Why are big banks suspending foreclosure proceedings?
As Yves Smith describes here, it's because mortgage securitization practices evolved in a way that, to reduce costs, many of the mortgage notes were never conveyed to the trustees responsible for bringing the foreclosure actions. In 45 23 states a creditor can't foreclose without exhibiting the original note in court. This widespread problem has been "solved" by a new industry of document forging. Obviously, there are going to be criminal prosecutions and jail time, but what does this do to the value of mortgage-backed securities, many of which have been purchased, probably at face value, by the Fed in its "quantitative easing" program? Perhaps the trustees of these securities will discover merit in loan modifications which, if nothing else, will give them new notes and a second chance not to foul up the paperwork. [corrected 10/12/2010.]
Gretchen Morgenson is digging out more facts. Her NYT front page piece today is accompanied by a picture of the signature blocks of three documents all purportedly signed by Tywanna Thomas, Asst. Secretary. The signatures are so vastly different that at least two must be forged. Sorry the graphic is not with the story online.