This week the Occupy Atlanta protesters found a way to protest economic injustice that may build allies within the local law enforcement community.

On Monday about two dozen activists with the group moved their tents to the suburban lawn of a home where a local policeman and his family are facing eviction.

The Atlanta Journal Constitution reports that the group mobilized after learning that the five-member family may lose their home because the bank that holds their mortgage has decided to foreclose rather than allow them to refinance.

“This family is the perfect example of the fraud going on in the mortgage and banking industries,” said Latron Price, one of Occupy Atlanta’s organizers. “We plan to shed light on the foreclosure issue and we look to make a stand here.” …

Tim Franzen, one of Occupy Atlanta’s organizers, said the group had been seeking a good story to highlight the problems with the mortgage industry. He said Rorey’s husband, a law enforcement officer with DeKalb County, sent Occupy Atlanta an e-mail detailing their plight last week and within a few hours they formulated a plan to bring attention to the foreclosure.

“What I envision is a model of protest coming out of this,” Franzen said. “We plan to develop an occupy community in this neighborhood and maybe create something that can be duplicated nationally.”

Police officers have been pitted against Occupy Wall St. activists in many cities where they have been ordered to enforce rules against camping in public spaces, and in some well-publicized instances they have used force against demonstrators.

By working together to illustrate the problems of the mortgage industry Occupy Atlanta and the Rorey family may help build goodwill and common ground.

“What they are basically saying is they can forge an assignment and there is nothing the citizen or court can do about it. It is a brazen attempt to legalize robosigning,” says Hertel. “It’s just another example of Fannie Mae thumbing its nose at the American people, and unfortunately while they are under federal bailout we are paying for it.”

This is happening in the case of a Haslett man who suffered a stroke and fell behind on his mortgage payments. As a result, Flagstar Bank and Fannie Mae foreclosed on him and are now in the final stages of evicting him from his Haslett home, says Hertel.

Lawyers representing Flagstar and Fannie Mae put the issue this way in a court filing:

“In this case, Flagstar was and always has been the foreclosing party. MERS assigned its interest in the mortgage to the note holder. The defendant lacks standing to challenge the assignment as the defendant was not party to the assignment. The only party that may object to the language of the assignment is MERS or Flagstar Bank. Because defendant is not a party to the assignment, the defendant cannot challenge the assignment. Further, the Defendant expressly allows MERS to assign the mortgage at any time without notice per the mortgage itself.”

By this reasoning, Hertel says that he has no way to assist homeowners who are being victimized by fraudulent filings, such as robosigned documents his office has been uncovering since April. He has turned dozens of such robosigned documents over to Attorney General Bill Schuette and the FBI. Hertel has also been holding foreclosure town hall meetings across Ingham County, including one Wednesday evening in Webberville

Hertel has filed a formal statement with the court in the Haslett case challenging these arguments.

“Without the ability to challenge in court the validity of documents that appear facially valid, but which are actually fraudulent, our land records system will degrade into an unreliable and meaningless stack of paper in which wrong-doers can commit fraud upon the people of this state with impunity.”

“Basically they are saying I have no choice but to accept documents I know are criminal,” says Hertel. “I believe this is arrogance beyond belief and is them basically saying we can commit fraud and you can’t challenge it. In other words robosigning is fine.”

Average home values have dropped in every quarter since they peaked at around $240,000 in the summer of 2006, a year before the bottom fell out of the market and values began to plummet. A downturn, therefore, is nothing new — housing values have gone nowhere but down for nearly five years now. What is new is the accelerated rate of fall. Tumbles became a slow trickle in 2009, but the pace at which values are now dropping approaches that felt during the panicked early months of the recession.

The only housing market in the country that has actually seen rising prices since the start of 2010 is the Honolulu metropolitan area. The Pittsburgh area saw prices remain fairly constant from 2010 to the first quarter of 2011. Meanwhile, Detroit, Atlanta, Ocala, Fla., and a number of other metropolitan areas that have otherwise seen economic stagnation and a mass exodus of residents were particularly hard-hit.

