Mega-servicers like Bank of America and Ally Financial are kidding themselves if they think they can declare the foreclosure mess behind them after short self-investigations and blithely resume operations as before.
The issue isn’t whether or not these borrowers deserve to be foreclosed on or not. Let’s assume all of them, or nearly all, have defaulted on their mortgages. The issue is whether servicers have done these foreclosures with the proper due diligence or have not, out of carelessness or arrogance.
Servicers would be wise to consider the pent-up anger of the American public at mortgage firms. They were poorly served on the originations side by originators (especially subprime ones), ratings agencies and securitizers. Now they are being poorly served on the servicing side. Make no mistake about it. This is another black eye for an industry that can scarcely afford it.
What’s the worst that could happen? Judges could unwind foreclosures and give borrowers their homes back, though that seems highly unlikely. But both the House and Senate have scheduled hearings on the issue for this month, and everyone knows how powerful a committee chair with an ax to grind can be.
Plus, all 50 state attorneys general have banded together to investigate servicing practices. Our recollection of investigations by state AGs, and there only needs be one or two, not all 50, is that they tend to end up with multi-hundred-million-dollar settlements.
Stepping back a little farther yet, it is possible to survey industry practices over the last decade and ask, whatever happened to the mortgage industry? After the savings and loan debacle it seemed to soberly resume its normal functions only to lose its way in a major way in the last decade. Is the ethics and probity of the mortgage business as cyclical as real estate is? Let’s hope not.
Angelo Mozilo, who has just settled charges with the Securities and Exchange Commission, is the living emblem of the business. There’s no doubt his Countrywide Financial went off the tracks in a major way during the go-go subprime years. But for decades before that, Mozilo was the ideal mortgage banker, a man who measured his moves carefully and targeted minority borrowers not to abuse them but to serve them.
But greed and arrogance seemed to take over the business for a stretch there. Greed, for lack of a better word, is not good, to paraphrase a famous movie line. And perhaps it is on the wane in the industry. Now arrogance needs to be rooted out as well.
