Gov’t Watchdog Says Treasury’s Dismissal of Foreclosure Scandal Is ‘Premature’

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Gov’t Watchdog Says Treasury’s Dismissal of Foreclosure Scandal Is ‘Premature’

by Marian Wang
ProPublica, Nov. 17, 2010, 4:04 p.m.

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In late October, Treasury official Phyllis Caldwell appeared before the government’s bailout watchdog panel and stated that the foreclosure scandal posed no “systemic risk” to the broader financial system

In its own report released on Tuesday, however, the Congressional Oversight Panel challenged Treasury’s position, asking the department to “explain why it sees no danger.” From the report [1]:

Treasury has claimed that based on evidence to date, mortgage-related problems currently pose no danger to the financial system, but in light of the extensive uncertainties in the market today, Treasury’s assertions appear premature.

For its part, the Congressional Oversight Panel isn’t convinced that the risks are as small as the Treasury Department and the banks say it is. Here’s how it lays out the best-case, worst-case scenarios:

In the best-case scenario, concerns about mortgage documentation irregularities may prove overblown. In this view, which has been embraced by the financial industry, a handful of employees failed to follow procedures in signing foreclosure-related affidavits, but the facts underlying the affidavits are demonstrably accurate. Foreclosures could proceed as soon as the invalid affidavits are replaced with properly executed paperwork.

The worst-case scenario is considerably grimmer. In this view, which has been articulated by academics and homeowner advocates, the “robo-signing” of affidavits served to cover up the fact that loan servicers cannot demonstrate the facts required to conduct a lawful foreclosure. In essence, banks may be unable to prove that they own the mortgage loans they claim to own. The risk stems from the possibility that the rapid growth of mortgage securitization outpaced the ability of the legal and financial system to track mortgage loan ownership.

Adam Levitin, an associate law professor at Georgetown University Law Center, expressed similar concerns to lawmakers, noting that questions about whether banks properly documented transfers of mortgage ownership could have “dire systemic consequences.”

As we’ve noted, establishing who owns the mortgage loan is key to figuring out who has the right to foreclose [2]. And if this chart [3] is any indication, figuring that out is not a simple task. The blog ZeroHedge, which posted the chart, noted that it took the homeowner more than a year to sort out—and he performs securitization audits for a living. (The American Securitization Forum, an industry trade group, issued a paper this week defending its practices [4].)

Caldwell, the Treasury’s housing rescue chief, is scheduled to testify tomorrow [5] before House lawmakers in a hearing on robo-signing and issues of mortgage loan ownership.

In a statement to the Associated Press, the Treasury Department said it continues to “monitor the situation closely” and believes that “the reported behavior within the mortgage servicer industry is simply unacceptable [6].”


11 Responses

  1. Maybe that will be the next HR 3808?

  2. Geez, what will they go after next?

    How bout this hypothetical:

    Senate panel approves website shut-down bill

    The legislation would allow the DOJ to seek to shut down sites exposing foreclosure fraud

  3. I don’t trust our “government watch dogs”. Am I right to be concerned about the following article? Its somewhat off topic, but yet affects us all, as it involves potential censorship of the Internet. Pardon being off topic, but while we are all focused on our homes, something else is going on and it needs our attention:

  4. It appears there is lots of collusion all the way around. The Treasury Department is trying to cover its a#$ as well. After all, Fannie Mae was part of the creation of MERS. Big government is in bed with the megabanks. Can you spell fascism? Our entire country is being controlled by the big monopolistic corporations. I do not believe the country can recover until the mortgages mess is straightened out, and I do not mean by sweeping it under the carpet and letting the mega banks off the hook. We need to see some jail time.




    All four federal bank regulatory agencies are conducting targeted exams of foreclosure practices and policies involving on-site examinations and the sampling of loan files at depositories that control a large portion of the nation’s $9.9 trillion in housing receivables.

    The joint investigations being conducted by the Federal Deposit Insurance Corp., Federal Reserve, the Office of the Comptroller of the Currency, and Office of Thrift Supervision were revealed in prepared testimony from Fed governor Elizabeth Duke, who is scheduled to testify before a House subcommittee late Thursday morning.

    Also, the Federal Housing Administration is surveying its largest servicers to obtain detailed information about their foreclosure practices, document handling and title clearance operations. On-site servicer inspections are scheduled for the first two weeks of December, said FHA commissioner David Stevens.

  7. Patrick, please email me at as It seems that you and I have lot in common with regards the lender and the robo signer. I made my mortgage unsecured in my BK filing as it was rescinded prior to my filing. Their sub trustee filed a motion to lift stay which was vigorously opposed based on their lack of standing and the rescission in addition to the rob signer Jeffrey Stephan. They withdrew their motion two days prior to the hearing.

  8. Hey, Patrick, congrats! I have your pleadings in my reference file! I think quiet title is your next step.

  9. I got GMAC to vacate the judgment and foreclosure sale, due to robo signor Jeffrey Stephan.
    I have been in my home for 40 months without paying because of the theft of my $18,000 deposit, that was not applied to the principal loan amount.
    Can I get Quiet Title somehow?

  10. I filed a proper motion to vacate (fraudulent affidavit), now all the court and the plaintiff’s counsel want to do is postpone that hearing on the motion. The motion was filed with the AG (only for review, of course), and now they’re (Wells) calling with a conciliatory tone to inform us that the sheriff’s sale is stopped and “you’re loan mod package is on the way”. They want to keep the motion hearing off the docket until 14 December. If I sit on that mod until then, now they can claim lack of good faith?
    I’m telling you, folks, the collusion of the courts with the foreclosure mills is becoming evident to even a “novice” like me. I’m gonna pound the clerk to get this back on the docket for next week.

  11. Guy

    Good work…Keep it up. Brad, Call me!


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