Robo-Sign Controversy: Another Obstacle to the Already Slow Recovery of Housing Sector
The United States’ housing sector has been slowly recovering from the huge debacle during the recession but the growth has been much slower due to controversies surrounding foreclosures in the country. In late 2010, it has been found out that lenders and banks are not properly reviewing consumers’ mortgages. The robo-sign case has been first exposed in 1999 by mortgage fraud activists, where they referred the practice as robotic process of approving mortgage documents related to foreclosures. The robo-signers are persons who sign notary affidavits even without sufficient facts to support the foreclosure. Huge institutions like JP Morgan Chase, GMAC and Bank of America suspended their foreclosures across the country to investigate employees who are involved in the scandal.
The foreclosure statistics in the last quarter of 2010 showed that there had been a significant increase in foreclosed properties which alarmed the government and forced the Congress to amend the law for courts to accept electronic notarizations and notarizations outside of the state. This is to control the number of foreclosures that the bank could handle and at the same time carefully review all documents before the bank possesses the properties. Banks suspended foreclosures after the controversy has been exposed because this would leave negative effects in their institution and cripple the financial sector as well. Owning a lot of bad mortgages through foreclosures is a very costly process and with improper foreclosures, banks risk themselves in millions of dollars in debt. The worst case scenario though is that multiple banks would sell one foreclosed home because of banks’ inability to track which homes they foreclosed.
GSEs also took measures and asked banks and lenders to review all unjust foreclosures. They sent detailed instructions before they continue dealing with them. This is to regulate all Freddie Mac and Fannie Mae foreclosures and to ensure that the interest of consumers is still protected. After the investigations, banks fired all employees who were proven to be robo-signers. On the other hand, attorney generals in several states filed lawsuits seeking fines from banks for customer restitution. This could potentially cost lenders a lot.
The robo-sign controversy may have slowed down the recovery from recession but having it exposed early is also beneficial that it avoided the crippling of the financial sector before it’s too late. Further widespread of robo-signing could lead another economic downturn which would make recovery harder for the American people.
