The uproar over bad conduct by mortgage lenders intensified on Tuesday as lawmakers in Washington requested a federal investigation and the attorney general in Texas joined a chorus of state law enforcement figures calling for freezes on all foreclosures.
House Speaker Nancy Pelosi and 30 other Democratic representatives from California told the Justice Department, the Federal Reserve and the comptroller of the currency that “it is time that banks are held accountable for their practices.”
In a request for an inspection into questionable foreclosure practices, the lawmakers said that “the excuses we have heard from financial institutions are simply not credible.”
Officials from the federal agencies declined to comment.
Texas attorney general Greg Abbott, a Republican, sent letters to 30 lenders demanding they stop foreclosures, evictions and the sale of foreclosed properties until they could provide assurances that they were proceeding legally.
Both developments indicated that concerns about flawed foreclosures had mushroomed into a nationwide problem scarcely two weeks after the country’s fourth-biggest lender, GMAC Mortgage, revealed that it was suspending all foreclosures in the 23 states where the process requires judicial approval.
Some of the finger-pointing was also being directed back at Congress. The Ohio secretary of state, Jennifer Brunner, suggested on Tuesday that a bill passed by Congress last week about notarizations could facilitate foreclosure fraud.
Dubious notary practices used by banks to justify foreclosures have come under scrutiny in recent weeks as GMAC and other top lenders suspended homeowner evictions over possible improper procedures.
Brunner worries that the legislation would allow the lowest standard for notaries to become a nationwide practice. She said she also worried that the changes were coming in the middle of a foreclosure storm where people could lose their homes improperly.
“A notary’s signature is that of a trusted, impartial third party, whose notarization bolsters the integrity of the document,” Brunner said. “To take away the safeguards of notarization means foreclosure procedures could be more susceptible to fraud.”
As banks’ foreclosure practices have come under close examination, problems with notarizations on mortgage assignments have emerged. These documents transfer the ownership of the underlying note from one institution to another and are required for foreclosures to proceed.
In some cases, the notarizations predated the preparation of the legal documents, suggesting that signatures were not reviewed by a notary. Other notarizations took place in offices far away from where the documents were signed, indicating that the notaries might not have witnessed the signings as the law required.
Notary practices vary from state to state and the bill would essentially require that one state’s rules be accepted by others.
Brunner pointed out that some states had adopted “electronic notarization” laws that ignored the requirement of a signer’s personal appearance before a notary.
“Many of these policies for electronic notarization are driven by technology rather than by principle, and they are dangerous to consumers,” she said.
Aderholt had introduced the bill twice before and both times it passed the House of Representatives but not the Senate. Aderholt reintroduced the bill last October and it passed the Senate on Sept. 29. It is awaiting US President Barack Obama’s signature.
Aderholt’s press secretary, Darrell Jordan, said there was no connection between the timing of the bill and the current notarization problems with foreclosures. In a statement announcing the bill’s passage, Aderholt said: “This legislation will help businesses around the nation by eliminating the confusion which arises when states refuse to acknowledge the integrity of documents notarized out of state.”
Last week, JPMorgan Chase & Co and Bank of America Corp joined GMAC in suspending foreclosures in the states where they must be approved by a judge. The judicial states do not include California or Texas.
However, Abbott told lenders in letters dated Oct. 4 that if they used so-called robo-signers — employees who signed thousands of foreclosure affidavits a month, falsely attesting that they had reviewed the material — it would be a violation of state law.
As a result, he wrote, “the document and therefore the foreclosure sale would have been invalid.”
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