Botched foreclosures come as no surprise

By Dale McFeatters

Since the start of the recession in December 2007, more than 2.5 million homes have been foreclosed on and their owners evicted. The Associated Press says the banks seized 816,000 homes through the first nine months of this year and are on track to foreclose on 1.2 million by year's end.

As the country is now learning, many of these foreclosures were accomplished through questionable and even fraudulent paperwork. Major lenders have acknowledged that they signed off on thousands of foreclosure documents without reading them, let alone verifying for accuracy and authenticity.

The lenders argue that they were blindsided by the magnitude of the housing implosion. "But interviews with bank employees, executives and federal regulators suggest that this mess was years in the making and came as little surprise to industry insiders and government officials," say New York Times reporters Eric Dash and Nelson Schwartz.

In retrospect, the root cause of the botched foreclosures was simple. Originating mortgages, bundling them and reselling the packages as securities was immensely profitable. Servicing the loans ― basically keeping track of all that paper ― was not.

Dash and Schwartz say the task of servicing the mortgages was left to low-paid, poorly trained and inexperienced workers ― "Burger King hires," in the dismissive description of one bank ― or outsourced to contractors and subcontractors whose workforces apparently weren't much better.

In a decade in which our financial institutions seemed to go out of their way to invent pitfalls for themselves, this may be one of the bigger ones.

The scandalously casual handling of foreclosures has quickly escalated from just being a massive case of sloppy paperwork to the potential wholesale violation of state laws. Even criminal charges are not out of the question.

The big lenders have been forced to halt foreclosure proceedings in many states, all 50 of them in the case of Bank of America, while they call in accountants and lawyers to try to get a grip on their document handling.

The mess has also resulted in a rare joint investigation by the attorney generals of all 50 states and the District of Columbia. The banks could potentially face billions in fines and damages. And evidently, for many in the industry this unfortunate outcome will come as no great surprise.

Dale McFeatters is an editorial writer of Scripps Howard News Service (www.scrippsnews.com).