Managers at major banks ignored widespread errors in the foreclosure process, in some cases instructing employees to adopt make-believe titles and speed documents through the system despite internal objections, according to a wide-ranging review by federal investigators.
The banks have largely focused the blame for mistakes on low-level employees, attributing many of the problems to the surge in the volume of foreclosures after the housing market collapsed and the economy weakened in 2008.
But the report concludes that managers were aware of the problems and did nothing to correct them. The shortcuts were directed by managers in some cases, according to the report, which is by the inspector general of the Department of Housing and Urban Development.
The examination is among the most extensive to date of the banks’ foreclosure practices, which caused a national uproar and prompted a $25 billion settlement between the banks and the government that was filed in federal court Monday.
“I believe the reports we just released will leave the reader asking one question — how could so many people have participated in this misconduct?” David Montoya, the inspector general of the housing department, said in a statement. “The answer — simple greed.”
What is more, rather than focusing on misconduct at outside law firms, loan processors and other third parties as some past inquiries did, the department’s investigation takes aim at internal bank processes and the chain of command. It does not name the supervisors or indicate how many knew of the problems, however.
At Bank of America, which until late last year was the nation’s largest mortgage servicer, two employees testified that they had raised concerns about whether documents were being properly notarized, but managers told them to proceed. One vice president said documents in her department were checked only for “formatting and spelling errors,” not the underlying figures or facts in the case.
“Bank of America did not establish effective control over its foreclosure process,” according to the report, to be released Tuesday. And as foreclosure cases multiplied, Bank of America’s management turned up the pressure on employees to move faster. “Despite management representations to the contrary,” the report says, “employee performance reviews demonstrated that Bank of America used defined goals and metrics to evaluate performance-based production in its document execution group.”
At Wells Fargo, now the nation’s largest mortgage servicer and originator, employees told the inspector general’s office that the company’s management had assigned them bogus titles, including “vice president of loan documentation,” even though they had no training in document review. Before becoming vice president, one employee worked at a pizza restaurant.
Wells Fargo’s management quashed an independent study by a manager responsible for overseeing the affidavit process. The study had started to show that the document department was critically understaffed. “The midlevel manager was directed to stop the study and return to the practice of signing affidavits without reading or verifying data,” the report said.
And instead of remedying the problems, Wells Fargo’s management shortened the review period to less than 48 hours instead of five to seven days, the employees said.
The banks have argued that despite document errors, foreclosures were justified because borrowers had fallen behind on their payments. But the report, which focused on foreclosures from 2008 to 2010 of federally backed loans serviced by five major banks, suggests that the banks violated state laws governing the foreclosure process.
In a statement, Bank of America said the report “references activities from over a year ago that have been addressed as we do all we can to modify loans when possible and to ensure foreclosures are fair when they are unavoidable.” A representative for Wells Fargo declined to comment. At Ally, a spokeswoman said that when managers became aware of “procedural deficiencies,” they “took quick and decisive action to address it.”
At the center of the foreclosure controversy, regulators accused the banks of so-called robo-signing, in which employees churned out thousands of documents used to seize homes without reviewing them for accuracy.
A team leader in Ally Financial’s foreclosure department admitted signing up to 10,000 affidavits a month without reviewing them for accuracy, according to the report. The team leader also said he had routinely signed documents used in foreclosure proceedings with “no knowledge of the facts without reviewing the supporting documents.”
At JPMorgan Chase, operations supervisors “routinely signed foreclosure documents, including affidavits, certifying that they had personal knowledge of the facts when they did not,” according to the review.
As at Wells Fargo, employees at JPMorgan Chase took on titles like “vice president of Chase Home” even though “the titles were given by Chase for the sole purpose of allowing individuals to sign documents and came with no other duties or authority.”
In one review of 36 foreclosures at JPMorgan Chase, the bank was able to find documents explaining what the borrowers purportedly owed in only four cases. And in three of those four instances, the underlying documents proved incorrect.
A representative at JPMorgan Chase declined to comment.
Vice presidents at Citigroup told the inspector general that some employees had “regularly” signed foreclosure documents without reviewing them for accuracy. While the foreclosure procedures were improved in 2010, the bank continued to employ outside law firms to file foreclosure documents that were potentially sloppy and plagued by errors, the report concluded.
Some employees signed stacks of documents a day without reviewing them. Unlike the other major servicers, Citi never halted foreclosure sales. In 2010, Citi told regulators that it had found its internal procedures to be sound.
In a statement, Citi said it was “making every effort to ensure that no foreclosure goes forward based on an inaccurate or defective affidavit.”
The five big banks written about in the report face stiff penalties and intense public scrutiny if they fail to live up to the standards of the settlement.
While the broad outline of the deal was announced last month, the mechanics of the agreement that took more than a year to negotiate were laid out in Monday’s filing.
The five banks covered by the settlement — Bank of America, JPMorgan Chase, Wells Fargo, Citigroup and Ally — engaged “in a pattern of unfair and deceptive practices,” the complaint says.
The settlement covers mortgages owned by the banks or serviced by them on behalf of private investors. Mortgages held by government-sponsored enterprises or backed by the Federal Housing Administration do not fall under the scope of the accord.