Inside
the foreclosure factory: Pushing the files
Justin
Sullivan / Getty Images
A
foreclosure sign sits in front of a home. Errors are being made in the process
that lead lenders to foreclose on homes.
By
John W. Schoen, Senior Producer
In
a quiet office in downtown Charlotte, N.C., dozens of Wells Fargo’s foreclosure
foot soldiers sit in cubicles cranking out documents the bank relies on to
seize its share of the thousands of homes lost to foreclosure every week.
They
stare at computer screens and prepare sworn affidavits that are used by lenders
in courts across the country to seize homes. Paid $30,700 to start, these legal
process specialists, the title that goes with the job, swear an oath under
penalty of perjury that they're corporate vice presidents. They're peppered
with e-mails from managers to meet daily quotas of at least 11 files day.
If
they fall short, they face a verbal warning. Then written. Two written warnings
could cost them the paycheck that supports a family. As more than one source for
this story told msnbc.com, "I can't afford to lose this job."
Pressured
to meet daily production quotas, they are likely making mistakes that
inadvertently could toss a family out of its home and onto the street,
according to these workers.
State
and federal prosecutors, in a recent
settlement with five banks that included Wells Fargo, agreed. The
joint state and federal settlement spelled out how the document procedures at
the five banks resulted in “loss of homes due to improper, unlawful or
undocumented foreclosures,” according to the complaint.
"These
are mistakes that could cost someone their home," a Wells Fargo document
preparer told msnbc.com.
The
Wells Fargo worker, who first contacted msnbc.com via email in late January,
told of a wide range of concerns about the foreclosure documents she processes.
Some families apparently were denied loan modifications after only cursory
interviews, she said. Other borrowers applying for help sent comprehensive
personal financial documents to a fax machine that she discovered had been
unattended for weeks. Others landed in foreclosure after owing interest
payments of as little as $1.18 a day, according to documents she said she
reviewed.
The
legal process specialist asked not to be identified because she was not
authorized to speak about the internal workings of the department, where she
has worked since last year. Her account was supported by company documents and
by a co-worker in the same office.
"There
was one file where they weren't even past due and they were in foreclosure
status," the loan processor said. "They're pushing these files and
pushing these files....”
Five
years into the worst housing collapse since the Great Depression, the foreclosure
pipeline that is removing tens of thousands of families from their homes every
month rests on a legal process that has been badly compromised by errors,
misrepresentation and outright fraud, according to consumer attorneys, state
attorneys general, federal investigators and state and federal judges.
Sweeping
enforcement actions a year ago by the nation's top banking
regulators, and a recent settlement among 49 state attorneys general, the
Department of Justice and other federal agencies with the five biggest mortgage
lenders, were supposed to fix the system. Mistakes are likely still getting
through, according to Wells Fargo employees.
Lenders
claim that wrongful foreclosures based on paperwork errors are exceedingly
rare. But unless that paperwork is challenged in court, there is no way a
borrower would know a mistake had been made, or whether the lender had even
proved it owned the loan and had the right to foreclose. Half the states use
“non-judicial” foreclosure procedures, in which home seizures are subject to
limited or no review by a judge.
“We
have an adversary system,” said New York State Supreme court Judge Arthur
Schack, who has rendered harsh opinions and sanctions for improper and
fraudulent foreclosure documents. “So if someone doesn’t challenge it, it’s
going to go through.”
Michael
DeVito, executive vice president of Wells Fargo’s Home Mortgage Default
Servicing, says the bank's processes are built to catch errors: “It’s got
redundant checks in it to ensure that the documents going out the door are
accurate. And the process is built to help the team member build the personal
knowledge they need to sign effectively."
“No
one here is asked to sign anything they don’t understand. Period. End of
Story," DeVito said. "There’s no production quota and if a team
member says, ‘I don’t understand this I’m not going to sign it,’ that’s fine.”
But
people who work at Wells Fargo’s office at 401 South Tryon Street in Charlotte
said some managers are pushing loan processors to fill workload quotas that
don’t allow enough time to thoroughly review documents.
