Yves here. I hope you’ll take the time to read this important post. There has been a great deal of discussion of the many deficiencies of the mortgage settlement, but its biggest has gone pretty much unnoticed. It isn’t just that the settlement gives the banks a close to free pass for past predatory, illegal conduct, but it also has such lax servicing standards and weak enforcement provisions so as to give the banks license to carry on with servicing abuses.
By Abigail Caplovitz Field, a freelance writer and attorney who blogs at Reality Check
Updated at end
The mortgage settlement signed by 49 states and every Federal law enforcer allows the rampant foreclosure fraud currently choking our courts to continue unabated. Yes, I realize the pretty servicing standards language of Exhibit A promises the banks will completely overhaul their standard operating procedures and totally clean up their acts. But promises are empty if they’re not honored, and worthless if not enforceable.
We know Bailed-Out Bankers’ promises are empty, so what matters is if the agreement is enforceable. And when it comes to all things foreclosure fraud, the enforcement provisions are laughable. But before I detail why, let’s be clear: I’m not being hyperbolic. The bankers running and profiting most from our bailed-out banks are totally dishonest when dealing with the public, and their promises are meaningless.
To see their dishonesty in the mortgage context, read the complaint filed in the mortgage deal, or my take on it here. But the bankers don’t limit their lying, cheating and stealing to homeowners. They abuse their clients the same way. Most broadly damaging, the bankers steal from taxpayers on a federal, state and local level and practically everybody else too. Fraud is just how they do business. When dealing with bankers, you can’t do business on a handshake.
I’ve already written about how banker-sympathetic, consumer-destructive the mortgage settlement’s “Servicing Standards Quarterly Compliance Metrics” are. But I didn’t address the rule-of-law metrics. So here goes.
The Empty Promises
You’d think the top law enforcers in 49 states, the Department of Justice, (including its defenders of the integrity of the Bankruptcy System), and regulatory agencies would be concerned with defending the rule of law. Boy, does it need defending. Consider how transparently foreclosing lawyers are fabricating evidence against whistleblower Lynn Syzmoniak.
And if you looked at Exhibit A to the settlement, focusing on the anti-foreclosure fraud provisions of part I, you’d think that law enforcement had done an excellent job. The rule of law looks vindicated. Consider how the Exhibit begins:
“Unless otherwise specified, these provisions shall apply to bankruptcy and foreclosures [everywhere] and regardless of [which type of sworn document we're talking about]
“A. Standards for Documents Used in Foreclosure and Bankruptcy Proceedings.
“1. Servicer shall ensure that factual assertions made in [in any kind of court-filed or otherwise important foreclosure document] are accurate and complete and are supported by [solid] evidence….”
This kind of ‘bankers won’t lie, cheat and steal anymore’ language is surely helped persuade consumer allies like the Center for Responsible Lending to praise the settlement. Check out the Center’s press release, the day the deal was announced, titled “AG SETTLEMENT ENDS ROBO-SIGNING AND PROVIDES A MODEL FOR PREVENTING FORECLOSURES”. Notice the Center’s tagline: “Protecting Homeownership and Family Wealth.”
Just meeting the “thou shalt not lie when taking thy neighbor’s house” language I quoted would require fundamental process overhauls at all major mortgage servicers. And yet it’s just the start of 11 pages aimed at ending document fraud (42 pages of detailed provisions overall). Given how much bankers lie, driving those process overhauls requires a mighty big incentive, i.e., penalties for non-compliance.
The pathway to penalties runs through the metrics. The big ticket $1 million and $5 million penalties only kick in if the bankers failed a metric two quarters in a row. So what are the metrics for foreclosure fraud?
Measuring the “End” of Foreclosure Fraud
The first “end”-foreclosure-fraud metric is on page E-1-2 of Exhibit E. Inauspiciously, the section is called “Integrity of Critical Sworn Documents.” I say inauspiciously because the “mandated” banker truth-telling in Exhibit A wasn’t limited to “critical sworn documents.”
The first “Metric” (that’s the column header) is “Integrity of AOI” [Affidavits of Indebtedness.] The first “Measurement” is “Based upon personal knowledge, properly notarized, [and the amount owed is kinda close to right.]” The real measurements are the “Test Questions.” Question 1 relates to the knowledge and notarization requirements:
“1. Taken as a whole and accounting for contrary evidence provided by the Servicer, does the sample indicate systemic issues with either affiants lacking personal knowledge or improper notarization?” (bold mine.)
