NEWARK, N.J. (AP) — State Supreme Court Chief Justice Stuart Rabner made a splash in December when he ordered six of the nation’s biggest mortgage lenders into court to show why their foreclosure operations shouldn’t be suspended over reports of widespread irregularities.
State attorneys general around the country have increased pressure on lenders over the past year, but New Jersey is believed to be the first state whose Supreme Court has stepped into the fray so boldly.
Too boldly, according to the banks’ court filings. With the court hearing looming next month, the banks say they’d already begun remedial action months before New Jersey’s court order and that suspending their operations would damage already shaky housing markets and lead to further deterioration of hard-hit neighborhoods.
They also accuse the state of overstepping its boundaries on several levels. The order violates due process and equal protection clauses because it targets six lenders while omitting others and doesn’t arise from any specific complaints, according to the filings.
The court is trying to “remedy what it perceives as a public policy issue,” attorneys for Ally Financial’s GMAC Mortgage unit wrote. “Such powers are the province of legislators and regulators.”
A state Judiciary spokeswoman said Rabner would not comment on the cases.
The other lenders targeted by the court order are OneWest Bank, formerly IndyMac Federal Bank; BAC Home Loan Servicing, a subsidiary of Bank of America; JP Morgan Chase’s Chase Home Finance; Wells Fargo Financial New Jersey and CitiResidential Living, a subsidiary of Citibank.
The six were selected because they processed nearly 30,000 foreclosures in New Jersey in 2010, almost half the 65,000 filed in the state. That is triple the total number from four years earlier, Rabner said in December.
The impetus came from a report submitted to the Supreme Court that cited depositions and court filings in other states and described instances where employees, some of them not trained for the jobs they were performing, signed hundreds of foreclosure documents a day without checking them for accuracy.
The so-called “robo-signing” has been blamed for numerous cases nationwide in which homeowners have been the mistaken target of foreclosures when they actually were up to date on their mortgages.
In court filings in New Jersey last month, all six lenders claim they reviewed their procedures and made improvements in training, monitoring and quality control well before New Jersey’s court order. BAC, JP Morgan Chase and GMAC said they temporarily suspended foreclosures last fall to conduct the reviews.
Wells Fargo said it submitted supplemental foreclosure documents in 55,000 actions in 23 states “out of an abundance of caution” even though its review found no cases in which the company wasn’t justified in initiating proceedings.
OneWest said that a review of 8,200 foreclosure cases nationwide found that 98 percent were accurate and the remaining 2 percent were off by an average of 1 percent of the total amount of indebtedness.
According to its filing, CitiResidential found that of 613 foreclosures filed before it instituted stricter controls, nearly one-third were found to need corrections — though a significant percentage were in the borrower’s favor. The company said it would dismiss those and refile them after a review.
In a statement, Wells Fargo said it “will work with the court to serve the best interests of our customers, their families and their communities.” Attorneys and spokespeople for the other companies did not respond to requests for comment.
“There are still some serious questions about the reviews the lenders say they’ve done,” said Andrew Pizor, staff attorney for the National Consumer Law Center, a Washington, D.C.-based nonprofit advocacy group. “It seems a lot of them announce they’ve done a review and say they’re OK, but no one really knows what they did. So it’s a little difficult to take that at face value.”
Pizor said the emphasis on robo-signing can obscure a deeper problem: With so many mortgages passed from one company to another and so many of those companies going out of business, it can be hard to determine which company has the legal standing to foreclose on a property.
“It’s possible that it’s too late to fix some of these,” he said. “It’s complicated, and very labor-intensive, and signing a new affidavit isn’t going to do anything.”
(Copyright 2011 by The Associated Press. All Rights Reserved.)