California Budget
Regulator for Fannie and Freddie

Mortgage Foreclosures

The efficiency of our free market system is based on trust and ethical practices. Recent disclosures about the use of “robo signers” to process thousands of documents in an inordinate period of time and without proper review of documentation prior to processing foreclosures illustrates how the system can break down when bank practices and oversight go awry. Who is to blame for these failures? Clearly the banks now reviewing their foreclosure procedures such as Bank of America BOA should shoulder most of the blame. Lenders and loan servicers such as GMAC Mortgage are a close second.

Institutional bond investors are stepping up to the plate to claim wrongdoing by the banks and servicers for failing to carry out their responsibilities in underwriting the original loans. Some of these investors are seeking to have loans that didn’t meet underwriting requirements repurchased and to be compensated for losses due to inadequate mortgage servicing. I can only wonder about the motives of the investors to now bring up the issue of faulty underwriting practices rather than a few years ago when it became common knowledge. Could it be the investors see an opening to go after the banks in an environment of public distrust due to their failure to act in a responsible manner? 

We live in a time where the consequences of our actions are merely an afterthought. Too many people and institutions seem to act as if ethical behavior is for the “other guy.” Our economic system has been polluted by self-serving behavior that relies more on expediency and less on the pursuit of excellence in everything we do. If we continue down this path I believe our economy will become mired in an endless legal battle between the wrongdoers and the wronged. We already are known worldwide for being a litigious society. Imagine what will happen as the lawyers get wind of more and more business activities such as those exemplified by the mortgage foreclosure crisis.