Are the Bank Foreclosure “Moratoriums” More PR than Real?

Bank of America announced a foreclosure halt in all 50 states; JP Morgan and GMAC have stopped in 23 judicial foreclosure states.

Or have they? Florida is a judicial foreclosure state, and local reports suggest the banks are still moving forward with foreclosures. Note the inconsistencies between the statements of the bank employees versus the action on the ground. From the Fort Myers News Press:.

JPMorgan Chase & Co. and Bank of America Corp., along with some smaller lenders, have announced that they were holding off on court-based foreclosures…

But in Lee County, court records show both of those banks have continued to get court judgments allowing the sale of mortgages on foreclosed houses at public auction.

That’s despite statements from both banks that they stopped doing that about two weeks ago.

April Charney, a Jacksonville-area legal aid attorney who’s an expert on foreclosure issues, said she’s hearing similar reports from around the country. She scoffed at the banks’ protests that they didn’t intend for the judgments to be issued.

“It’s a farce,” she said. “We’re all being played.”

JP Morgan spokesman Tom Kelly said Tuesday he didn’t know the bank’s attorneys were continuing to get judgments allowing them to go forward with auctions.

Twelve judgments have been issued in Lee for JPMorgan since Oct. 2, the latest on Tuesday, according to court records.

“We reached out to our local foreclosure counsel and asked them to ask the courts not to enter judgments,” Kelly said. “I don’t know what happened there.”

JP Morgan always intended to continue filing new foreclosure lawsuits, as it has been doing, he said.

Bank of America spokesman Rick Simon said in an e-mail Monday night that “the bank continues to process foreclosures on delinquent accounts, but will not take the process to the point of judgment or sale.”

However, county court records show judgments have continued for the bank, the latest being issued Tuesday.

Simon said in an e-mail Tuesday afternoon that contributing factors “include that the judgment might not have been a loan we serviced, but one we were the trustee or owner for. Also, there are several reasons beyond our control that the Court might have gone ahead and entered the order.”…

Simon said in an e-mail that after the bank’s Oct. 1 announcement of the freeze, it continued with auctions that resulted from judgments before Oct. 1.

On Friday, Oct. 8, the bank expanded its ban to include all states and delayed future auctions, he said.

No public auctions were held Monday or Tuesday in Lee County.

Now in fairness, this failure to halt the foreclosure factory could be a function of the difficulty of reining in foreclosure mills. But how could they NOT know? The freezes are a major news story and have electrified the mortgage industry. So the idea that these mortgages slipped through the cracks sounds a tad convenient.

This account contrasts with the push by the Obama administration and banks against a “national foreclosure moratorium.” And I have to say, formulating it that way plays into the hands of the banks. There is no reason to freeze foreclosures of mortgages made by institutions where the original lender still holds the mortgage. Even at the peak of the subprime mania, 75% of those loans were securitized, which implies 25% weren’t. The problems exist in securitized mortgages and probably also certain vintages (say 2004 onward). Even though the mortgage market is rife with problems, it’s important to focus on the relevant (and still very large) subset.

But back to the main thread. Given the Administration’s and banking industry’s continued alignment, the insistence that a mortgage halt would be just awful is pretty dubious. This situation is just awful, and any remedy is likely to be as pleasant as major surgery.

The Executive increasingly looks to be hectoring the banks rather than applying effective pressure, and that is likely a feature, not a bug. As we’ve noted repeatedly, the officialdom sees its interests as aligned with those of financiers, and at best believes the bank party line that demanding that they behave will wreck the economy.

This limp wristed response isn’t surprising; in the meeting the Treasury held with bloggers in August, Geithner claimed the Administration had little influence over the banks. That’s patently false; I mentioned the considerable leverage the Treasury has over the banks (all it has to do is threaten to enforce the IRS REMIC rules on securitizations. There are literally thousands of examples that one can find in court filings of banks having assigned mortgages to securitizations for th purpose of foreclosing. That is a violation of IRS rules, both because the asset was transferred way too long after the creation of the trust, and because trusts can accept only qualified assets, meaning sound ones. Dud loans aren’t permitted. This type of violation is likely an “impermissible act” which means any income to the trust would be taxed at a 100% rate. Since the proceeds of these sales are used, among other things, to pay fees to servicers and repay advances of principal and interest, enforcing the regs would have more than a little impact on servicers. This isn’t the only cudgel the Treasury could employ; it simply illustrates that the Treasury has ample tools but no will).

The Washington Post reports that regulators are getting more insistent, but they really appear not to have a grip:

Federal regulators sought Wednesday to prevent the growing furor over improper foreclosures from escalating, pressing mortgage lenders to replace flawed and fraudulent court documents while insisting that foreclosures continue apace.

Yves here. Huh? “Replace flawed and fraudulent documents” and press forward? This is nuts. Why do you think servicers and foreclosure mills provided bogus documents in the first place? Because they had made such a botch of things that that was the least bad approach, from their perspective. You don’t make up documents if you have the real ones, and if you don’t have the real ones, you are really stuck. So the idea that the banks can somehow magically find documentation they clearly DON’T have and get back to life as usual is a complete non-starter.

And the regulators appear also to assume that the courts will tolerate banks showing up with different documentation. If the bank discovers it has filed a case in the name of the wrong party, it will probably have to refile the case. And some judges will not accept new affidavits, since it’s an admission the earlier submissions were improper, which is a sanctionable offense.

And notice now that courts are starting to push back. Again form the WaPo:

Some consumer advocates and lawmakers said the policy was soft on banks and industry insiders and may have little effect, because many lenders are already taking such steps. In addition, the handling of individual court cases is the province not of federal officials but of judges at the state level.

Judges handling foreclosure cases in the Maryland suburbs said Wednesday that they have begun to take concrete steps to cope with alarming problems now apparent in legal documents.

In Prince George’s County, which has the Washington area’s highest foreclosure rate, the circuit court has ordered a special review of cases in which lawyers have acknowledged they did not sign the documents as they had earlier claimed. The circuit court is scheduled later this fall to slowly begin reviewing some of the 14,500 foreclosure cases pending in the county. A judge in Montgomery County said the court is putting about 400 foreclosure sales on hold while waiting for lawyers to explain why they had not actually signed the legal paperwork in those cases as they had initially said.

The officialdom needs to come to grips with this mess, rather than hope it will somehow go away if the banks clean up their act a tad. Now it may be that Team Obama hopes to diffuse the situation until the elections, then go full bore into what will no doubt be bank favorable remedies. But we don’t see any quick fixes here, and the Administration’s efforts to minimize problems this deep seated are likely to blow up on it in short order.

Originally published at naked capitalism and reproduced here with the author’s permission.