As the mortgage crisis continues to grind on, federal regulators have issued what is arguably their strongest rebuke yet to some of the nation’s largest banks, releasing a report last week finding that leaders of the banks themselves – and not low-level employees or outside law firms – were responsible for faulty foreclosure practices that resulted in some families being wrongfully foreclosed upon.
[Credit Calculator: Use Credit.com's Free Credit Report Card]
In a series of investigations of some of the biggest banks, including Citigroup, Ally Financial, JP Morgan Chase, Bank of America and Wells Fargo, the Department of Housing and Urban Development’s inspector general’s office found that top bank managers knew there were problems in the documentation of mortgages, but in some cases pressed subordinates to ignore those problems and process foreclosures at an even faster pace.
“I believe the reports we just released will leave the reader asking one question — how could so many people have participated in this misconduct?…The answer — simple greed.” David Montoya, HUD’s Inspector General, told The New York Times.
The agency’s investigations served as the basis for the federal government’s settlement with the banks over faulty foreclosure practices, which we covered here, and which requires the banks pay up to $25 billion in fees and damages. They were also the first federal inquiries to focus on the banks themselves, rather than third-party servicers and law firms.
[Related Story: When to Say 'No' to a Mortgage Modification]
The reports published last week offer insight into internal bank operations right at the time the mortgage bubble was bursting, starting in October 2008 through September 2010. During that time, supervisors at JP Morgan Chase routinely signed court affidavits swearing that they had personal knowledge that documents in foreclosure cases were correct, when actually they didn’t, according to the report.
Such checks were important, the study finds, because the banks’ loan paperwork was riddled with errors. Out of 36 foreclosures filed by Chase, the bank could find documents proving what borrowers owed in only four.
In three of those cases, the documents were incorrect. A spokesman for JP Morgan Chase declined to comment.
Employees at Citigroup told the inspector general that they signed over 200 documents a day, and that the number of documents they had to sign increased over time.
“The process CitiMortgage used before the consolidation did not ensure that its foreclosure documents were properly executed before it submitted them to courts,” according to the report.
[Featured Products: Research and Compare Mortgage Rates at Credit.com]
“Since 2007, Citi has worked hard to help families in their efforts to avoid potential foreclosure and stay in their homes,” Citigroup said in a statement to the Washington Post.
Image: 401k, via Flickr