Zillow has this chart, among others, depicting overall losses in value:

Image courtesy Zillow.com

The foreclosure rate is also up from last year and is approaching peak levels of more than 0.1 percent (that is, one in a thousand homes being foreclosed upon each month), for a total of two million homes mired in the foreclosure process during the first quarter of this year. In a sign that the foreclosure trend isn’t looking to get any better, the country saw a further 1.5 million homes in serious mortgage delinquency and therefore on the brink of foreclosure during the quarter. A record 28.4 percent of homeowners were underwater on their mortgages.

The troubling housing numbers aren’t the only recent sign that the economy is getting worse rather than better. On Friday, the Bureau of Labor Statistics (BLS) released its latest unemployment figures, showing that new unemployment filings are way up. The BLS has determined that the overall unemployment rate is now back to 9 percent, up from 8.8 percent at last reckoning.

The hard numbers betray a grim economic outlook perhaps no better exemplified than by McDonald’s recent national job push. Several commentators have noted that out of an applicant pool of 1 million people, McDonald’s hired 62,000, leaving the fast food giant with a lower acceptance rate than that boasted by Harvard. The fast food industry compensates employees at around half the national median salary for all workers in the job force.

Meanwhile, the Chinese yuan continues to rise against the dollar, driving increased consumer prices in the U.S. and, some prognosticators have argued, a quickening of the year in which China finally overtakes the United States as the world’s top economic superpower.

[B]anks must follow the law — and those that haven’t should immediately fix what is wrong. Given the problems that have already been found and admitted to by some servicers, the Obama Administration fully supports the voluntary moratoria that are already in place and others should they be deemed necessary. Some have suggested, however, that all foreclosures in every state, under every servicer, should be stopped. But a national, blanket moratorium on all foreclosure sales would do far more harm than good — hurting homeowners and home-buyers alike.

Though a few politicians and many housing advocates are calling for a blanket moratorium, it seems unlikely now. But the situation does underscore that the Obama administration could do more, much more, to help families underwater, in foreclosure and otherwise hit by the housing crisis. Towards the end of the piece, Donovan writes:

By the time the home gets to foreclosure, it’s often too late to help families stay in their homes — they may be too far behind or in some cases, they’ve already left the home. Banks need to provide more help, more people, more resources to those families facing a crisis long before they ever get to a foreclosure — so more families can keep their homes. And where foreclosure is not avoidable, having been processed legally and appropriately, banks should help families transition to sustainable housing situations with dignity.

Two things here: First, there is ample evidence that banks are not following and have not followed the proper process for dealing with homeowners in default. Banks are usually contractually obligated to provide a number of alternative solutions to homeowners behind on their mortgages. In recent years, though, servicers have tended to rush homeowners straight to foreclosure. The administration should make sure servicers and lenders are following the preexisting guidelines.

Second, it is all well and good for Donovan to say that the banks should “help families transition to sustainable housing situations with dignity.” But the administration can do more to make sure that happens. It could, for instance, push for right-to-rent legislation to move out of Congress. And the Treasury has spent only a fraction of its Home Affordable Modification Program funding –funding it could be using to provide incentives for banks to keep families in their homes, by improving and expanding HAMP and related programs.

“If you didn’t pay your mortgage, you shouldn’t be in your house. Period. People are getting upset about something that’s just procedural.” said Walter Todd, portfolio manager at Greenwood Capital Associates. [...]

“Everyone’s responsible for following the law. If we all don’t have to pay our mortgage, should we just stop paying taxes, too?” said Anton Schutz, president of Mendon Capital Advisers. “Your mortgage didn’t get to a robo-signer by accident, it’s because you’re not paying.”

John Carney has a smart and more nuanced post on the topic as well, here. I actually don’t disagree with these points. But I would also note that servicers have in many cases resisted helping homeowners in foreclosure with principal write-downs, modifications or other solutions. The system did not work to keep families in homes. It worked to process foreclosures as fast as possible.