“They’re
pushed to do numbers," said a manager at the office who wished not to be
named, referring to a department different from her own.
“My
department is much more lax,” she said, “but (in that team) they’re pushing:
‘Get ‘em out, get ‘em out, get ‘em out, get em out.’”
This
pressure to produce is spelled out in company e-mails to loan processors that
were obtained by msnbc.com.
11
a day
One
manager, in a daily "3 p.m. pulse check," e-mail reminded her team
recently that "we need 11 new signed notarized files per reviewer per
day," reminding the staff that "I asked that you take a few files at
a time to be signed [and] notarized; it does not appear we are following this
process."
On
other occasions, the reminders can be more pointed. When a backlog of 59 files
needed to be completed by 11 a.m. the next day, another manager e-mailed his
team: "No one should be doing anything other than [these] files. No
socializing, no going for breakfast, no doing [other] files ... until we are
done with [these files]. It is that important. Help me out with this. If you
finish all [the] files in your pipeline, you are expected to ask me for more.”
Last
December, with just a few working days left in 2011 and the pressure on to
churn out the paperwork required to seize a batch of homes in Kentucky and
Connecticut, one of the managers sent an e-mail urging his team to "finish
this year strong."
"You
must sign at least 10 NEW files every day,” the e-mail said. “Less than 10 is
unacceptable.”
At
least once a month, the work week stretches to Saturday.
"Happy
Saturday everyone," one manager greeted his staff in an e-mail before one
such weekend session began. "We need to stay focused, keep the socializing
to a minimum and get the job done. We are behind and must bring in a good
number today. 6 hours and no lunch. Everyone is expected to get 8 new files
signed today. No less.”
DeVito,
who is based at the mortgage division’s headquarters in Des Moines, Iowa,
recently visited the Charlotte office after msnbc.com asked the company for
comment on this story.
“We
take the concerns that have been raised to you and to us extremely seriously,”
DeVito said after that visit. “And we’re going to go back and look at how our
managers are communicating (with their employees.)”
In
individual consent judgements, Wells Fargo and four other big banks have agreed
to sweeping new
standards in processing foreclosures. The agreement, approved April
5 by U.S. District Judge Rosemary Collyer, gives the banks 90 days to develop a
plan to adhere to the new standards and 180 days to implement those plans.
Until then, Americans losing their homes to foreclosure have little assurance
that the seizures and sales are proper.
Many
of them will lose their homes to Wells Fargo. So far this year, there have been
more than 575,000 new foreclosure filings in the U.S. and more than 200,000 properties
sold, according to RealtyTrac, which tracks national foreclosure data. Last
year, Wells Fargo became the nation’s largest servicer of residential
mortgages, with a $1.8 trillion loan portfolio and a 17.7 percent share of the
market.
Entry-level
vice presidents
Legal
processing specialists sign affidavits in the presence of a notary and swear
"under the penalty of perjury to the best of my knowledge, information and
belief that the contents of the foregoing paper are true."
To
meet legal requirements of state foreclosure laws, the document processors at
Wells Fargo’s Charlotte office sign their affidavits as “Vice President of Loan
Documentation.”
DeVito
said the company’s board of directors has granted all document processors the
title, a practice that corporate governance experts say confers on them the
legal authority to sign documents as corporate officers.
Entry-level
legal process specialists earn between $30,700 and $53,300 a year, according to
recent internal job postings. Though basic qualifications in those postings
call for one or two years of administrative experience, Wells Fargo says these
entry-level workers have the training and expertise to satisfy state
requirements that corporate officers review all foreclosure files.
Document
processors typically have several years of experience in mortgage document
processing, according to Vickee Adams, a Wells Fargo spokeswoman. They also
undergo online training and have to pass a test before being authorized to sign
affidavits as vice presidents, she said.
Personal
knowledge
Concerns
about document preparation at Wells Fargo and other major lenders first came to
light nearly two years ago.
Investigators
at the Department of Housing and Urban Development, who are charged with
finding "waste fraud and abuse" among lenders filing claims for
payment when a federally-insured mortgage defaults, checked into problems at
all five big banks after reports surfaced in 2010 of widespread document fraud.
