An easy fix: Lenders must put people first

Sunday, October 17, 2010; G1

Really, should any of us be surprised at the recent events surrounding home foreclosures?

Bank of America has said it will halt foreclosure sales nationwide after reports that mortgage loan servicers signed thousands of foreclosure documents without verifying the information.

A spokesman for J.P. Morgan Chase said the company has stopped seeking judgments in 41 states while it reviews all paperwork. GMAC Mortgage is conducting independent reviews of its foreclosure procedures in all of the states.

Tom Miller, the attorney general of Iowa, is leading a 50-state coordinated review of the practice within the mortgage servicing industry known as "robo-signing." The task force, which also includes state banking and mortgage regulators, will investigate whether mortgage servicers improperly submitted documents in support of foreclosures.

"This is not simply about a glitch in paperwork," Miller said.

No, this is not a glitch. The foreclosure crisis reminds us again that there is a fundamental problem in the mortgage industry. As a society, we claim we value homeownership. But that does not appear to be true anymore for many lenders since mortgages became akin to baseball trading cards, and since removing people from their homes became something like an assembly line.

The only way to unbundle this mess is case by case, treating each borrower as an individual, not as a case number.

In the mortgage trading game, millions of home loans have been sold and resold at warp speed. During the housing boom, lenders created mortgage mills and put people into overpriced homes with mortgages that were difficult to understand and even more difficult to maintain. They often didn't bother to verify incomes or an applicant's long-term ability to keep up with the mortgage payments.

Now we have foreclosure factories where many of the people who are supposed to ensure the process is fair and legal simply rubber-stamped the paperwork that led to kicking homeowners to the curb.

Some politicians are calling for a nationwide halt of foreclosures, while others are saying that slowing down the process will further cripple the U.S. economy.

Then there's the criticism of the Obama administration's response, which frankly does appear lame. The Federal Housing Finance Agency announced it has directed Fannie Mae and Freddie Mac to "implement a four-point policy framework detailing FHFA's plan, including guidance for consistent remediation of identified foreclosure process deficiencies."

In plain language (something that eludes many government officials), the agency that regulates Fannie and Freddie is asking the mortgage servicers to double-check the foreclosure paperwork and review their procedures to assure everything is in compliance with the law.

"The country's housing finance system remains fragile, and I intend to maintain our focus on addressing this issue in a manner that is fair to delinquent households, but also fair to servicers, mortgage investors, neighborhoods and, most of all, is in the best interest of taxpayers and housing markets," said Edward J. DeMarco, the agency's acting director.

That word "fair" is being used quite a bit in this latest crisis. As Miller, the Iowa attorney general, put it: "Since this issue affects peoples' homes and has clear economic implications, this probe and its outcome need to be fair both to homeowners and also to lenders."

There is nothing fair about what's happened in the mortgage industry.

Fair would be to slow down. Fair would be to hire even more people, as many as it takes, to spend a fair amount of time reviewing the cases of people in mortgage trouble. Fair would be carefully examining every single sheet of paper in foreclosure files.

The salient feature of the robo-signing was that lenders were not treating each foreclosure with individual attention. Instead, they were looking for a way to mass-produce foreclosures just as they mass-produced mortgages.

There is no easy solution for courts, governments or lenders except to give up on mass production of both home mortgages and foreclosures.

If there isn't enough money to be made in this slow-down solution for major banks, then tough. They need to fix what they broke.

Handle mortgages the way they should have been handled. That is, if we really do still believe that homeownership is an integral part of the America dream.

The mission now should be to create "sustainable" mortgages people can afford. Make a greater effort to provide loan modifications for those for whom loan modifications will work. For those who can no longer afford to keep their homes, make short sales a less frustrating process.

And if a foreclosure is ultimately deemed necessary, don't send the person's paperwork off to a foreclosure factory. Handle it with care.

Readers can write to Michelle Singletary c/o The Washington Post, 1150 15th St., N.W., Washington, D.C. 20071. Her e-mail address is Comments and questions are welcome, but because of the volume of mail, personal responses may not be possible. Please also note comments or questions may be used in a future column, with the writer's name, unless a specific request to do otherwise is indicated.

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