On February 9, 2012 the Obama Administration and forty-nine state prosecutors struck a $25 billion agreement with the nation’s five largest mortgage servicers to address mortgage loan servicing and foreclosure abuses. The announcement presages potential relief for some Americans whose mortgages are now underwater or are facing foreclosure. Under the Agreement, forty-nine states (the lone hold-out is Oklahoma) agreed not to pursue civil charges against the banks related these types of issues. In return for immunity from civil charges from the states, five major banks—Bank of America, JPMorgan Chase, Wells Fargo, Citigroup, and Ally Financial—will reduce loans for nearly one million households. Issues regarding criminal liability have yet to be dealt with.
The settlement follows ten months of negotiations between the five banks and a coalition of state attorneys general, and the Department of Justice (DOJ), Treasury, and Housing and Urban Development. The investigation was initiated in October 2010 after the discovery of widespread use of “robo-signing” to speed up the foreclosure process, whereby employees signed, or used fake signatures on, thousands of affidavits they had not read.
Hopefully this will bring much needed relief to the thousands of homeowners struggling to pay their mortgages or fend of foreclosure.
The agreement with the five banks does not prevent the state or federal authorities from taking criminal enforcement actions related to the foreclosure issues addressed by the agreement or other troubling conduct, like the issues surrounding securitization of mortgage backed securities that were at the heart of the financial crisis.
Paul Krugman, economist and columnist for TheNew York Times, thinks that not enough is being done. In a recent interview, Krugman argued that "[i]t's hard for me to believe there were no crimes, given the scale of [the financial crisis], given how many corners were being cut, some people must have violated laws. I think people should be in jail."
Surprisingly, the raw numbers seem to back Krugman. Federal prosecution of financial fraud fell to a twenty-year low in 2011, according to a report issued in November.
Make no mistake, the companies engaged in robo-signing may face criminal liability for fraud. In simple terms, employees of these banks signed thousands of affidavits authorizing foreclosures across the country, without actually having reviewed the loan documents, as the law requires. A person signing an affidavit is swearing under oath that the statements in the document are true. Knowingly filing a false affidavit is perjury, punishable by fine, a five-year prison sentence, or both. Criminal liability does not end with the mid-level employees signing these documents. Higher-level employers could be liable for the felony of suborning perjury, the crime of getting others to perjure.
Some state attorney generals have taken action. On February 6, 2012, a Missouri grand jury indicted on forgery charges DocX, one of the largest companies that provided home foreclosure services to lenders. The employee named in the indictment is Ms. Brown. Under Missouri law, if convicted she could face up to seven years in prison for each forgery count and DocX could be fined up to $10,000 for each forgery conviction. The Missouri indictment could also impact homeowners. According to Missouri’s Attorney General, housing documents found to be tainted by fraudulent signatures would be void.
Missouri’s indictment comes after Nevada became the first state to take action in November. The Nevada attorney general indicted two midlevel staffers at a mortgage document company, Lender Processing Services. The case is still making its way through court.
It remains to be seen if other states will follow the lead of Arizona and Missouri. No doubt, the scrutiny on agencies with the lead in investigating the financial industry will continue to increase.
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