That
investigation took place in the fall of 2010. But the Wells Fargo employees who
spoke to msnbc.com on condition they would remain anonymous said those
practices persist in the Charlotte office.
Their
knowledge of a foreclosure filing is limited by a process that relies on data
provided by a third party vendor and based on documents they don't always have
time to review, according to the employees.
As
they prepare each affidavit, which carries the same legal weight as sworn
testimony by a witness in a courtroom, document processors are tasked with
certifying two basic claims that Wells Fargo makes before it sends a homeowner
out onto the street. The first includes the bank's detailed accounting of what
it claims the borrower owes in back payments. The second claim requires that
processors sift through the paper trail that shows Wells Fargo has the legal
right to seize a home.
Companies
that manage mortgages typically collect only a small fee for each loan that is
current. But loans in foreclosure generate a laundry list of foreclosure-related
revenues, including legal fees, late charges, back interest, home inspections
and maintenance. Last year, Wells Fargo earned $3.3 billion in profits from its
mortgage servicing business, or about 20 percent of the bank’s total net
income, according to its annual report.
The
accuracy of a homeowner's final default accounting is critical. If a borrower
can raise the shortfall by either tapping savings or obtaining a personal loan
from family or friends, the default could be corrected.
But
Wells Fargo uses a process to certify the official accounting that doesn't give
many of their document preparers enough time or information to make sure it's
accurate, according to the employees.
Like
many mortgage servicers, Wells Fargo relies on a company called Lender
Processing Services to assemble some of the information used to foreclose on
properties.
With
each file they prepare, the bank’s document processors must swear “personal
knowledge” the information in each affidavit was properly collected and is
accurate and complete.
But
they have no way of making good on that promise because they are not able to
check whether LPS properly collected and processed the data, according to the
document processor.
"We're
basically copying and pasting" information from the LPS system, she said.
"It's data entry. We just input (on the affidavit) what's on that system.
And that's it. We don't go back through system and look."
If
they were able to take a closer look, Wells Fargo's document processors might
be surprised at what they found.
In
December, Nevada Attorney General Katherine Cortez Masto sued LPS alleging that
the company had forged documents, forced attorneys to churn through
foreclosures sacrificing accuracy for speed, and required workers to notarize
up to 4,000 foreclosure-related documents a day.
LPS
moved to dismiss the lawsuit, saying it failed to show that any document
“executed by subsidiaries of LPS was incorrect, contained errors, or caused any
borrower financial harm.” It said the allegations were based on “misguided
legal conclusions and inflammatory rhetoric.”
DeVito
said Wells Fargo has multiple accounting checks in place, including a second
review of signed affidavits, which catch any mistakes in the LPS system that
could result in a wrongful foreclosure.
But
the loan processor said not all files are subject to that level of scrutiny in
the Charlotte office.
Secretary
of Housing and Urban Development Shaun Donovan discusses the details of the
Obama administration's $25 billion settlement with banks for alleged
foreclosure abuses.
"We're
not calculating out each fee," the processor said. "We're not going
through their payment history and making sure that every figure is correct.
That would take too long.”
Lawyers
defending homeowners in foreclosure say they're well aware of the problem.
"These
people simply do not have personal knowledge, as required by the rules of
evidence, about the business practices or processes that they're signing
affidavits with respect to," said Max Gardner, a Shelby, N.C. bankruptcy
attorney who has trained hundreds of other lawyers across the country defending
homeowners in foreclosure. "They just don't. And that's the fundamental
problem with it."
Who
owns the loan?
Once
the document processors have cut and pasted the bank's accounting of fees on
the affidavit that will be used to seize a home, they then review the paper
trail that gives Wells Fargo the legal right to take a borrower's property.
Verifying that a mortgage has been properly transferred from one lender to
another can be vexing.
In
the frenzy of mortgage lending in the mid-2000s, when hundreds of now-defunct
lenders churned out a blizzard of mortgages that were quickly sold off to
investors, the paper trail of ownership was sometimes badly scrambled,
according to consumer attorneys defending homeowners in foreclosure cases. Some
of those attorneys are
successfully attacking lenders’ effort to paper over missing links
in the chain of documents that establish who owns a mortgage.
