Late into 2010, the US economy struggled to recover from the recession that began in 2008; millions of workers kept looking for jobs; and families continued to fight to make ends meet. So, just when you thought things couldn't possibly get worse, it was discovered that millions of homeowners may have lost their homes in foreclosure illegally. The discovery may have long-lasting impacts on all of us.
The Scandal Exposed
What happened, exactly? Like any scandal and cover-up, the foreclosure debacle is a long, involved process that may take months or years to unravel completely. But here are some of the key points.
During the housing boom in the early to mid 2000's, banks and other lenders made millions of loans, mortgages, and refinancing deals with buyers and homeowners. Some claim many lenders practiced predatory lending and made loans and mortgages for homes buyers couldn't afford or based on inflated home and property values.
Regardless, as part of the boom, banks and lenders packaged thousands possibly millions of these loans and sold them to investors all over the world. In 2008-2009, the US economy hit the skids and the housing bubble burst. Millions of homeowners couldn't sell their homes because they owed more on the mortgage than what their homes were worth. Many more lost their jobs and couldn't pay their mortgages.
The Tipping Point
The result: Banks and lenders began foreclosing. This is where things started to unravel. With so many foreclosures happening at once, and with so many people and companies holding mortgages as investments, banks started cutting corners to make the foreclosure process work quickly. For example:
- Bank employees, foreclosure companies, and robo signers signed, approved, or notarized thousands of foreclosure documents per day, often without reading them or checking them for accuracy
- Foreclosure documents were forged, and non-existent titles and fake social security numbers were used
Why? Before they can foreclose, banks and lenders need to prove they have the legal right to do so. They have to have an ownership interest in the home. The problem is, many mortgages were sliced into many parts and sold to multiple investors, so it was impossible to find out quickly who actually owned the home in question.
So, in the end, the banks forged or created the documents they needed.
Governments & Banks React to the Scandal
The scandal has bank/mortgage giants like Bank of America and JPMorgan Chase and others to stop or freeze foreclosure actions in several states. Several US Senators sent a letter to President Obama asking the federal government to take action in the scandal, possibly by calling for a national moratorium on foreclosures.
Government agencies like the Federal Reserve Board investigated the problem. So did the attorneys general in 50 states. They also began taking hard looks at their state laws regulating mortgage lending.
Next, Imapct of the Scandal