The Color of Money

Foreclosure fiasco reveals basic problems with mortgage industry

By Michelle Singletary
Washington Post / October 17, 2010

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Really, should any of us be surprised at the recent events surrounding home foreclosures?

Bank of America has said it will halt foreclosure sales nationwide after reports that loan servicers signed thousands of foreclosure documents without verifying the information.

A spokesman for JPMorgan Chase said the company has stopped seeking judgments in 41 states while it reviews all paperwork. GMAC Mortgage is conducting independent reviews of its foreclosure procedures in all of the states.

Tom Miller, the attorney general of Iowa, is leading a 50-state coordinated review of the practice within the mortgage servicing industry known as “robo-signing.’’

“This is not simply about a glitch in paperwork,’’ Miller said.

No, this is not a glitch. The foreclosure crisis reminds us again that there is a fundamental problem in the mortgage industry. As a society, we claim we value homeownership. But that does not appear to be true anymore for many lenders since mortgages became akin to baseball trading cards, and since removing people from their homes became something like an assembly line.

The only way to unbundle this mess is case by case, treating each borrower as an individual.

In the mortgage trading game, millions of home loans have been sold and resold at warp speed. During the housing boom, lenders created mortgage mills and put people into overpriced homes with mortgages that were difficult to understand and even more difficult to maintain. They often didn’t bother to verify incomes or ability to pay.

Now, we have foreclosure factories where many of the people who are supposed to ensure the process is fair and legal simply rubber-stamped the paperwork that led to kicking homeowners to the curb.

The word “fair’’ is being used quite a bit in this latest crisis. But there is nothing fair about what’s happened in the mortgage industry.

Fair would be to slow down. Fair would be to hire even more people, as many as it takes, to spend a fair amount of time reviewing the cases of people in mortgage trouble. Fair would be carefully examining every single sheet of paper in foreclosure files.

There is no easy solution except to give up on mass production of both home mortgages and foreclosures.

If there isn’t enough money to be made in this slow-down solution for major banks, then tough. They need to fix what they broke.

Handle mortgages the way they should have been handled. That is, if we really do still believe that homeownership is an integral part of the America dream.

And if a foreclosure is ultimately deemed necessary, don’t send the person’s paperwork off to a foreclosure factory. Handle it with care.

Michelle Singletary is a columnist for The Washington Post. She can be reached at

SOURCE: Bloomberg News