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October 31, 2010
More on the Mortgage Mess
BenBernanke, chairmanof the FederalReserve, said recently that federalregulators are“looking intensively” at banks’ foreclosure practices. Aninvestigation is long overdue, though itshouldn’t take a lot of digging.Consumer advocates, the press, investors and homeowners have already compiled a compellinglist of transgressions: conflicts of interest that have banks pushing foreclosures, without a good-faith effort tomodify troubled loans. Dubious fees that inflate mortgage balances. The hundredsof thousands of flawed foreclosure affidavits that violated homeowners’ legalprotections. Themisplaced documents. And it goes on.For years these problems have beenthe focus of research reports,Congressionaltestimony and
court cases. Regulators, however, looked the other way, which is how we got intothe mortgagemess. What makes the latest scandals sooutrageous is that evenafter the financialmeltdown andtaxpayer bailout— and allthose vows about accountability — the regulators are stillbehind thecurve. The fundamentalproblem is that the banks’ drive toprofit from the foreclosure processis alltoooften at odds with the interests of mortgage investors, homeowners and the economy’shealth.That is a big reasonthat the Obama administration’s antiforeclosure effort, with its voluntary participationby banks, has fallen soshort.Here is the background. The big banks — Bank of America, JPMorgan Chase, Citibank, WellsFargo— service most of the nation’s home mortgages for investors whoown the loans. They arepaid a fee by the investors and alsomake money from fees ondelinquent loans.Servicers are obligated tomanage the loans inthe best interest of the investors. That meansmodifying a troubled loan, if reduced payments would bring inmore money over time than aforeclosure. Or foreclosing if a borrower cannot make the payments on a modified loan.If only it worked that way inpractice.
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