Congress will pass a bill to “forgive” banks the potentially criminal errors made in foreclosure proceedings, a senior CNBC editor predicts.
In a blog column Friday, John Carney argues that lawmakers in DC won’t allow the country’s largest issuers of mortgages to suffer financial losses following revelations of numerous mishandled foreclosure proceedings, especially when bailing them out this time “won’t cost taxpayers a dime.”
Here’s what is going to happen: Congress will pass a law called something like “The Financial Modernization and Stability Act of 2010” that will retroactively grant mortgage pools the rights in the underlying mortgages that people are worried about. All the screwed up paperwork, lost notes, unassigned security interests will be forgiven by a legislative act….
The [foreclosure] crisis is not driven by economics. It is driven by legal rights. And there’s simply zero probability that the politicians in Washington are going to let Bank of America or Citigroup or JP Morgan Chase fail because of a legal issue.
Carney predicts that the lame-duck session of Congress following this November’s elections will pass the law. “Every member of Congress … who has been voted out of office will cast a vote for the bill. And the President will sign it.”
Major banks’ stocks have suffered losses this week as an increasingly large body of evidence has emerged suggesting that banks and their contractors may not have done the most basic vetting of foreclosure paperwork, instead using “robo-signers” to rubber-stamp whatever foreclosure applications were brought forward.
The Associated Press reported this week:
In an effort to rush through thousands of home foreclosures since 2007, financial institutions and their mortgage servicing departments hired hair stylists, Walmart floor workers and people who had worked on assembly lines and installed them in “foreclosure expert” jobs with no formal training, a Florida lawyer says.
In depositions released Tuesday, many of those workers testified that they barely knew what a mortgage was. Some couldn’t define the word “affidavit.” Others didn’t know what a complaint was, or even what was meant by personal property. Most troubling, several said they knew they were lying when they signed the foreclosure affidavits and that they agreed with the defense lawyers’ accusations about document fraud.
The result has been a steady stream of allegations of wrongly foreclosed homes. In one notorious incident last month, a Florida man who had bought his home for cash and carried no mortgage was stunned to find his home in foreclosure. In another incident, a woman who was behind on payments but not in foreclosure called 911 when she heard what she thought was a burglar, but was in fact a JPMorgan contractor coming to change the locks on her home.
In many instances, those shortcuts and mistakes may have violated laws. Attorneys general in all 50 states have now launched probes into foreclosure practices. Bank of America has halted foreclosure proceedings in all states, while Ally Financial (formerly GMAC), JPMorgan and others have announced partial suspensions.
Carney admits that, with outrage growing over unscrupulous foreclosure practices, a second bailout of banks would be politically unpopular.
“Will the public be outraged?” he writes. “Probably. Financial bloggers will scream from the high heavens against another bailout of the banksters. Congress may try to create some cost for banks in exchange for the forgiveness, perhaps requiring more mortgage modifications. But the much feared [foreclosure] apocalypse will be laid to rest.”