Unraveling foreclosure mess

Tom Miller is heading a 50-state investigation into practices that produced flawed and possibly fraudulent foreclosure filings.
Tom Miller is heading a 50-state investigation into practices that produced flawed and possibly fraudulent foreclosure filings. (Charlie Neibergall)
By Brady Dennis
Washington Post Staff Writer
Saturday, October 23, 2010

DES MOINES - Iowa Attorney General Tom Miller, the man heading a 50-state investigation into practices that generated mountains of flawed and possibly fraudulent foreclosure filings, understands the wave of anger the revelations have caused.

He had a visceral reaction himself when he first learned last month about "robo-signers," backdated assignments and other problems that have driven some of the nation's largest banks and servicing companies to halt foreclosures.

"My first reaction was concern, and curiousness as to the extent of it," Miller, 66, said in an interview. "My second reaction was, 'How . . . can they let this happen?' "

Not that the Harvard Law School graduate and seven-term attorney general was entirely surprised. He and Assistant Attorney General Patrick Madigan have been immersed in the abuses and shoddiness of the mortgage industry for years. They led the multistate effort that resulted in a $325 million settlement with subprime lender Ameriquest in 2005, and they helped form another multistate effort aimed at preventing foreclosures, just as the housing market began to nose-dive.

But both men say they have never witnessed the type of fierce public outrage over financial industry wrongdoing since it was learned that some of the nation's biggest banks and servicers had submitted hundreds of thousands of dubious documents to courts across the country.

"This has become a proxy for the frustration with the banks and with the foreclosure process. This was the straw that broke the camel's back," Madigan said. "We didn't pick this issue. It picked us."

In his spacious office in Des Moines, with its view of the golden autumn foliage and the state capital dome beyond, Miller said it remains unclear to him and other attorneys general how deep the problems go. He said they have only begun to gather information and determine the scope of their investigation.

"That's still an open question, how widespread it is," he said. "We just don't know yet."

He and others say the group has been in touch with numerous banks and servicers and plan to contact more firms to inquire about their foreclosure practices. They also are beginning to coordinate with the federal agencies that Housing and Urban Development Secretary Shaun Donovan said this week are undertaking a comprehensive review of the cases. Donovan told reporters that, so far, the investigation has found no evidence of systemic problems in the mortgage servicing industry.

Miller did not rule out the possibility that the large-scale issues with foreclosure filings - which prompted lenders such as Bank of America, GMAC and Ally Financial to halt foreclosures temporarily - could lead to criminal charges. But that's not his current aim, he said. Some criminal matters probably would rest with federal officials.

"Our focus is on the civil side now," he said. "We hope to clear up the problems. We hope to have redress for any homeowners that have been harmed, and we hope to try and leave the situation better than when we came in. We think this has been, in varying degrees, a mess for a long time."

Miller and Madigan have heard horror stories from scores of homeowners trying to navigate the maze of bureaucracy to get help altering their home loans to avoid foreclosure. For years, they have pushed servicers to hire more staff to handle loan modifications for borrowers in trouble. Miller said he hopes the latest uproar prompts the companies to do that.

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