.
- Hunter Stuart (19 May 2014). Foreclosures Linked To Higher Suicide Rates: Study. The Huffington Post. Retrieved 20 May 2014; see also: Jason N. Houle, PhD, and Michael T. Light, PhD (17 April 2014). The Home Foreclosure Crisis and Rising Suicide Rates, 2005 to 2010. American Journal of Public Health. Retrieved 26 May 2014.
- "California Now Leads U.S. Out of Housing Bust - Bloomberg | Brief". Bloombergbriefs.com. Retrieved 2013-01-15.
- Levy, Dan (2012-10-25). "N.Y. area leads rise in foreclosure filings | Business & Technology". The Seattle Times. Retrieved 2013-01-15.
- Tauke, Joseph (October 14, 2010). "One nation, under fraud". The daily caller. Archived from the original on 17 October 2010. Retrieved October 18, 2010.
- Jeffrey Stephan
- Cox, Thomas. "Alumnus Fights to Stem Tide of "Robo-Signer" Foreclosures: Thomas Cox ('69) filed suit in Maine that led to national foreclosure freeze".
- Whelan, Robie (October 7, 2010). "Robo-signer debate: Was it fraud?". The Wall-Street Journal. Archived from the original on 10 October 2010. Retrieved October 18, 2010.
- Prior, Jon (October 8, 2010). "Robo-signer effect on housing market reaching critical mass". Housing Wire. Archived from the original on 11 October 2010. Retrieved October 18, 2010.
- Reilly, David (October 9, 2010). "U.S. Banks Get Boxed In on Foreclosures". The Wall Street Journal. Archived from the original on 12 October 2010. Retrieved 18 October 2010.
- Bond, Andrew (2010-10-08). "Bank of America to Halt Foreclosures (BAC, C, JPM, WFC)". Fool.com. Retrieved 2013-01-15.
- "SPECIAL REPORT: Banks still robo-signing, filing doubtful foreclosure documents". Reuters. July 18, 2011. Retrieved 19 July 2011.
- "AP Exclusive: Mortgage 'robo-signing' goes on". Yahoo News. 19 July 2011. Retrieved 15 June 2015.
- "Mortgage Electronic Registration System, Streamline Assignments of Mortgages". Retrieved 2009-04-30.
- Paltrow, Scot (October 13, 2010). "Factbox: The role of MERS in foreclosure furor". Reuters. Archived from the original on 19 October 2010. Retrieved October 18, 2010.
- Brown, Ellen (October 15, 2010). "Foreclosuregate: Time to Break Up the Too-Big-to-Fail Banks?". YES! Magazine. Archived from the original on 19 October 2010. Retrieved October 19, 2010.
- "Factbox: Subhead Mortgage Electronic Registration System (MERS) in foreclosure case: Residential Funding Co., L.L.C. v. Saurman, 490 Mich. 909 (2011)". Zamzow PLLC. July 9, 2014. Retrieved July 10, 2014.
- as cited by Joseph Fried, Who Really Drove the Economy Into the Ditch (New York: Algora Publishing, 2012) 250.
- "Obama to veto foreclosure documents bill". NPR. October 7, 2010. Retrieved October 18, 2010.
- Delaney, Arthur (October 9, 2010). "Obama Clarifies Pocket Veto Of Controversial Bill Related To Foreclosures". Huffington Post. Archived from the original on 12 October 2010. Retrieved October 21, 2010.
- "H.R.3808 - Interstate Recognition of Notarizations Act of 2009". Archived from the original on 26 October 2010. Retrieved 7 December 2010.
- "Obama Rejects Notary Bill Amid Foreclosure 'Caution'". Archived from the original on 11 November 2010. Retrieved 7 December 2010.
- Delaney, Arthur (2010-10-08). "How The Controversial Foreclosure Bill Made It Through Congress With No Public Debate". Huffington Post. Archived from the original on 1 December 2010. Retrieved 7 December 2010.
- "Congressman Aderholt Introduces Notary Public Bill". Retrieved 7 December 2010.
- "S.2083 - Interstate Recognition of Notarizations Act of 2007". Retrieved 7 December 2010.
- "Obama Should Veto Bill That Makes It Harder For Foreclosure Victims To Challenge Banks". Retrieved 7 December 2010.
- "Obama Rejects Notary Bill Amid Foreclosure `Caution'". Bloomberg. Retrieved 7 December 2010.
- "Stealth Bill May Shield Banks in Foreclosure Challenges". Retrieved 7 December 2010.
- "Secretary Brunner: Please tell President Obama NOT to sign the Interstate Recognition of Notarizations Act". Retrieved 7 December 2010.
- "Obama Rejects Foreclosure Gate Bailout Bill". Retrieved 7 December 2010.
- "Aderholt Statement On The President's Veto Of His Bill". Retrieved 7 December 2010.
- "Joint State-Federal Mortgage Servicing Settlement FAQ". Retrieved 15 June 2015.
- New York Times, Mortgage Plan Gives Billions to Homeowners, but With Exceptions, February 9, 2012
- "Office of Mortgage Settlement Oversight". Office of Mortgage Settlement Oversight. Retrieved 15 June 2015.