Diane Thompson, an attorney at the National Consumer Law Center, said mortgage servicers stripped wealth from homeowners and investors through improper foreclosures, and called on lawmakers to take more stringent action against these companies, according to her testimony before the Senate Banking, Housing & Urban Affairs Tuesday.
Bank of America (BAC: 7.29 -0.14%), JPMorgan Chase (JPM: 37.21 -0.75%), Ally Financial (GJM: 22.57 0.00%), PNC Financial (PNC: 59.08 +0.31%), Wells Fargo (WFC: 29.60 +1.89%) and others have begun refiling hundreds of thousands of foreclosure affidavits in many states after employees allegedly signed them without properly reviewing the documentation. Now known as robo-signing, the problems could even threaten the entire financial system, according to the Congressional Oversight Panel, which called on the Treasury Department to assess that risk Tuesday.
The Treasury said an investigation from 11 federal regulators has revealed only a small risk to the entire financial system and downplayed documentation problems to securitized mortgages.
But Thompson said robo-signing reveals "the contempt that servicers have long exhibited for rules."
"Servicers do not believe that the rules that apply to everyone else apply to them," Thompson said. "This lawless attitude, supported by financial incentives and too-often tolerated by regulators, is the root cause of the robo-signing scandal, the failure of [Home Affordable Modification Program], and the wrongful foreclosure of countless American families."
Both Bank of America and JPMorgan Chase said in written testimony released before the hearing that they have reviewed their processes and have inserted quality control steps to the process.
BofA Home Loans President Barbara Dosoer said nearly 600,000 of its borrowers have not made a mortgage payment in one year, and of those 195,000 have not made a payment in two years.
Regardless, consumers want to hold servicers accountable, according to the PICO National Network, a collection of faith-based community organizations, which conducted a survey of 1,200 registered voters in November over the foreclosure issue.
According to the survey, 60% said elected officials have not done enough to ensure the banks are doing everything they can to prevent foreclosures, and 75% favor requiring banks to work with homeowners by law. Such outrage even appeared in the Senate Banking Committee hearing Tuesday when someone in the audience stood up and accused JPMorgan Chase chief executive of home lending David Lowman of perjury.
"We have not found errors in our systems or processes that would have led foreclosure proceedings to be commenced when the borrower was not in default," Lowman said.
But Thompson said when asked by the committee, that none of her clients were in default but were foreclosed on anyway.
"We are facing a foreclosure tsunami, which has destabilized our economy, devastated entire communities, and destroyed millions of families," Thompson said. "Neither the government nor the private sector has responded to scale in addressing the crisis."
Write to Jon Prior.
