The problem with Cook County Sheriff Tom Dart’s foreclosure moratorium isn’t that it “delays the inevitable.”  It’s that it may not have much impact at all.
Two weeks after Action Now  called on Dart to declare a moratorium on all foreclosure evictions, and five days after the Chicago Anti-Eviction Campaign  served him with a “five-day notice” with the same demand, the sheriff announced  he would suspend evictions on foreclosures by three lenders “until they can provide complete assurance that the foreclosure was done properly and legally.”
Dart targeted lenders that have admitted that foreclosure documents were attested to by “robo-signers.” But all of the lenders have instituted their own moratoriums; at JPMorgan/Chase foreclosures are still on hold.
The other two, Bank of America and GMAC/Ally, say they’ve completed reviews of foreclosure documents; it’s quite likely they’ll have no problem providing Dart with the requested assurances.
“We are happy to respond to any questions from Sheriff Dart on this matter,” an Ally spokesperson told Bloomberg .
All indications are the robo-signing scandal is much broader. Dart’s office may have missed the Financial Times  report of a deposition by a vice president for loan documentation at Wells Fargo, who said she signed as many as 500 foreclosure-related papers a day.
The only information she actually verified was whether her name and title apeared correctly, according to FT. Wells Fargo has refused to consider a moratorium.
For the three affected lenders, Dart is only requiring that they self-certify. Is that enough? “It’s not clear how he’s going to evaluate their documentation, other than taking their word for it,” said Bob Palmer of Housing Action Illinois .
Action Now called Dart’s announcement “a huge victory.”
The Chicago Anti-Eviction Campaign said it’s “not enough.” “The moratorium may help a significant number of families to keep their homes” but it “ignores families who have mortgages with other banks – even those banks that were bailed out by the federal government – as well as tenants in low-income or subsidized public housing,” the group said in a release.
The anti-eviction group is holding a meeting for families facing eviction along with activists and volunteer attorneys on Saturday, October 23, 11 a.m., at 7463 N Ridge.
Beyond sloppy paperwork
The robo-signing scandal broke last month with revelations that a GMAC/Ally employee admitted to falsely certifying that he’d verified thousands of foreclosure documents a month.
But with “foreclosure mills” processing massive amounts of documents for mortgage servicers – as lenders rushed foreclosures without due diligence on thousands of loans (which they earlier rushed to sell without due diligence) – observers say it’s clear the problem extends through the entire industry.
“Everybody doing this work has seen this for years,” said Dan Lindsey of the Home Ownership Preservation Project at the Legal Assistance Foundation .
He points out that GMAC was actually sanctioned for robo-signing in 2006, and promised to institute procedures to guard against it.
“It’s not a problem of isolated banks and servicers,” said Liz Ryan Murray of National People’s Action . “We’ve been hearing about these problems for years.”
And it goes far beyond what banks depict as a “technical problem” of mishandled paperwork. The foreclosure documents to which the robo-signers attested are themselves full of problems.
Most basic could be the question of who owns the home loan, and whether foreclosers can prove that they are entitled to foreclose. The question is at the center of “a potentially seismic legal clash,” the New York Times  reports today.
With a number of national allies, NPA has launched Where’s the Note , a website to help homeowners contact their lenders to demand to see the original note on their mortgages.
Another set of problems covered up by robo-signers could unfairly push homeowners into default and foreclosure. According to Lindsey, foreclosure documents too often reveal inaccurate accounting of what homeowners owe.
There is fee padding – late fees, attorney’s fees, broker fees, inspection fees. Murray says she’s seen lots and lots of “crazy fees” – for document processing and recording, copying and even faxing. “In some cases borrowers may owe something but less than what is being claimed, and it may make a difference as to whether they can come up with that amount or not,” Lindsey says.
There are also many cases of misapplying fees for principal and interest so the loan is improperly considered to be in default. The same can happen with highly inflated assessments for homeowner insurance, which are credited before payments on the mortgage are applied. This can precipitate foreclosure on otherwise up-to-date loans.
“It’s a completely broken system,” said Murray.
The idea that Bank of America can take two weeks off to review its foreclosure filings and then resume home seizures is “just a joke,” said Lindsey. “It’s spin control.”
Beyond a moratorium
Dart’s announcement puts pressure on banks but “it’s just a beginning, and there’s no plan for any change in the approach of the banks” to the foreclosure crisis, said Palmer.
The foreclosure fraud crisis is “an opportunity for the Obama administration and Congress to start doing something real about foreclosures,” Murray said. “The solution is to get real about principal reductions and longterm forebearance for unemployed homeowners.”
Sloppy paperwork is certainly one aspect of banks’ inability to move quickly on modifying mortgages. A constant refrain from housing advocates concerns lenders repeatedly losing and demanding resubmission of applications and documentation for loan modifications.
This can lead to illegal foreclosures. “There have been cases where homes are going to sale while homeowners have HAMP applications pending,” Lindsey said. That’s a violation of Treasury Department guidlines for banks under the federal Home Affordable Modification Program.
“There are countless cases of homeowners [participating in HAMP trial modifications] having their [mortgage] checks returned and told a foreclosure sale is scheduled,” Murray said. She said homeowners are often hit with improper late fees and interest charges on trial modifications they’ve been paying faithfully when the bank cancels the trial.
Eight class action lawsuits  against Bank of America are being consolidated, charging (as one complaint puts it) that BoA “serially strung out, delayed and otherwise hindered the modification processes that it contractually undertook to facilitate when it accepted billions of dollars from the United States.” A similar case against JPMorgan/Chase is set to move forward next month.
Citing the Woodstock Institute and Neighborhood Housing Services, last month Medill  reported that “dishonest practices by mortgage servicers” were undermining HAMP’s effectiveness in the Chicago area.
NPA and allies have launched a campaign to press BoA to do more modifications. Last week they protested at an American Bankers Association convention in Boston, demanding “that the banking industry immediately freeze all foreclosures until all homeowners have had a full opportunity to modify their mortgage.”
Who will pay for the housing bubble?
With as many as a third of American homeowners owing more on their homes than they are worth, what’s needed is large-scale principal reduction, advocates say. Lenders “need to immediately institute principal reduction programs to bring mortgages down to their real market value,” says George Goehl of NPA at Huffington Post .
“Given the discouraging track record of voluntary programs like HAMP,” a mandatory principal reduction program seems to be what’s needed, writes Katie Buitrago at Woodstock . (Woodstock is more cautious  about a foreclosure moratorium.)
“The mortgage market needs to reflect economic reality, not inflated banker dreams,” says Zach Carter  of the Campaign for America’s Future.
“Banks convinced people their homes were worth an inflated amount and persuaded them to borrow against that amount,” says R.J. Eskow at Huffington Post . “Requir[ing] homeowners to pay the full amount of that inflated loan, with no penalty to the bank for its role in that transaction,” amounts to a second, “invisible bailout” of banks by homeowners, he maintains.
“If banks admit that they can’t prove ownership, then they have to write down a lot of assets” – and “negotiate with homeowners…for the actual, current value of the home,” says Eskow. “That’s exactly what they don’t want to do.”