The Market Ticker – Federal Reserve: They Broke The Law

but nobody cares…. (including us)

The reviews found critical weaknesses in servicers’ foreclosure governance processes, foreclosure document preparation processes, and oversight and monitoring of third-party vendors, including foreclosure attorneys.While it is important to note that findings varied across institutions, the weaknesses at each servicer, individually or collectively, resulted in unsafe and unsound practices and violations of applicable federal and state law and requirements.4

There it is.  If it was illegal, why isn’t each instance of that illegality punished?

Then there are the “really cute” things, such as this:

The loan-file reviews showed that borrowers subject to foreclosure in the reviewed files were seriously delinquent on their loans.

It did?  Why just a few paragraphs earlier the same report said:

The file reviews did not include a complete analysis of the payment history of each loan prior to foreclosure or potential mortgage-servicing issues outside of the foreclosure process. Accordingly, examiners may not have uncovered cases of misapplied payments or unreasonable fees, particularly when these actions occurred prior to the default that led to the foreclosure action. The foreclosure-file reviews also may not have uncovered certain facts related to the processing of a foreclosure that would lead an examiner to conclude that a foreclosure otherwise should not have proceeded, such as undocumented communications between a servicer employee and the borrower in which the employee told the borrower he or she had to be delinquent on the loan to qualify for a modification.

See how federal agencies are less than entirely-honest with you?  From that first sentence (which is after the second cite) you’d conclude that everyone who was foreclosed on wasn’t paying and that their failure to pay was not caused by an instruction from the servicer.  That would be a false conclusion, since the examiners never looked at the entire payment history – therefore, it cannot be concluded that the payments were in fact not made, and where they were not made that delinquency was through the individual voluntary act of the borrower and not at the behest of the servicer

The appropriate legal standard cannot be “well, most of the time the people who we kick out of their houses weren’t paying.”  It has to be in each and every case we documented that the person who we kicked out of their house wasn’t paying and the servicer didn’t explicitly instruct the borrower not to pay.

Then there are apparent claims of felony activity:

Affidavit and notarization practices. Individuals who signed foreclosure affidavits often did not personally check the documents for accuracy or possess the level of knowledge of the information that they attested to in those affidavits. In addition, some foreclosure documents indicated they were executed under oath, when no oath was administered

Perjury is, in many states, a felony criminal offense.  Where are the referrals?

Finally, there’s this ditty:

Examiners found that servicers generally had possession and control over critical loan documents such as the promissory notes and mortgages.

Ummmm…. the PSA sets forth who is supposed to have those, and it’s usually the Trustee or his appointed custodian.

Conveyance and document retention requirements are specified in virtually all of these PSAs, along with the IRS code governing REMICs.  Those are formal contracts and legal requirements for tax pass-through status.  The UCC sets forth a baseline set of standards by which negotiation and assignment can take place for promissory notes but contractual requirements, including trust law in the states where the trusts are organized, along with the PSA and REMIC requirements for tax preference, can and do impose materially-more stringent requirements.

There’s simply no evidence in this document that these requirements and compliance with them were even looked at, say much less complied with.

Who is The Fed trying to fool here?

View with responses