To get a sense of how that happened, I spoke with April Charney, a lawyer at Jacksonville Area Legal Aid, a non-profit clinic that helps low-income Floridians. The interview is lightly edited for clarity.

TWI: Some, including J.P. Morgan Chase chief executive Jamie Dimon, are arguing that this is a paperwork problem, and the homeowners undergoing foreclosure were in default.

April Charney: There is a contract that Fannie and Freddie applies to all its home loans, a customer service, of sorts, that you pay for in your mortgage. It is hundreds of pages online and it’s called the “single-family loan servicing guideline.” There’s a section just for default loan servicing — for servicing loans when the homeowner is in default — and it lays out requirements of the servicers. Any servicer of a Fannie- or Freddie-backed loan, when a borrower goes into default, the servicer has to give the borrower this very special customer service to try to avoid the foreclosure.

It never happens. The servicers just push the loans into foreclosure. They’re missing that entire legal step. We have a complete and utter failure of default loan servicing — a contractually required step in the process that’s there to help homeowners in default. It is preexisting, far preexisting this crisis. And it’s in every contract, and every servicing agreement. The servicer is supposed to be bound to those best practices.

So I’m sick of hearing — they’re in default! They’re not paying their mortgage! They’re delinquent! The servicers have whole books of rules about what they’re supposed to do to aid the homeowner in that case. And they haven’t done any of it.

TWI: Are these guidelines, or are they actually obligated to do it?

AC: No, it’s a breach of contract. And it’s also in the pooling and servicing agreements [for mortgages that have been sold to investors, rather than being held by the mortgage-originating bank]. That’s a breach of contract, as far as the servicers and the investors are concerned.

TWI: And what were the lenders doing, rather than servicing the loans properly?

AC: The servicers were moving homeowners into foreclosure as quickly as possible. Basically, they were paid up to twice as much to finish the foreclosure. And their agreements [with investors] required them to do it within four months of default. Plus, they weren’t staffed up, they weren’t careful, they had absolutely no intention of providing the proper services to the homeowners. They were rubbing their hands, and licking their lips, and foreclosing as fast as possible, and getting paid.

Look, they agreed to service the loans! And there were regulations in place to keep families in their houses. You show me a family that goes through 30 years on a loan without a problem, and I’ll show you somebody who walks on water!

TWI: And what should they have been doing to keep families in their homes?

AC: There’s an entire process — it’s almost like an out-of-court bankruptcy plan, when you work through the guidelines. You can modify the loan, you can change the payment schedule. There’s all sorts of alternatives.

TWI: And so it’s unfair to push homeowners into foreclosure, then blame them for the foreclosure crisis?

AC: There was such a demand for securitized mortgage products, these loans were artificially appraised — appraised for much more than the homeowners could afford or the houses were worth. So, they’re liar loans in more than one sense. We have no appraisal system that’s functioning in this country. We have no title insurance system that’s functioning in this country. And we have no lending system that is functioning in this country. So we should probably stop the foreclosure system, that’s functioning too well, until we have that sorted out.

And I’ll note, these problems aren’t just in residential mortgage loans. These problems are in commercial loans, and credit cards, and student loans, and all sorts of other kinds of debt. There are a lot of shoes that are going to drop.

• Banks repossessed a record 102,134 homes in September. That is the highest monthly count ever recorded, and the first time monthly repossessions have surpassed the 100,000 mark.
• Repossessions also hit a quarterly high. Banks took back 288,345 properties between July 1 and September 30, seven percent more than the previous quarter and 22 percent more year-on-year.
• During the third quarter of the year, banks scheduled auctions on 372,445 properties. That is a record high, up five percent from the previous quarter.
• Sales of properties in foreclosure — whether entering foreclosure, or bank-repossessed — accounted for 31 percent of total sales in September.

