America’s largest banks are facing billions of dollars in lawsuits challenging the improper practices bank used pursuing foreclosure on people’s homes.
Last fall, attorneys general from all 50 states and the District of Columbia began investigating these improper foreclosure practices after widespread reports surfaced about the banks’ failures to meet legal requirements for documenting the right to foreclose. One issue was the use of “robo-signers” – low-level employees who approved thousands of documents without even reading them.
There were also rampant problems with the way the mortgage industry used a recording system called Mortgage Electronic Registration Services (MERS). MERS made things easier for lenders by enabling them to record changes in ownership electronically, rather than going to county courthouses to do so. But this electronic system also enabled lenders to bundle and sell mortgages in dubious financial packages that were a significant cause of the financial meltdown in 2007.
Last month, state attorneys general told a group of five of the largest banks that the banks’ liability is potentially as much as $17 billion. And that figure does not even include claims that might be brought by federal agencies, such as the Department of Housing and Urban Development (HUD).
The U.S. Justice Department is another interested party. The U.S. Trustee Program, which oversees bankruptcy and is part of the Justice Department, is seeking $500 million to as much as $1 billion in penalties against the banks as well.
The banks are proposing a settlement in the range of $5 billion in compensation for borrowers harmed by the practices being challenged by the attorneys general. But banks are unlikely to get off the hook so easily, as state and federal investigations into wrongful foreclosures are continuing.
Source: “Banks Face $17 Billion in Suits Over Foreclosures,” Wall Street Journal, 5-25-11