“I believe the reports we just released will leave the reader asking one question: How could so many people have participated in this misconduct?” David Montoya, HUD inspector general, said in a statement. “The answer: simple greed.”
HUD investigators launched their inquiries soon after news of the banks’ practices caused a national uproar in late 2010, and government officials used their findings as they negotiated a recent landmark $25 billion settlement with the banks.
HUD reviewed foreclosure practices at all five banks involved in the recent settlement — Bank of America, JPMorgan Chase, Wells Fargo, Citigroup and Ally Financial. They issued subpoenas, pored over personnel files, conducted interviews with scores of employees and examined the quality control measures — or lack thereof — at the banks’ mortgage servicing units.
Repeatedly, according to the report, investigators were hampered by poor record-keeping at the banks, sluggish responses to requests for documents and an unwillingness to make employees available for interviews or to allow them to answer detailed questions at the virtual foreclosure factories where they worked.
Nevertheless, investigators pieced together a picture of a deeply flawed system riddled with errors, where employees often had little or no training, where managers encouraged wrongdoing and where haste trumped all else.
At Bank of America, for instance, performance reviews revealed that employees often were judged based on how quickly they worked and how many files they churned through, the HUD report stated. One manager noted in an employee review: “Your stats so far this year are as follows: Affidavits 46.97 per hour (standard is 49 per hour), Assignments 54.74 per hour (standard is 51 per hour) and DocEx 49.67 per hour (standard is 46 per hour).”
At Chase, operations supervisors “routinely signed foreclosure documents, including affidavits, certifying that they had personal knowledge of the facts when they did not,” nor did those supervisors bother to verify the accuracy of the documents they signed, according to the report.
In addition, the supervisors said in interviews with HUD officials that they often signed affidavits as an “assistant secretary” or “vice president” of Chase, when those were not their official titles. Rather, they were given those titles by Chase for the sole purpose of allowing them to sign legal documents. The titles came with no other duties or authority, the report said.
In one review of 36 foreclosure filings, Chase was able to provide documents showing the amount the borrowers presumably owed in only four of the cases. Of those, three proved inaccurate, investigators said.
At Wells Fargo, according to the report, numerous employees hired as so-called robo-signers had little or no education beyond high school and little or no experience in banking or real estate. One employee with the title of “vice president of loan documentation” had previously worked at a pizza restaurant and as a bank teller. Another had been a department store cashier and a day-care worker.
At Wells Fargo, the report said, employees faced ever-shrinking time frames to process the tidal wave of paperwork. In one March 2008 e-mail, employees were told that they would be required to sign the more than 100 affidavits they received at 9 a.m. each day by noon the same day.
One mid-level manager at the bank told investigators that she discreetly undertook a two-week study in which she and her staff actually read and verified the documents before signing them. Her goal, she said, was “to conclusively show that her department was understaffed and what staffing level would be required to properly prepare and sign the affidavits.”
Within a few days, however, higher-level managers noticed a growing paperwork backlog. “The midlevel manager was directed to stop the study and return to the practice of signing affidavits without reading or verifying data,” the HUD report said.
At Citigroup, some employees told investigators that they signed as many as 200 documents a day and that the numbers grew over time. One employee “indicated that he would sometimes receive 1- to 2-inch stacks of documents multiple times in a day,” the report said.
At Ally Financial, one employee “routinely” signed 400 foreclosure affidavits per day and up to 10,000 affidavits per month, and notaries routinely approved documents for which they didn’t witness the signatures.
“The memorandum references activities from over a year ago that have been addressed as we do all we can to modify loans when possible and to ensure foreclosures are fair when they are unavoidable,” Bank of America spokesman Rick Simon said in response to the HUD report’s findings.
Citigroup responded that the bank has strengthened the way it processes foreclosures. “Since 2007, Citi has worked hard to help families in their efforts to avoid potential foreclosure and stay in their homes,” the bank said in a statement. “Further, as the volume of foreclosures increased in 2009, Citi self-identified opportunities to improve its foreclosure processes and proactively undertook actions to enhance its policies and controls. These included: consolidating operations into one central unit; significantly reinforcing the size and training of our staff; and tightening control processes.”
The long-awaited settlement with the banks filed Monday in federal court is intended in part to end the unsavory practices detailed by HUD investigators. In addition to the $25 billion designated to help struggling borrowers and compensate foreclosed homeowners, the deal includes measures aimed at forcing banks to overhaul the way they pursue foreclosure cases and the way they deal with homeowners hoping to modify loans.
The settlement, which must be decided on by a federal judge, also creates a full-time monitor’s position to oversee and enforce the terms of the agreement if banks fail to make the required changes.