Banks are repossessing more homes. That is, of course, difficult for families, but ultimately important for the housing market, as banks take the houses back, resell them and clear their books. But the foreclosure fraud crisis is stymieing and slowing that process, in a way that might cause home prices to slide six months or a year from now.

Why? Rather than selling repossessed homes, banks are holding them — and as foreclosures work through the system, that pool of houses will grow. Eventually, though, when the fraud crisis is worked out, banks will start pushing that backlog of houses onto the market. That will flood the housing market with properties, leading to, analysts fear, another nationwide decline in housing prices. (This is, in part, why the White House is resisting a national moratorium on foreclosure: Nobody wants to seize the entire housing market, one-third of which is comprised of foreclosed properties.)

Nobody quite knows how the foreclosure fraud crisis will shake out. But housing analysts and Wall Street are worried that while prices might go up in the short term (with fewer houses on the market), they will drop in the long term.

A foreclosed home in Winchester, Va. (Jay Mallin/ZUMA Press)

Yesterday, Wall Street giant J.P. Morgan Chase announced a $4.4 billion profit in the third quarter. Wall Street analysts should have cheered. Instead, they golf-clapped, while the bank’s chief executive officer, Jamie Dimon, went on the defensive on an earnings call.

[Economy1] The reason: foreclosures, again threatening everything from homeowners’ security to banks’ bottom lines. In early September, an employee of GMAC Mortgage admitted he had signed as many as 10,000 affidavits, required in 23 states to proceed with foreclosure, a month. The affidavits attested that the employee had personal knowledge of homeowners’ financials before the bank foreclosed. Given that he obviously did not, the paperwork might have constituted fraud and the foreclosures were possibly illegal.

The scandal went big, embroiling mortgage-holding banks like J.P. Morgan Chase in a problem of possibly systemic proportions. Stories of banks lacking required title documentation and evicting the wrong families from homes flooded into the press. Financial companies, including J.P. Morgan Chase, halted foreclosures in the states that require judicial review, and then some halted them everywhere. Members of Congress announced hearings. Finally, yesterday, all 50 state attorneys general announced a probe into systemic problems with mortgage documentation.

On the J.P. Morgan Chase earnings call, Dimon promised that there was “almost no chance we made a mistake” with foreclosures. “We think we should continue and get done and make sure we do the right things for the consumers, the investors and the country. So it obviously will increase our cost a little bit and maybe we’ll have to pay penalties eventually to some of the attorneys general but we really think we should just continue.”

But the financial statement itself proved the lie. The bank said it was carefully checking 115,000 mortgage affidavits. It set aside a whopping $1.3 billion for legal costs. And it put an extra $1 billion into a now $3 billion fund for buying back bunk mortgages and mortgage products.

For banks like J.P. Morgan Chase, the issue is not just the legal headaches. It is the financial blowback. The mortgage-documentation scandal, housing experts warn, runs far and deep — involving not just foreclosure papers, but titles and rights and fiduciary contracts. And it has analysts on Wall Street and politicians on the Hill wondering whether the worst-case scenario might involve not just losses, but bank failures or government bailouts.

The pending mortgage problems resemble those that caused the failure of Lehman Brothers, the credit crunch and the ensuing financial crisis in October 2008: Every bank has problematic mortgage holdings on its books, and each bank is interconnected with every other. Before the bubble burst, investment banks bought up faulty mortgages, many of them subprime loans, from lending banks. Investment banks then bundled the mortgages into mortgage-backed securities, for sale to investors. But just as banks are now foreclosing without proper documentation, they were bundling mortgages without proper documentation — abdicating their fiduciary responsibility to investors and muddying the waters as to who actually owns the loans.

That means the investors who own mortgage-backed securities might argue that the products do not meet the contract standards. If those investors choose to sue the originating investment banks en masse, for breach of contract, they would force the banks to buy back the rotten mortgage-backed securities. That would cost in the hundreds of billions — swamping banks’ profits and sweeping away any cash they might be keeping on hand.

