In Canada, banks are lowering mortgage rates. In the United States, banks are facing investigations by state governments into the documents used to foreclose on homeowners.
It’s a sign of the times that Canadians can benefit from lower mortgage rates, but in the U.S. banks are being investigated for so-called “robo-signings” — allegations that workers processing loan files did not personally verify information in the documents in preparation for foreclosing on thousands of homeowners.
The situation has become so ominous that the Bank of America recently announced it will be temporarily halting foreclosure sales in all 50 states. At the same time, all 50 states have agreed to “speak with one voice” to form a bipartisan committee, called the Mortgage Foreclosure Multistate Group, to investigate documents loan servicers prepared when foreclosing on homeowners, a phenomenon that has swept the nation since the onset of the sub-prime mortgage meltdown .
GMAC Mortgage has told the media it has hired legal and accounting firms to conduct independent reviews of its foreclosure process. At the same time, JP Morgan Chase is temporarily halting the processing of 56,000 foreclosure proceedings in 23 states, where the courts have jurisdiction over foreclosures, and is reviewing loans in a total of 41 states.
The crisis came to a head when lawyers representing foreclosed homeowners began to argue that the use of “robo-signers” employed by the American banks could not have possibly verified the reams of information contained in the massive piles of paperwork — home foreclosures in the U.S. number in the tens of thousands.
One lawyer alleged that workers simply signed documents without bothering to read them, as reported in the October 9 Globe and Mail article, Foreclosure Freeze Adds to Housing Woes, by Grant Robinson. Tom Ice, a foreclosure defence lawyer in Florida, told Robinson that not only had employees not read the loan documents, but they signed official court affidavits that are taken under oath saying they had read the documents.
Ice has dispositions from bank officials who have admitted they could not verify all the information contained in foreclosure documents submitted to the courts. He alleges that about 71 per cent of his cases involve discrepancies in paperwork about who actually owns the loan, which Robinson wrote raises questions about who has the right to foreclose.
According to the foreclosure listing firm RealtyTrac Inc., lenders had been stepping up home repossessions this year to clear up a backlog of bad debts. In July, 92,858 properties were repossessed, which is up nine per cent from June. July was the eighth month in a row that the banks had increased the number of foreclosures.
RealtyTrac is projecting that another one million Americans will lose their homes this year. Other groups place the number at over 1.2 million homes that will be seized by the banks for default on mortgage payments. The company said 325,229 properties have received a foreclosure warning in July — the commencement of the process when homeowners fall behind in their payments — which was up four per cent from June.
Foreclosure sales are a significant portion of all home sales in some states such as Nevada, where it accounts for 56 of the market transactions, or California, where it accounts for 43 per cent of home sales.
The “robo-signer” allegations are yet another blow to a seriously distressed housing market in the U.S., which is still suffering the effects of the mortgage meltdown which was precipitated by the madness of giving sub-prime mortgages to many people in anticipation of a continued rise in home prices, although they simply could not afford the monthly payments once the rates increased or the house of cards collapsed under its own weight.
Sub-prime mortgages were bundled up and sold off to financial institutions as alleged prime assets and then resold to other groups. Along the way, money managers became rich as a result of the commissions they earned, but the gravy train came to a screeching halt when the housing market crashed and financial institutions were saddled with billions of dollars in “toxic” debt, causing a financial crisis that swept the world.
Potential home buyers of distressed properties are now waiting to enter the housing market while the banks and state governments attempt to sort out the mess. With home sales on hiatus, a major economic engine that was expected to solve the financial woes of the U.S. has virtually disappeared overnight.
Desperate homeowners have only been granted a temporary reprieve, since a continuing default in monthly mortgage payments will lead to more foreclosures as the document verification process is eventually clarified. The Bank of America still issues warnings to delinquent homeowners urging them to pay up or renegotiate their terms.
“This is not simply about a glitch in paperwork,” according to Iowa Attorney General Tom Miller, who is a member of the Mortgage Foreclosure Multistate Group, “it’s also about some companies violating the law and many people losing their homes.”
The troubling news about this crisis in America is that it has the potential to lead to further job losses and higher unemployment. As a result, it will in some way affect Canada, but to what extent is a matter of speculation. Its damage to the Canadian economy, which has strongly rebounded from the earlier crisis in the U.S., can only be determined by how long the present difficulties will last.
Fortunately, it is a temporary crisis that will be resolved once the banks get a handle on the amount of loan documentation that is in error, but that is not to say any significant crash in American home sales — distressed or otherwise — will not effect Canada in some measure. After all, Canada relies upon American consumers to purchase our exports, whether they are manufactured goods or gas or oil.
On the other hand, Canada has an excellent track record in keeping its banks from engaging in suspect processes such as “robo-signings,” and our banks are healthy and willing to give mortgages to clients with the wherewithal to make their monthly loan payments, while Canada Mortgage and Housing Corporation guarantees these loans through mortgage insurance taken out by home buyers.
In Canada, it’s business as usual in the mortgage market, but in the U.S. it’s another mortgage crisis that has to be contended with.