Banks Agree to Foreclosure Reforms (a.k.a. Hell Freezes Over)

Last night, a House Courts of Justice subcommittee voted 4-3 to “table” SB 163, a consumer protection bill which created a cause of action against lenders who obtain a foreclosure using a fraudulent or forged document.

What a road we have traveled …

In the summer of 2010, years into the U.S. foreclosure crisis, national media (and some proactive state attorney generals) began uncovering the largest corporate scandal of our time:  the wholesale fabrication of legal instruments by “robo-signers” charged with facilitating the foreclosure of residential properties.

In nearly all cases, the subject properties had been security on loans that were made between 2004-2007, then repackaged on the secondary market and “securitized” such that different pieces of the portfolio were bought by different investors.

Then it all unraveled.  When the real estate market went upside down, millions of those high-risk loans went into default.  In some cases, the families stopped paying the mortgage or abandoned a house with no equity.  In other cases, they fought for a loan modification so they could escape an above-market rate.

In all cases, they were at the mercy of those investors who now “owned” the mortgage, even if they didn’t have the paperwork to prove it.  Enter, Robo-signers.

Years later, the five major national banks have entered settlements with the various Attorney Generals.  As part of that settlement, they agreed to pay $25 billion to the states for the damage caused by illegal and improper foreclosures.  At least $500 million of that is headed to Virginia (IMO that is a suspiciously meager sum when you consider the extraordinary number of foreclosures in northern Virginia alone).

Notably, and improperly, the original Senate budget allocated $68 million from the homeowner relief in order to make a one-time bonus payment to state employees.  No, I don’t understand that logic either.

All that brings us to SB 163, which passed the Senate on a 28-12 vote.  The bill was supported by a variety of grass-roots groups, from the Virginia Organizing Project (liberal) to the Virginia Tea Party Patriots (conservative).

It was prospective, meaning it dealt with foreclosures after July 1, 2012.  In that respect, it merely prohibited foreclosures using a false  document and awarded damages and attorney fees to a homeowner that suffered actual damages.

Who would be opposed to that?

Of course, the banking industry (which last year was denying there was any “robo-signing” in Virginia) opposed our consumer protection bill, even though it merely required them to follow the rules on a going forward basis.

That was just enough to hold the line in the House Courts committee — and the bill went down on a 4-3 vote.

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  • isophoroneblog

    I do wonder how much this settlement will really benefit homeowners who were wrongly foreclosed upon.

    For a good history of the mortgage meltdown, check out the book “Reckless Endangerment” by NY Times reporter Gretchen Morgenson.

  • Chap Petersen

    Thanks ISO. I’ll try to remember to pick that up. The book by Michael Lewis “Big Short” is a great book on the mortgage market. cheers, chap