U.S. probe targeting foreclosure documents
Wednesday, October 20, 2010
Federal investigators are exploring whether banks and other financial firms broke U.S. law when using fraudulent court documents to foreclose on people's homes, according to sources familiar with the effort.
The criminal investigation, still in its early days, is focused on whether companies misled federal housing agencies that now insure a large share of U.S. home loans, and whether the firms committed wire or mail fraud in filing false paperwork.
Although prosecutors across the country previously opened a patchwork of inquiries, a broader federal effort targeting companies that improperly evicted people from their homes is only now taking shape. This comes at the same time that investors have begun to hold firms accountable for selling securities composed of mortgages that were improperly serviced.
As part of this reckoning, the Federal Reserve Bank of New York has joined with some of the country's largest investors in seeking to force Bank of America to buy back about $47 billion worth of troubled home loans packaged into bonds by Countrywide Financial, which is owned by the bank. Along with its partners, the New York Fed, which invested in some of these bonds during the rescue of the financial system, is raising the prospect that Bank of America could be sued unless losses are recouped.
In recent weeks, senior lawmakers have called for a federal probe into the use of flawed foreclosure documents and improper practices. But Obama administration officials offered few details about how they were proceeding.
In addition to the probe, the administration is seeking to send the message that it will hold banks accountable for illegal foreclosures, despite deflecting calls by some lawmakers and consumer advocates for a national moratorium on home seizures until cases can be reviewed.
Members of President Obama's Financial Fraud Enforcement Task Force and other administration officials are scheduled to meet Wednesday to discuss the foreclosure crisis. That is to be followed by a White House news briefing led by Housing andUrban Development Secretary Shaun Donovan.
"In more than 25 years dealing with major financial crisis issues, I have never seen this many agencies focused on a single issue," said Andrew Sandler, a lawyer who works on government investigations. "We are beginning to see signs of extensive governmental investigation that may also have criminal law implications."
Federal law enforcement officials usually have little authority to prosecute cases involving foreclosure law because they are largely in the states' domain. But according to sources familiar with the investigation, the federal government has both an interest and the grounds to prosecute the abuses because housing agencies under HUD, particularly the Federal Housing Administration and Ginnie Mae, play a major role in insuring U.S. home loans.
After reports surfaced in recent weeks that large banks filed court documents across the country that had not been properly prepared or reviewed, federal investigators want to determine whether similar paperwork was submitted to housing agencies to get insurance payouts, the source said.
In some cases, bank employees have acknowledged signing documents without reviewing them. If similar filings were made to housing agencies, this could violate federal law, which makes it a crime to lie about substantive matters to the federal government.
Investigators are also looking at whether the transfer of mortgage and foreclosure documents through the mail and computer networks would allow the federal government to make a legal case on charges of mail and wire fraud.