See how that works? If enough garbage documents (not verified, not executed in compliance with the law) get plowed into the system that the enforcement structure suspects there’s still systemic problems, the bankers get to say why they think no problem exists, and the monitor is supposed to take them seriously. The monitor is supposed to weigh the bankers’ defense considering everything, not the narrow concept that the so-called “Measurement” touted–”Based upon personal knowledge, properly notarized, [and the amount owed is kinda close to right.] I mean, that measurement reads like it’s a simple yes or no, on a per-document basis, right?
Bottom line: it’s up to the monitor to decide how much foreclosure fraud he’s willing to tolerate before he insists systemic issues exist, and the bankers will be lobbying him hard. How do you feel about that Exhibit A ‘Bankers shall tell the truth when taking your home’ language now?
The next two “Metrics” within the “Integrity of Critical Sworn Documents” section (Proofs of Claim and Motions for Relief from Stay Affidavits) don’t even pretend to care about process at all; they only look at the accuracy of the amounts owed. The Test Questions are, respectively,
“Are the correct amounts set forth in the form, with respect to pre-petition missed payments, fees, expenses charges, and escrow shortages or deficiencies?” [and yes, the error rate and error threshold mean not every incorrect amount counts]
Verify against the system of record, within tolerance if overstated:
a. the post-petition default amount;
b. the amount of fees or charges applied to such pre-petition default amount or postpetition amount since the later of the date of the petition or the preceding statement; and
c. escrow shortages or deficiencies.” (See E-1-3 for both quotes.)
So much for the rule of law.
But wait, there’s more; skip ahead to page E-1-9. In a section called “Policy/Process Implementation” we find “E. Affidavit of Indebtedness Integrity”. Here’s what the metric supposedly measures:
“Affidavits of Indebtedness are signed by affiants who have personal knowledge of relevant facts and properly review the affidavit before signing it.”
Sounds like the end of “robosigning“, right? Well, here’s the test question:
“1. Is there evidence of documented policies and procedures sufficient to provide reasonable assurance that affiants have personal knowledge of the matters covered by affidavits of indebtedness and have reviewed affidavit before signing it?”
This metric says: look at what we say–what our handbooks say–not what anyone actually does. Think I’m reading too much into it? Here’s the “Test Loan Population and Error Definition”, which is what the people measuring compliance are supposed to look at when asking the “Test Question”: “Annual Review of Policy.”
Through the magic of the metrics, ‘Affidavits are done correctly’ dissolves to ‘look at our policy once a year and be reasonably confident we’re doing things right.’
And those four metrics are it. So much for “AG SETTLEMENT ENDS ROBO-SIGNING AND PROVIDES A MODEL FOR PREVENTING FORECLOSURES”
I can’t imagine that the Center read the metrics. I’ll bet pre-press release they were never even shown it. Surely the pre-deal promotional tour just pushed the “strong” Exhibit A language.
Prosecute or the Release Becomes Immunity
The liability releases let the bankers off all sorts of foreclosure fraud hooks (see details in “Covered Servicing Conduct” in the Federal release.) But the release only covers conduct up through February 8, 2012. In theory, the bankers could be sued for all the fraud they’re committing now and will in the future. In theory, unless these metrics are treated like a back door ongoing liability release. In which case it’s not a release at all: it’s foreclosure fraud immunity.
Update: Isaac Gradman points out that the Enforcement provisions in Exhibit E include at J. the right to enforce the banks’ obligations in court. However, the only remedies are a court order telling the banks to obey or other “non-monetary” relief, and monetary penalties for metrics-based violations. See J.3. Unless the banks are litigated into contempt of court, or unless an injunction forces the banks to overhaul their standard operating procedures, it’s not obvious the servicing standards have any teeth outside the metrics. Moreover, violations of the terms of Exhibit A that aren’t included in the metrics are unlikely to be systematically assessed, and thus are unlikely to be the basis for an enforcement action. Finally, it’s not clear when the anti-foreclosure fraud servicing standards take effect. You can’t violate what you don’t yet have to do. In short, given the deal’s expiration date, it’s hard to imagine change we can believe in happening.