At least one mortgage analyst, Josh Rosner, a managing director at Graham Fisher & Co., has said that if investors force banks to take back the $1.3 trillion of mortgage-backed securities in question, it could create a kind of doomsday scenario pitching the markets back into crisis. Indeed, Rosner believes it could feel very much like 2008 again.

“This is poetic justice,” says Janet Tavakoli, of Tavakoli Structured Finance in Chicago. “The mortgages that seem to be most affected are by predatory lenders, or lenders who engaged in fraudulent practices, like appraising a home for twice its value. The careless investment banks were willing to overlook that fraud. But they just bred fraud into their mortgage-backed securities.”

She does not believe every bank will have face write-downs due to mortgage buy-backs. But she does believe the losses might be substantial. “It’s not clear to me that every mortgage has this problem,” she says. “But there’s no transparency on this issue now. And it is clear that we are dealing with massive, systemic fraud.”

One way or another, some on the Hill are bracing for the worst.

“[Banks will] have to buy back one mortgage at a time,” Rep. Brad Miller (D-N.C.) told The Washington Post. “Someone said there might be a second round of bank insolvencies because of this and there might need to be more TARP. There is no chance that Congress would pass more TARP. It’s hard even to see how it ends. But I’ve got to think it creates more uncertainty about the health of the banks.”

Rep. Alan Grayson (D-Fla.) has gone further, proactively asking the Financial Stability Oversight Council — created by the Dodd-Frank financial regulatory reform law — to step in to stop foreclosures and monitor the banks, just in case.

“There are now trillions of dollars of securitizations of these loans in the hands of investors,” Grayson wrote in a letter (PDF) to the Council, which includes Treasury Secretary Timothy Geithner and Federal Deposit Insurance Corp. Chair Sheila Bair. “The trusts holding these loans are in a legal gray area, as the mortgage titles were never officially transferred to the trusts. The result of this is foreclosure fraud on a massive scale, including foreclosures on people without mortgages or who are on time with their payments. The liability here for the major banks is potentially enormous, and can lead to a systemic risk.”

And it seems the banks — if not J.P. Morgan Chase — are also acknowledging that risk. Josh Levin, an analyst with Citigroup Global Markets, described three potential outcomes to investors, citing work by Georgetown law professor Adam Levitin. The first is that courts consider the erroneous foreclosures technicalities, and the losses are minimal. The second is that banks face significant legislation, but ultimately aren’t forced to buy back mortgage-backed securities.

And the third? “In the worst-case scenario,” he said, “the aforementioned issues become a ‘systemic problem’ which causes the mortgage market to grind to a halt.”

But the outlook looks grim for the bank — and especially when it comes to mortgages. This afternoon, about 40 state attorneys general are set to announce a joint investigation into widespread foreclosure fraud. Some analysts argue that the scandal could engulf every mortgage securitized — that is, bundled and sold to investors — in the last seven years. All in all, the crisis could cost banks tens of billions.

And J.P. Morgan’s statement reveals it is battening down the hatches. The company said it has set aside an extra $1.3 billion for possible legal costs. It also said it is carefully reviewing 115,000 mortgage affidavits in an earnings call. (CEO Jamie Dimon tried to reassure call participants by saying there is “almost no chance we made a mistake” with foreclosures.) And it revealed that it increased its mortgage-repurchase reserves by $1 billion. The bank uses that money, now more than $3 billion, to buy back bad mortgages it packaged and sold to investors or the government-sponsored entities, Fannie Mae and Freddie Mac. (Often, the investor makes the bank buy the mortgage back because the documents are faulty.)

That implies J.P. Morgan alone is preparing for a multi-billion-dollar fallout. Watch for other banks to do the same when they reveal their third-quarter earnings, this week and next.

BOB SHIEFFER: Just when we thought it couldn’t get any worse now we find that this sloppy paperwork by the lenders may have made some of these foreclosures now that are being contemplated invalid. Some of the biggest lenders are now freezing foreclosures until they can get all this straightened out. I guess the first question I would have is does the administration favor some kind of national moratorium on these foreclosures to get this all sorted out?

