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Local, State and Federal Pressure to Stop Foreclosures

David Dayen reports some big news on the foreclosure fraud scandal:

[Richard Cordray, the Attorney General for the state of Ohio] has filed a lawsuit in Lucas County (Toledo) Common Pleas Court against GMAC Mortgage and their parent company Ally Financial, in a suit which names Jeffrey Stephan, the infamous “robo-signer” who signed off on up to 10,000 foreclosures a month across the country with affidavits, without verifying the information in the foreclosure documents. The lawsuit alleges fraud on the part of GMAC, along with violations of the Ohio Consumer Sales Practices Act, in filing false affidavits to mislead the courts in what they describe as “hundreds” of Ohio foreclosure cases. And, the Attorney General is treating every single false affidavit filed in an Ohio court as a separate violation, with a fine of up to $25,000, plus additional restitution for the homeowner of an unspecified amount.

This is a major lawsuit, and as Cordray told reporters, “We’re at the beginning of this, not the middle or end, and we’ll see where it leads us.” For context, approximately 450,000 foreclosures have been filed in Ohio since 2005, and potentially all of them used this robo-signing process. At the outer edge of this, if every one of those foreclosure processes is seen as a single case of fraud, the fines for the entire lending industry would add up to $11.25 BILLION dollars, just in the state of Ohio, not including the extra restitution for homeowners.

And political pressure is growing from all levels of government — local, state and federal, from attorneys to senators — for all banks to halt all evictions until the paperwork fiasco is sorted out. Rep. John Conyers (D-Mich.), for instance, sent out this advisory this afternoon, calling for a halt to evictions in Michigan:

Thus far, only three lenders — [Ally], Bank of America, and JP Morgan Chase — have ceased post-foreclosure enforcement actions in 23 states that have court-controlled foreclosure proceedings: Connecticut, Florida, Hawaii, Illinois, Indiana, Iowa, Kansas, Kentucky, Louisiana, Maine, Nebraska, New Jersey, New Mexico, New York, North Carolina, North Dakota, Ohio, Oklahoma, Pennsylvania, South Carolina, South Dakota, Vermont, and Wisconsin. Even those lenders appear to have only ceased evictions, while they continue to engage in foreclosures, which take title from homeowners.

At this point Michigan and 26 other states are not on the moratorium list for these lenders, purportedly because they have a non-judicial foreclosure process. However, without judicial oversight, the possibility of abuse can be even greater in these states. As a result, elected state officials in non-judicial foreclosure states such as California, Colorado, Texas, Massachusetts, and Maryland have recently asked lenders to suspend their foreclosures.

And Sen. Jeff Merkley (D-Ore.) is calling for Treasury and Housing and Urban Development officials to name a special investigator into the fraud crisis and to halt foreclosures in the meantime. In a letter, he writes:

According to credible reports … Ally Financial did not exercise proper professional standards as decisions were made about the fate of families struggling to maintain their homes. These reports are even more disturbing because the U. S. Government is a majority stakeholder in Ally Financial. The recent freeze in foreclosures announced by J.P. Morgan Chase, GMAC Mortgage, and Bank of America while internal investigations take place suggests that this problem may be widespread and not limited to poor management at a single company.

Accordingly, I request that the full resources of your departments, and of other relevant agencies of the U. S. Government, be brought to bear on this situation. Specifically, I urge you to jointly appoint an independent investigator to examine the foreclosure actions at the major loan servicers. I believe that foreclosures initiated by Ally Financial and other servicers with established problems should not be allowed to move forward until it can be ascertained that all proper steps were followed for any affected homeowner.

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