Backed by a 20-page memo of constituents' horror tales, Representative Zoe Lofgren (D-Calif.), House Speaker Nancy Pelosi (D-Calif.) and the rest of California's Democratic delegation have asked the Department of Justice, the Federal Reserve and the Office of the Comptroller of the Currency (OCC) -- that is, law enforcement and the two big bank regulators -- to investigate whether the banks have broken the law in "their handling of mortgage delinquencies, mortgage modifications and foreclosures."
Coming on the heels of the so-called robo-signer mortgage document fraud scandal, the letter suggests "systemic problems exist in the ways many financial institutions have dealt with homeowners." It then flatly states the "excuses we have heard from financial institutions are simply not credible three years into this crisis."
Interestingly, the memo with the examples of constituents' nightmares suggests the Representatives believe the banks could be acting in bad faith; fully 18 of the 20 pages of problems are under the title "Communication Issues or Bad Faith Dealings with Bank."
The OCC Calls for a "Self-Assessment"
So what does the letter mean, beyond politics? Members of Congress aren't shy about asking for investigations, and their requests aren't always answered. After all, Justice and the OCC are Executive Branch agencies, and the Fed is independent. As of now, all Justice will say is "we will review the letter," and the Fed gave essentially the same no comment: "We will be responding to the letter." Neither institution gave a timeframe for its response.
Instead of commenting on the Representatives' letter, the OCC said it didn't wait to be asked to take action on the robo-signing scandal. Press Officer Dean Debuck said after the story broke several days ago, the agency responded:
We have directed the seven largest national bank servicers to do an assessment of their foreclosure management process, including file review, affidavit processing and signatures to ensure that the process is fully compliant with all applicable state law. We are maintaining close contact to ensure the self-assessments are completed in a comprehensive and timely manner. We will require that each bank report to us the findings of the internal assessment including detail on any deficiencies and any harm to customers. As self-assessments are completed, we will conduct follow-up reviews to validate the adequacy of the self-assessment and corrective actions taken.
The seven servicers referred to are Bank of America (BAC), Citibank (C), JPMorgan Chase (JPM), HSBC (HBC), PNC (PNC), Wells Fargo (WFC) and U.S. Bank (USB). Ally Bank isn't within the OCC's jurisdiction because it isn't a national bank. The OCC expects the self-assessment process to take a matter of weeks. While the agency deserves credit for being proactive, the significance of its move will be known only when it becomes apparent how rigorous its scrutiny of the banks' "self-assessments" is. It's hard to imagine the banks doing a really thorough job here.
Given the scale of the economic/real estate market/foreclosure crisis the U.S. is in, the bank problems revealed in the robo-signer scandal and the fact that 31 Representatives -- including the Speaker of the House and powerful committee chairs -- made the request, it seems impossible that Justice and the Fed won't investigate. Luckily for troubled homeowners, the state attorneys general aren't waiting. Several have already launched investigations, including most recently Texas, according to Bloomberg.
Merely "Procedural Errors"?
One of the must frustrating parts of the robo-signer story so far is the way in which that banks suggest the problem is technical, that the documents are essentially truthful and resolving the problem will take only a few weeks. For example, Bloomberg's piece includes Ally Bank's characterization of the issue as "procedural errors." And it has this quote from JPMorgan Chase: "We believe the accuracy of the factual loan information contained in the affidavits was not affected by whether or not the signer had personal knowledge of the precise details. . . . The affidavits were prepared by appropriate personnel with knowledge of the relevant facts."
What that statement says to me is: "We believe the laws and rules that apply to every other litigant don't apply to us. We can place efficiency in carrying out our foreclosure program above pesky technicalities like making sure we don't lie to courts."
Justice, the state attorneys general and judges across the nation had better not let the banks' spin stand. Even if every robo-signed document were true -- and they're not all true -- the robo-signers and the banks employing them have systematically created and submitted to courts hundreds of thousands of sworn documents that aren't accurate. The U.S. justice system just can't look the other way at that.
After all, the government is prosecuting Roger Clemens and Barry Bonds for allegedly lying about their steroid use. But in the banks' case, there's no "allegedly" about it. The documents swear what they swear, were submitted to courts as proof in cases, and now, on a mass scale, have been acknowledged to be at least partly false.
If investigations -- and, yes, prosecutions -- don't flow from the robo-signer scandal, it can only be an example of the "scope-severity paradox," in which crimes with a few victims are taken more seriously than a mass atrocity, the phenomenon that led Josef Stalin to say "one death is a tragedy; one million a statistic."
And again, the spin that the problematic documents are merely technical issues and haven't caused any problems in foreclosure cases is particularly ludicrous when you consider how many foreclosures are being derailed for nondocument issues. For example, the Miami Herald Tribune reported that in a single day, Florida judge "Hang-em High Harry" Rapkin dismissed 61 foreclosure actions for elementary errors. Among the mistakes: Banks' attorneys filed motions to win cases that had been dismissed or previously won. In some cases, attorneys didn't show up at all for the hearing. That's not a confidence-inspiring performance.
And the document problem is very widespread. The chief judge of one of Florida's judicial districts, Lee E. Haworth, found that 20% of the foreclosures filed in that district had "deficient" documents, the The New York Times reported. The Times piece also included three examples of bad documents submitted in foreclosures that had jeopardized the foreclosures.
So come on Justice and the Fed, join the OCC in taking action. Get the truth out -- and prosecute those who deserve it.