Countrywide Financial adds to Bank of America's Foreclosure Debacle
First there was the Mortgage Crisis that nearly toppled the American economy in 2008. Essentially due to overestimated property values and an overwhelming proliferation of subprime lending, when the
mortgage bubble burst in 2007 hundreds of thousands of homeowners found themselves unable to pay their home mortgages and in the throws of messy foreclosure litigation.
Now three years later crisis has manifested itself again in the form of a foreclosure scandal - fueled once again by fraudulent, irresponsible and selfish bank behavior. Foreclosure proceedings are purposely lengthy and deliberate, designed with several steps of reviews and transferring of paperwork. Many states even require the signature of a judge before a foreclosure can be finalized. However, with hundreds of thousands of foreclosures to file, banks started skirting their review process and began using "robo-signers" or unqualified employees to sign paperwork in order to expedite then foreclosure process.
In October, Bank of America and JP Morgan's shoddy practices were uncovered, resulting in an immediate halt of all their foreclosure proceedings while a massive probe was conducted by the Federal Reserve and attorney generals from all fifty states.
Ironically - or maybe not so surprisingly - Bank of America and JP Morgan were two of the banks who received aid through the
federal bailout in 2008. Now they show their appreciation to the taxpayers whose tax dollars allowed them to stay afloat by kicking them out of their homes as quickly as possible.
An added twist to this already incredibly convoluted situation is the resurfacing of one of the central causes of the mortgage crisis: the mortgage backed security. Designed as a safety valve for banks, mortgage backed securities are bundles of home loan mortgages that are pooled together, then split into shares and sold off to investors. By selling off the mortgages banks can then reinvest and offer mortgages to more people. If the process of securitization did not exist banks would not have enough funds in their coffers to offer loans to the majority of prospective homeowners.
One of the central causes of the Mortgage Crisis was that banks no longer had an incentive to be selective about their lending process. If someone defaulted on their loans it was the investors who would take the hit, not the banks. This is what led to the proliferation of subprime lending. Banks were offering home mortgage loans to almost anyone, regardless of whether they would realistically be able to pay it back or not.
Now it seems that mortgage backed securities has had a hand in the Foreclosure Crisis as well. During a bankruptcy hearing in
New Jersey it was discovered that Countrywide Financial, once the nation's largest mortgage lenders who is now owned by BoA, was not passing along mortgage ownership documents necessary for the securitization process. The Judge in the case ruled that since the debt note was never passed along it was not enforceable, thus bringing into question the ownership of thousands of mortgages.
Countrywide Financial, the largest and most notorious subprime originator, claims to have securitized 96% of their loans. To avoid fraudulent transfers, and to protect investors, there are very specific requirements for passing these notes along the ownership chain. Essentially, without properly transferred ownership mortgage-backed securities are not backed by...anything.
Investors in Bank of America and JP Morgan have feared that the banks may be required to buy back billions of dollars in mortgages, but before that can happen the question remains, who really owns these securitized home mortgages? Before there can be any resolution to the Foreclosure Crisis this incredibly complex question must be answered. This crisis is surely far from over.
By: Javi Calderon
