Improper foreclosure has become the latest buzzword within the real estate industry. It has come to the forefront based on an investigation by the Federal Reserve after Attorney Generals offices from all 50 states formed a committee to review bank foreclosure practices.
The Feds investigation of improper foreclosure has resulted in a mandate that will require at least 17 major mortgage lenders to provide monetary compensation to homeowners illegally forced from their home.
On April 13, 2011, Federal Reserve Chairman, Ben Bernanke released a report stating "banks policies, procedures, and internal controls related to foreclosures" were under scrutiny. The Fed also claims they are ordering banks to conduct audits to assess the number of homeowners who may have been able to avoid foreclosure during 2009 and 2010.
Although monetary awards and audit procedures have not been worked out, banks may finally have to answer for their lousy accounting and recordkeeping practices. As it goes with government bureaucracy it will more than likely take years before foreclosed homeowners will ever see a dime.
What's interesting is that four of the mortgage service providers under investigation participate in Obama's Making Home Affordable program. This program was unveiled in 2009 as a way to help homeowners avoid foreclosure through loan modification.
When MHA was launched it claimed the program would help upwards of 4 million homeowners struggling to meet loan obligations. In recent months, Making Home Affordable has received unfavorable press due to "disappointing" results. To date, less than 250,000 homeowners have entered into permanent loan modification.
To add insult to injury, homeowners across the nation are organizing class action lawsuits against lenders for wrongful foreclosure. Last October, a group of California homeowners took legal action against Bank of America and charged them with "acting contrary to intent and spirit of the TARP program."
TARP refers to the Troubled Asset Relief Program signed into law by President Bush in 2008. This program was established to provide funds to purchase assets and equity from banks in order to strengthen the financial sector.
Mortgage lenders that receive TARP funds are mandated to provide foreclosure alternatives to minimize the number of repossessed properties. The California homeowners' complaint against Bank of America makes accusation that BOA intentionally postponed borrowers' requests to obtain permanent loan modification or enter into mortgage refinance. In turn, this deprived homeowners of federal bailout money that could have prevented foreclosure.
As if this weren't enough, many of the major lenders named within the Fed report have been accused of hiring "robo-signers" to falsify mortgage documents. According to a report published at the Huffington Post, not only were employees forging bank managers names to foreclosure notices, they were also covering up the fact the lenders did not possess sufficient documentation to prove they owned the loans and allowed to conduct lawful foreclosure.
If these allegations are true, lenders and their Wall Street investment partners could lose billions by being forced to buy back faulty and defaulted mortgages. Everything about the mortgage industry is headed toward total dishevel that could force the financial sector into a rapid downward spiral.
It's long overdue for banks to be investigated for improper foreclosure. Homeowners and investors have endured extreme financial upheaval and many have lost their life savings due to unscrupulous lending practices. While investigations and restitution will likely take years to come full circle, hopefully one day displaced homeowners will receive due justice.