Tuesday, July 19, 2011

Analysis: Doubts raised on OCC foreclosure estimate | Reuters

Analysis: Doubts raised on OCC foreclosure estimate | Reuters

OCC spokesman Robert Garsson confirmed that the conclusion that there had been only a small number of wrongful foreclosures was based on a sample of only 2,800 foreclosure files. In 2010 there were just over one million foreclosures, according to real estate data firm RealtyTrac.

The OCC declined to disclose the criteria used to select the files. But a footnote in Walsh's prepared testimony for his February 17 appearance before the Senate Banking Committee states that the sample included "in-process" foreclosures as well as completed ones.

For "in-process" foreclosures -- ones still pending with no final action -- no foreclosure sale would have taken place. So including those in the sample would have skewed downward the proportion of wrongful sales.

Garsson declined requests to provide the criteria used to select the cases examined, the definition used to determine erroneous sales, and the number of "in-process" foreclosures included in the sample.

He said that the OCC is withholding the information because the "foreclosure review of the largest servicers is not yet complete."

Walsh's statement that only a small number of wrongful foreclosures had occurred has been quoted widely by opponents of harsh sanctions on the bank.

It was cited by The Securities Industry and Financial Markets Association (SIFMA), the leading securities industry trade organization; individual banks; and in a Washington Post editorial arguing against costly sanctions and stringent terms for loan modifications.

In a recent appearance at the Reuters Future Face of Finance Summit, Walsh said that while the sample showed only a very small proportion of erroneous foreclosures, the absolute numbers -- when the percentage is applied to the total number of foreclosure sales -- could turn out to be "in the tens of thousands."

O. Max Gardner III, a lawyer and expert on foreclosure cases handled in bankruptcy courts, said that the OCC must have used an unfairly narrow definition of a wrongful sale.

He said that in most of the hundreds of cases he has handled, banks misstated the amounts homeowners actually owed, failed to record or properly allocate mortgage payments, and tacked on thousands of dollars in unauthorized and excessive fees.

"We see a problem with the dollars and cents in almost every single bankruptcy case that I file," Gardner said.

The OCC's examinations took place from October 2010 through January, Garsson said.

They also included examiners from the Federal Reserve and the Office of Thrift Supervision. The banks examined were Bank of America (BAC.N), Citibank (C.N), GMAC/Ally Bank, JPMorgan Chase (JPM.N), Wells Fargo (WFC.N), HSBC (HSBA.L), MetLife (MET.N), Aurora Bank, EverBank, OneWest, PNC Financial Services (PNC.N), Sovereign Bank, SunTrust (STI.N) and US Bank (USB.N).

In his banking committee testimony, Walsh also said the examinations showed that the loan servicers had proper documentation to foreclose and that the investor trusts they represented had legitimate ownership of the mortgages.

The conclusion appears to conflict with a recent series of court decisions in which foreclosure cases were thrown out after rulings that the investor trusts that had filed for foreclosure did not own the mortgages and had no right to foreclose.

Records examined by Reuters and interviews with legal aid lawyers indicate that many thousands of fraudulent mortgage assignments were used as evidence to justify foreclosures.

These assignments, meant to prove transfer of ownership of a mortgage, were signed by individuals who had no relation to the banks that had issued the mortgages, and they were dated years after the legal deadlines for making such assignments.

Joe Klein, an attorney with Legal Aid of Collier County, Florida, who specializes in representing indigent homeowners in foreclosures, said that almost without exception the foreclosure cases filed against his clients contained false documents.

"They're always frauds and forgeries," he contends.

Gardner said that in all of the cases he has handled, "I've never seen a complete chain of transfers and of the (mortgage promissory) note" to the trusts that had filed to foreclose.

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