DAVID AXELROD: First of all, Bob, it is a serious problem. It’s thrown a lot of uncertainty into the housing market that is, you know is already fragile. And it’s — and it’s bad for the housing market and it’s bad for these institutions which is why they’re scrambling –

BOB SCHIEFFER: Hm.

DAVID AXELROD: –now to– to go back through and– and– and through their documentation for all of this as they should. The President was concerned enough to veto a bill that came to him last Thursday, that would have unintentionally made it perhaps easier to make mistakes. And, so we are concerned. We’re working with these institutions. I’m not sure about a national moratorium because there are, in fact, valid foreclosures that — that– that probably should go forward. And where the documentation and paperwork is — is proper, but we are working closely with these institutions to make sure that they expedite the process of going back and reconstructing these and throwing out those that don’t work.

BOB SCHIEFFER: Well, I mean, I guess people are worried about what do you think the impact this is going to have on an economy that’s pretty shaky right now anyway?

DAVID AXELROD: Well, look, our hope is that this moves rapidly and that this gets unwound very, very quickly and that they — they — they can go back reconstruct their paperwork and what we’ve stressed to them is that they need to expedite that process and work very, very quickly to get it done. And we’re going to continue to — to push for them.

This is tantamount to the White House saying: “We think the banks should just deal with this themselves, and despite the now tremendous evidence of systemic fraud in mortgage documentation, we trust them to do so appropriately.”

Granted, there is no easy solution here. Seizing the housing markets right now could force a double-dip in house prices, putting more people underwater, begetting more unemployment. But saying that the White House is working for banks rather than advocating for homeowners seems wrong.

Instead, the White House might consider saying something like this: “We’re not going to let banks repossess any home without due process. That is not to say we’ll halt foreclosures, but that we’re assuring homeowners we’re on their side. At the same time, we’re working to bolster the HAMP program, and considering pushing forward right-to-rent and cramdown legislation as well. Those programs will help families through the foreclosure crisis, keeping them in their homes while, secondarily, assuring stability in the banking sector and in mortgage finance.”

Ohio Attorney General Richard Cordray (ohioattorneygeneral.gov)

James Jones has spent the past five years trying to prevent foreclosures in Cleveland. Recently, his work as director of foreclosure prevention at the East Side Organizing Project, a community organizing group dedicated to improving neighborhood life in the city, has focused on targeting predatory lenders and trying to prevent banks from foreclosing on cash-strapped low-income borrowers.

[Economy1] “I’ve seen the foreclosure issue go from predatory loans, to subprime loans, to predatory loans, to an economic situation where folks have been laid off,” Jones explains. “And now we’re back to problems with paperwork.”

Ohio — and especially Cleveland — was hit earlier and worse by the foreclosure crisis than other states, due to widespread problems with predatory lending, an early economic downturn stemming from the loss of manufacturing jobs, and weak consumer-protection laws. Now, it is at the forefront of the foreclosure fraud crisis, with housing advocates and politicians calling for banks to halt evictions immediately and stop seizing homes.

The fraud scandal is complex. In September, a court case brought to light the existence of one Jeffrey Stephan, who worked for GMAC Mortgage, part of Ally Financial. Stephan attested that he signed as many as 10,000 foreclosure documents a month — one every minute or so. Soon, other revelations about banks using such “robosigners” to OK foreclosure documentation came to light.

The problem is, in 23 states, those robosigned documents went to a judge, who approved a final foreclosure, wherein the bank evicts a family and reclaims a house. Stephan and other signatories were meant to be carefully checking the information within and were giving the documents to the court as an affidavit, the equivalent of sworn testimony. The documents were not checked — meaning that the signers, and the banks they worked for, were defrauding the court. A judge ruled any such foreclosures to be illegitimate, sending a shudder through the housing markets. Banks started halting foreclosures in the 23 states that require judicial review. And the scandal has spiralled from there.

