A Fighting Chance

Another aspect of this fraud dealt with ownership of mortgages and chain of title. Before a bank can foreclose on a home, it must prove that it owns the property. In their haste to package and repackage and sell and resell loans, banks had often cut corners in their paperwork and ownership could no longer be documented. Some banks offered forged affidavits to “clear” the titles. Since the scandal came to light, courts have intervened to stop foreclosure proceedings in several cases where the banks were unable to prove they owned the underlying mortgages. John Carney, “A Primer on the Foreclosure Crisis,” CNBC, October 11, 2010. One study found that banks failed to prove ownership of the underlying mortgage in 40 percent of foreclosure bankruptcy cases. Katherine M. Porter, “Misbehavior and Mistake in Bankruptcy Mortgage Claims,” Texas Law Review 87 (2008): 121–82. As people began to examine the mortgage foreclosure process in greater detail and in particular the role of servicers, it became clear that improper foreclosure was not only rampant, but it was also multilayered. For example, “dual tracking” is when a mortgage servicer tells a homeowner she is being considered for a loan modification, while at the same time the servicer is moving forward on foreclosure proceedings. Rick Rothacker, “Senators Criticize ‘Dual-Track’ Foreclosure, Loan Modification Processes,” Charlotte Observer, November 17, 2010.

Many bank executives claimed that no houses were taken in error and that the scandal really just amounted to a technical paperwork problem. Ruth Simon, Robin Sidel, and Jessica Silver-Greenberg, “Signs of Mistakes Aside, Banks Defend Foreclosures,” Wall Street Journal, October 20, 2010. Jamie Dimon of JPMorgan said, “We don’t think there are cases where people have been evicted … where they shouldn’t have been,” and an ex–Goldman Sachs employee dismissed the scandal as “just a clerical error” as opposed to something more “nefarious.” Jill Treanor and Julia Kollewe, “Robo-Signing Eviction Scandal Rattles Wall Street,” Guardian, October 14, 2010; Max Abelson, “The Foreclosure Fiasco and Wall Street’s Shrug,” New York Observer, October 12, 2010. One commentator published an editorial by John Carney entitled “Let’s Not Start Lionizing the Anti-Foreclosure Deadbeats,” in CNBC, October 13, 2010.

Despite the force with which these arguments were articulated, no one offered any proof to back them up. The eventual mortgage foreclosure settlements included payments to settle claims by people who had in fact been wrongfully moved out of their homes. See, e.g., http://www.nationalmortgagesettlement.com/.

got the biggest TARP handouts: The following banks and mortgage servicers were involved in the mortgage foreclosure scandal: Bank of America, Citigroup, Wells Fargo, JPMorgan Chase, Ally/GMAC. In later settlements, Aurora, MetLife Bank, PNC, Sovereign, and SunTrust also paid substantial penalties. James O’Toole, “Banks to Pay $8.5 Billion in Foreclosure Settlement,” CNNMoney, January 7, 2013. All of these institutions received TARP funding, with the exception of MetLife Bank.

but the big guys couldn’t be bothered: The culprits in the mortgage foreclosure scandal were by and large the big banks. As one community banker noted, the community banks could not afford to become “mortgage factories” like the big banks because their business model hinges on developing good relationships between the customers and the bank/banker. Matt Gutman and Bradley Blackburn, “Foreclosure Crisis: 23 States Halt Foreclosures as Officials Review Bank Practices,” ABC News, October 4, 2010; see also testimony of Jack Hopkins, president and CEO of CorTrust Bank, on behalf of Independent Community Bankers of America, August 2, 2011. https://www.icba.org/files/ICBASites/PDFs/test080211.pdf.

until the media started to stir the pot: Several media outlets reported that federal regulators not only delayed responding to the mortgage foreclosure scandal, but some were pushing for “relatively modest fines.” Paul Kiel, “Despite Finding Big Problems in Mortgage Industry, Regulator’s Punishment Unclear,” ProPublica, February 17, 2013.

settlement number: $5 billion: Shahien Nasiripour, “Bank Regulator Pushing for Modest Settlement with Industry over Improper Mortgage Practices,” Huffington Post, February 16, 2011. For more on the scandal and the regulatory response, see Sheila Bair, Bull by the Horns, 243–56. “Unlike the FDIC, the OCC did not want to put pressure on its big banks to come to the table and agree to something reasonable.”

$1 billion every single day: The five banks involved in the initial scandal—Bank of America, JPMorgan, Citigroup, Ally Financial, and Wells Fargo—earned a combined total of $471 billion in revenue for 2010. This translates to about $1.3 billion per day.

Whoop-dee-doo: What was the right number? The standard measure of damages would have been to measure how much the mortgage servicers had hurt people. When the mortgage servicers broke the law, some people lost homes that they might have been able to keep, if only they had more time to catch up on past-due payments, or if the banks had found their lost paperwork, or if they had received the loan modifications they had been promised. How many families were in this situation? What had it cost them to lose their home? What was that worth?