Major US banks systematically faked documents in order to speed up foreclosures for hundreds of thousands of homeowners, a mounting body of evidence shows. It appears likely that federal and state laws were broken in the process.
The scandal speaks both to the dimensions of the social crisis and the criminality of the big banks. The immediate cause of the mortgage lenders’ rampant cheating on foreclosure paperwork is the tidal wave of families ruined by the economic crisis—a crisis itself set into motion by the banks’ predatory lending practices. The goal was to get people out of their homes as efficiently and ruthlessly as possible, skating over legal requirements relating to documentation.
Politicians have responded with calls for investigations and temporary suspensions of foreclosures. Speaker of the House Nancy Pelosi and 30 other California representatives this week demanded a federal investigation into the mortgage lending industry in a letter sent to the Justice Department. Democratic Senators Al Franken of Minnesota and Robert Menendez of New Jersey on Tuesday requested an investigation from the Government Accountability Office into the role of government regulatory agencies in allowing the abuses to take place. Attorneys general in a number of states have launched investigations, and foreclosures have been temporarily stopped in a few.
This pre-election concern for embattled homeowners is dishonest to the core. In fact, the entire process of dispossessing Americans from their homes has been facilitated by politicians of both parties, and in particular President Obama, whose bogus “housing rescue” of 2009 did nothing to address the root cause of the disaster: the fact that mortgages are vastly overvalued and not at all symmetrical to the incomes of US workers. This has left millions of homeowners “underwater”—owing more to banks on their homes than the market value.
At the same time, the Wall Street bailout and Obama’s repeated promises that he “would do whatever it takes” to cover the banks’ bad debts has ensured that lenders have no incentive to reduce drastically overvalued principal on bad loans. As a result, foreclosures have accelerated in 2009 and 2010.
The scandal emerged last month after evidence of fraud forced Ally Financial (formerly GMAC Mortgage), the fourth largest US mortgage lender, to stop foreclosures in the 23 states where a court order is needed to take over a property. This was followed last week by similar moves from financial giants JPMorgan Chase and Bank of America. Also implicated is Wells Fargo, and it is generally accepted that all the major banks were using similar methods to speed the dispossession of homeowners.
In the 27 states that do not require judicial review, lenders continue to prosecute ...