Officials in Ohio were among the first and the most aggressive in going after the banks making fraudulent foreclosures. On Sept. 30, Ohio’s secretary of state, Jennifer Brunner, told the state’s boards of elections not to use foreclosures to disqualify voters, under the premise that hundreds or even thousands of foreclosures in the state might be illegitimate. Then, last week, Richard Cordray, Ohio’s attorney general, filed a lawsuit against GMAC, seeking $25,000 for every violation of the state’s consumer-protection laws. It was the biggest and boldest legal action taken against mortgage companies since the crisis started unfolding.

“Some ugly revelations have recently come to light about how foreclosures are bring processed in this country,” Cordray said at a press conference on Wednesday. “It appears that, on a mass scale, many homeowners are being deprived of their property based on phony affidavits and without the due and proper processes of law. It is now becoming clear that fraud, deception and an utter disregard for accuracy are in part to blame for our national foreclosure disaster.”

In an interview with TWI, Cordray stressed that the problems were systemic and the violations serious. “What we’re talking about here is not just sloppy paperwork,” he said. “We’re talking about fraud in a court of law. The [foreclosure document signers] were lying under oath, to a judge. And there is evidence that this company has illegally ousted people from their private property, violating their property rights.”

Cordray did not just sue GMAC, but also wrote letters to other major banks, calling on them to investigate their foreclosure processes and to stop evicting families immediately. In intervening days, banks have stopped selling their previously repossessed properties, and have mostly halted the foreclosure and eviction process in Ohio.

The scandal came as no surprise to housing advocates in the state. “We had 90,000 foreclosure filings last year, and another 100,000 this year,” explains David Rothstein of the non-partisan think tank Policy Matters Ohio. “When we look at those statistics, and put our thinking caps on, you have to say, how were they processing all of these claims without bigger legal staffs and bank staffs? This wasn’t a surprise.”

He continues: “And there’s a tragic irony here. For five or ten years, the banks have said that the foreclosure crisis in this state is the borrowers’ fault. They bit off more than they could chew. It’s all their fault for buying expensive houses and then losing their jobs.

“But look at this! They’re taking people into foreclosure, without the right to do it! It is tragic. They were committing fraud, and were completely giving up their fiduciary responsibilities.”

Jones agrees. He explains that ESOP, which negotiates on behalf of borrowers undergoing eviction, demands to work with a qualified individual at a bank, and often manages to work out a solution other than foreclosure. But most Ohioans do not have an organization like ESOP on their side. “Foreclosure is not a quick process,” he says. “Most of the servicers — your Chases, your Wells Fargos — have these black holes. You send paperwork in, and it is months before you even find out where it went.

“They’re not set up to modify loans, or find other solutions. They’re not set up to do what needs to be done to help homeowners. A lot of things fall through the cracks. And that’s what the big problem is. They don’t have enough eyes, enough checks and double-checks. Not when they’re getting the volume they’re getting. So when you don’t have an advocate, look what happens.”

The question is now what the foreclosure fraud scandal might mean for homeowning Ohioans — and residents of every state across the country. Already, the foreclosure situation has rocked the housing market and hurt families in the state. In the first half of the year alone, there were 45,930 properties undergoing foreclosure, enough to impact one in every 100 households. Bank-repossessed homes are flooding the market in many areas. And, according to RealtyTrac, they sell for 43 percent less than the average house — the biggest discount of any state.

Housing advocates say that the stall in foreclosures will likely only prolong the pain for Ohio families, even if they are given temporary reprieve from foreclosure and now have assurance they will not be evicted without due process.

The best outcome, Rothstein says, would be for the government to finally step in to help homeowners with more effective programs than the Home Affordable Modification Program, the Treasury’s signature effort to keep families in their homes. (It has helped about one-tenth of the homeowners it said it would and is widely considered a failure.)

“The federal government made good attempts, but were really bank-focused,” Rothstein says. “They never had borrower-centered programs. But if banks are forced to reduce principals on mortgages and to make better loan terms, we might be in a better place.”