Robo-Signing Battle Heats Up, Again

For months, state and federal bank regulators have fought a bitter, but largely private, battle over how to stop abuses by the mortgage servicing industry. That battle broke into the open Wednesday when Tom Miller, the Iowa attorney general who is leading the effort, booted New York Attorney General Eric Schneiderman from the group’s leadership committee.

In a strongly worded announcement, Miller said that Schneiderman’s opposition to a proposed settlement between regulators and servicers “simply doesn’t make sense, is unprecedented and is unacceptable,” Reuters reported. ”New York has actively worked to undermine the very same multi-state group that it had spent the previous nine months working very closely with.”

The Obama administration has been pressuring Miller and the other AGs to wrap up their investigation quickly, according to The New York Times. But the effort has come under criticism from both sides. In March, the attorneys general of Virginia and Oklahoma threatened to drop out of the coalition, saying it was going too far in punishing mortgage servicers, and usurping the role of Congress by dictating rules governing how the industry would function in the future.

[Related article: Multiple Fronts in Mortgage Industry War]

“I am concerned that what started out as an effort to correct certain practices has morphed into establishing an overarching regulatory scheme,” Oklahoma Attorney General Scott Pruitt told American Banker.

On the other side, regulators including Schneiderman, Massachusetts Attorney General Martha Coakley and Delaware Attorney General Beau Biden say that the investigation has been too narrow, and the proposed settlement fails to go far enough to protect homeowners and reform the industry. Coakley was so unsatisfied with the limitations of Miller’s investigation, and the fact that the proposed settlement would protect servicers from all future lawsuits, that she started her own in July, as we reported.

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“We have made clear that Massachusetts will not sign on to any global agreement with the banks if it includes a comprehensive liability release regarding securitization,” Coakley said.

Miller never punished Pruitt or Coakley for speaking out against the coalition. His decision this week removes Schneiderman from the committee involved in active negotiation with the servicers, but not from the broader coalition. That means that if a settlement is reached, New York state residents who were victims of fraud by servicers will still qualify for compensation.

As attorney general of New York, Schneiderman may be in a unique position to enforce laws concerning mortgage servicers. Most of the major servicers are owned by the nation’s largest banks including Chase and Bank of America, which are headquartered in New York City.

The robo-signing scandal started in 2010 when judges and lawyers across the country discovered that banks—and various companies working for the banks—had forged documents that were used in the foreclosure process. Many of the forgeries were intended to cover up a larger problem: That the huge volume of mortgages written during the housing boom had overwhelmed the system of transferring titles from the original lenders to the investors who eventually bought the loans.

When homeowners stopped making payments, the lack of documentation left banks trying to foreclose on houses they couldn’t prove they legally owned. So they ordered employees to fabricate the necessary documents, according to a report by Florida Attorney General Pam Bondi. The report claims that employees processed thousands of these of documents a day.

Bryan Bly, who signed and notarized documents for Nationwide Title Clearing, claimed he signed up to 5,000 mortgage assignment documents a day, usually without even looking at them beyond the signature line, according to a filmed deposition.

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Editor’s Note: An earlier version of this story noted that “robo-signers forged 5,000 foreclosure documents a day, usually without even looking at them, according to the filmed deposition of Bryan Bly.” In actuality, the documents were assignments registering the transfer of ownership of mortgages, some of which were later used in foreclosure disputes. Mr. Bly never said he created forged documents, and he was never accused of forging documents. Though employed by Nationwide Title Clearing, Mr. Bly signed documents under his own name, but used various titles, including Vice President and attorney. He stated that he used these titles “for signing purposes only.” Our inclusion of his testimony in this article was intended to highlight the vast number of documents he processed during a given day.

Image: Ricardo Diaz, via Flickr.com