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Nov 1

Living with Flaws

by Mary Teresa Fowler
Home Foreclosures

Usually, the most effective way to deal with a flaw is to fix it. Yet Ohio's Attorney General is suggesting that banks and lenders take a different approach – at least in one instance. In two letters, one to Wells Fargo and one to Ohio judges, Attorney General Richard Cordray states that he does not want banks and lenders to fix flawed foreclosures.

Flawed Foreclosures

The scandal and fiasco of flawed foreclosures erupted in recent weeks. It came to light that lending officials appeared to be guilty of "robo-signing" (signing without knowledge of details) foreclosure documents. Fifty US states asked for an investigation into the lenders' use of flawed documents.

The assumption was that banks and lenders would be required to fix the flaws. In fact, a few observers had considered the whole scenario to be a deliberate action to mislead home owners. Yet even though it may seem an odd request, Ohio's Attorney General doesn't want them to fix the 'flaw' (or the 'fraud' depending on your point of view).

No Temporary Fixes

Actually, the Attorney General should not be seen as condoning the lenders' actions with his request for no fixes. He believes that the lenders should not offer a 'temporary fix' to a serious issue in a flawed system. The Attorney General does not think that it is sufficient to have another look at the documents and fix any mistakes. He feels that the banks should vacate any court order or motion based on improper paperwork. He believes that lenders should modify loans and work out settlement with borrowers.

Of course, banks and lenders do not share Mr. Cordray's opinion. Indeed, some lenders say that they are finished reviewing documents and are resuming foreclosures. If Ohio's Attorney General makes headway with his demand, it would cause total upheaval to their plans.

Generally, lenders express confidence in their policies and controls. They appear comfortable with their approach to the issue. On October 20, 2010, Wells Fargo Chief Financial Officer Howard Atkins stated that he was confident with his company's policies and controls related to foreclosures. 

"The person at Wells who signs a foreclosure file is the same person as the person who reviews the file, and it is not always done that way in the industry," explains Wells Fargo Chief Financial Officer Howard Atkins.

Confusing Story

Yet the entire situation can be confusing because there can be discrepancies between lenders' words and their actions. For example, despite the insistence of Wells Fargo Chief Financial Officer about their perfect system, they announced on October 28, 2010, that they were resubmitting affidavits for 55,000 pending foreclosures.

It remains to be seen if other attorney generals feel the same way as Mr. Cordray. More than one attorney general, however, has referred to a 2008 settlement. At that time, the Bank of America agreed to an $8.4 billion loan-modification program following a probe of its Countrywide Financial unit. The issue revolved around predatory lending practices.

The probe into the foreclosure fiasco is still being played out at the moment. Of course, the issue of flawed foreclosures is no game or no slight error, and flawed foreclosures are having huge consequences for US home owners.

Big Banks Told Not To 'Fix' A Fraud

Do You Think That Lenders Should Offer Loan Modification?

Image Courtesy of eforeclosuremagazine.com

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