The robo-signing foreclosure scandal has exposed illegal bank practices by servicing companies on mortgages, and also shows the urgent need to reform a banking system that is broken and plagued with abuses, unnecessarily pushing homeowners into foreclosure, a top consumer’s advocate told a Congressional panel.
“The lack of restraint on servicer abuses has created a moral hazard juggernaut that at best prolongs and deepens the current foreclosure crisis and at worst threatens our global economic security,” Diane Thompson, an attorney for the National Consumer Law Center told the Senate Committee on Banking, Housing and Urban Affairs in testimony Tuesday.
“Recent exposures of robo-signing and lack of ownership documentation by servicers have taken the wraps off a servicing system that has failed homeowners, investors and our society,” Thompson said.
Flaws in the system that have become apparent since the admissions by banking employees to signing foreclosure affidavits of which they had little or no knowledge, include repeated failures to service loans, account for payments, limit fees charged as a result of foreclosure practices and provide loan modifications even when they could serve investors and allow homeowners to avoid foreclosure.
“The foreclosure crisis has inflicted immeasurable pain on America,” Thompson said. “Congress must provide some urgently needed relief by reforming the servicing system and clearing the way for homeowners who might otherwise lose their homes to get loan modifications.”
Consumer watch dog groups allege that illegal bank practices by major bankers, including Bank of America, JP Morgan Chase & Co. and Wells Fargo have caused much of the pain and losses being endured by millions of Americans in the foreclosure crisis. Homeowners are facing foreclosures at triple the rate of 1933, the height of the Great Depression. More than 4.6-million mortgage holders have suffered a foreclosure since the crisis started.
Representatives of at least three major national lenders are negotiating with state attorney generals in an effort to reach a compromise on the robo-signing scandal. Requiring banks and mortgage companies to offer mortgage modifications would be part of any agreement, according to a representative of Ohio attorney generals office.
Principal reductions would apparently be part of the agreement as well through bankruptcy proceedings or participation in the Making Home Affordable Program (HAMP) launched more than a year ago by the Obama administration. Mortgage holders would be able to contact and speak directly with a representative of their mortgage lender with authority to modify their loan and enforce their rights through mediation and in court with legal representatives under any agreement reached by the state attorney generals if the program is to work, according to consumer advocates.