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Agencies, Regulators Sound Off on Faulty Affidavits

FHFA, Fannie and Freddie issue statements as BofA halts some foreclosures

Oct. 2, 2010

By staff

Another big mortgage servicer is holding up foreclosures in nearly two dozen states to ensure affidavits were properly completed. With the number of servicers announcing such moves growing by the day -- mortgage agencies and federal regulators are telling servicers to fix the problems and to make sure that no borrowers have been harmed in the process.

In a Sept. 17 memo to some of its real estate brokers and agents, GMAC Mortgage LLC said it would hold up foreclosures in 23 states. Foreclosures in those states are processed though the courts.

JPMorgan Chase & Co. said Wednesday that its Chase Home Finance unit was stopping some foreclosures while it reviews how employees in its mortgage-foreclosure operations sign affidavits about loan documents.

The moves prompted a statement from Edward J. DeMarco, acting director of the Federal Housing Finance Agency -- which regulates Fannie Mae and Freddie Mac -- reminding servicers and foreclosure processing companies to maintain compliance with their seller-servicer agreements as well as applicable laws and regulations.

"Recent accounts of deficiencies in foreclosure documentation by two large mortgage servicers raise concerns for homeowners and mortgage investors alike," DeMarco said. "Where deficiencies have been identified, FHFA has
directed the enterprises to work collectively to develop and implement a consistent approach to address any problems."

DeMarco noted that FHFA is working with other regulators on the issue. He said that the agency is trying to protect borrowers' and investors' rights without disrupting the mortgage markets.

Now, Bank of America Corp. has followed GMAC's and JPMorgan's lead.

"We have been assessing our existing processes," a BofA spokeswoman said in a statement. "To be certain affidavits have followed the correct procedures, Bank of America will delay the process in order to amend all affidavits in foreclosure cases that have not yet gone to judgment in the 23 states where courts have jurisdiction over foreclosures."

Those 23 states are Connecticut, Delaware, Florida, Hawaii, Illinois, Indiana, Iowa, Kansas, Kentucky, Louisiana, Maine, Nebraska, New Jersey, New Mexico, New York, North Dakota, Ohio, Oklahoma, Pennsylvania, South Carolina, South Dakota, Vermont and Wisconsin.

BofA serviced around $2.1 trillion in home loans as of June 30.

Freddie Mac Chief Operating Officer Bruce Witherell said in a statement that the company is "deeply concerned" about any affidavits that were improperly executed.

"The alleged practices in these reports are clearly not in compliance with Freddie Mac's guidelines and directives to its servicers," Witherell stated. "We are providing instructions to our servicers later today that are intended to ensure that their foreclosure processes are in compliance with state law and Freddie Mac's servicing requirements."

Witherell said that the protection of borrowers' rights in the foreclosure process is "essential."

Over at government-controlled rival Fannie, Terry Edwards, executive vice president on foreclosure process compliance, called the reports of servicers failing to follow proper procedures disturbing.

Edwards said servicers have to follow the "exact requirements" of the law in foreclosures, as is required in their contracts, "including the proper execution of affidavits, verifications and other legal documents as part of the default process."

"The steps we are taking today in coordination with our regulator are meant to reinforce these contractual obligations, strengthen the regimen for review and due diligence on the part of servicers, and protect the rights of borrowers facing foreclosure," Edwards concluded.

The secondary lender issued Lender Letter LL-2010-11 directing all Fannie servicers to immediately start reviewing policies and procedures related to the execution of affidavits, verifications and other legal documents tied to the default process.

Seven banks including BofA, Citibank, HSBC, JPMorgan, PNC Bank, U.S. Bank and Wells Fargo & Co. have been contacted by the Office of the Comptroller of the Currency about fixing foreclosure processing problems and identifying the harm done, the Washington Post reported.

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