The problems in the mortgage industry go far beyond the controversy over flawed foreclosure documents and call for an overhaul of the system of administering home loans, the state attorney general leading a nationwide investigation told a Senate panel Tuesday.
As Iowa Attorney General Tom Miller testified at a hearing of the Senate Banking Committee, senators also insisted that focusing solely on the so-called "robo-signing" is a mistake.
The banking industry, meanwhile, was criticized for maintaining that the problem was mainly technical. That view "shows a certain type of arrogance," Miller said.
"There's so much at stake," he told the panel. The entire system of servicing and modifying mortgages, and foreclosing on borrowers must be changed "so that it works productively," he said.
A resolution could involve penalties for mortgage companies that don't comply with required practices, said Miller, a Democrat who was re-elected earlier this month. "We'll need ultimately agreement from the banks and so far our discussions have been productive."
Settlement Coming Soon?
CNBC reported that Bank of America (BAC), JPMorgan Chase (JPM) and Wells Fargo (WFC) are nearing a settlement with the 50 attorneys general in which they would compensate borrowers whose homes were improperly foreclosed upon.
But Miller said after the hearing that a settlement wasn't close. "That's totally wrong. We're a long way from an agreement," he told reporters. "We're at the beginning stages of a negotiation."
Sen. Christopher Dodd, D-Conn., the panel's chairman, said many people believe that the problems with shoddy paperwork in foreclosures "are simply the tip of a much larger iceberg, that they are emblematic of much deeper problems in the mortgage servicing business - problems that have resulted in homeowners losing their homes in unjustifiable foreclosures."
Sen. Jon Tester, D-Mont., said some in the industry "have been a little bit glib."
Growing Public Anger
The banking panel was examining the highly charged issue amid growing concern and public anger over the disarray stemming from faulty foreclosure documents. A man in the audience in the hearing room interrupted testimony by a JPMorgan Chase official, standing and shouting "He is lying." The demonstrator, from the Neighborhood Assistance Corp. of America, was removed from the room by police officers.
A congressional watchdog said in a report issued earlier Tuesday that the foreclosure documents distress could threaten major banks with billions of dollars in losses, deepen the disruption in the housing market and hurt the government's effort to keep people in their homes.
Revelations that several big mortgage companies sped through thousands of home foreclosures without properly checking paperwork already have raised alarm in Washington. If the irregularities are widespread, the consequences could be severe, the Congressional Oversight Panel said in the report. The full impact is still unclear, the report cautions.
Employees or contractors of several major banks have testified in court cases that they signed, and in some cases backdated, thousands of certifying documents for home seizures. Financial firms that service a total $6.4 trillion in mortgages are involved. Bank of America, JPMorgan Chase and Ally Financial's GMAC (GMA) Mortgage have suspended foreclosures for some period because of flawed documents.
BofA: It's A Paperwork Problem
Barbara Desoer, president of Bank of America's home loans division, told the banking committee the company is making changes in its found areas needing improvement. The bank found in its review that its foreclosure decisions weren't based on inaccurate documents, but did see ways the paperwork could be improved, Desoer said. after an extensive review
Among the changes, the legal documents used in the process will each be reviewed by the signer and promptly notarized, she said.
Desoer said the bank is replacing and resubmitting affidavits that were filed previously in about 102,000 foreclosure cases that haven't yet gone to judgment in the 23 states where courts play a role in the process. Also, Charlotte, N.C.-based Bank of America is putting in new procedures for selecting and monitoring the law firms it retains to process foreclosures.