In
other cases, when mortagages aren't registered on the MERS system, Wells Fargo
loan specialists in the Charlotte office have to verify ownership by reviewing
images scanned into their computers. In theory, all relevant, original
documents are available for review. But it's not unusual for a critical piece
of paper to be missing, according to employees at Wells Fargo’s Charlotte
office.
Locating
the original document could require ordering it up from a storage warehouse in
a different location, which "would probably take you forever," said
the loan processor. Strictly-enforced production quotas often make it all but
impossible to devote the time needed to verify each file, she said.
'Severe
misconduct'
Banks
were ordered a year
ago to fix error-prone document systems and procedures, after a
sweeping enforcement action last April by four of the nation’s top bank
regulators. Fourteen mortgage-related firms, including Wells Fargo, LPS and
MERS, signed consent orders with bank regulators. At the time, Wells Fargo
agreed to “ensure that all factual assertions made in pleadings, declarations,
affidavits or other sworn statements” are “based on personal knowledge or a
review of the Bank’s books and records.”
But
lenders' disregard for the law is still rampant, according to consumer
advocates and regulators. Lawyers defending homeowners against foreclosure say
the process in some states has been so corrupted that faulty and fraudulent documents
have become commonplace.
In
February, an audit by the
San Francisco assessor’s office of 382 foreclosure cases over the
past three years found “one or more irregularities” in 99 percent of the loans
and “what appear to be one or more clear violations of law” in 84 percent of
the loans.
Concerns
about widespread foreclosure abuses were echoed recently by Sarah Bloom Raskin,
a Federal Reserve governor, who urged that "the severe misconduct that has
been uncovered in the mortgage servicing sector be addressed through
intensified public enforcement of the law."
"The
dockets of federal courts, bankruptcy courts, and state courts include numerous
cases involving a wide range of troubling issues," Bloom Raskin
told a gathering of law professors at the annual meeting of the
Association of American Law Schools in January. Those issues, she said, include
claims of forged and missing documents and allegations that homeowners were being
overcharged.
Wells
Fargo insists that the bank has fixed the problems identified by regulators and
state and federal prosecutors.
“There
have been a number of voluntary actions within Wells Fargo … to address those
issues aggressively through investment in technology and through investment in
the work force,” said Adams, the spokeswoman. “So there have been a number of
adjustments and in fact a number of our adjustments preceded the regulatory
requirements.”
The
Notary Room
But
the Wells Fargo loan processor says those adjustments haven't overcome a work
environment that often prizes speed over accuracy for some teams.
Employees
who arrive every weekday morning pass a long, unstaffed reception desk in front
of a large "Wells Fargo" sign in red and gold, to enter a
yellow-carpeted space furnished with high-walled cubicles, she said.
The
phones rarely ring. It's quiet but for the sound of clicking keyboards. Workers
stare at their screens, listening to music via iPod earplugs to better
concentrate on the task at hand. Brief conversations between co-workers are
interrupted hastily as soon as a manager walks by.
The
nine-hour workday includes a lunch break of up to an hour, along with two
additional 15-minute breaks, though some smokers in the group take more. From
the break room, you can look out over the nearby rooftops and apartment
buildings to see traffic flowing around Charlotte's downtown on the Interstate
277. A TV is typically tuned to CNN.
The
conference rooms are named for warm, sunny destinations: St. Thomas, St. Kitts
and Belize. From time to time, managers summon the staff to one of these rooms
to review the latest performance numbers.
Once
the loan process specialists fill out the information in a standard affidavit
template, they sign it front of a notary, a public official licensed by each
state to perform legal functions that include administering oaths and
witnessing signatures on documents.
In
the Charlotte office, that means a trip to a separate room where a handful of
notaries sit all day behind a few small desks with lamps. Much of their time is
spent reading a newspaper or a book or playing with smart phones while they
wait for the next legal processes specialist to stand before them, swear that
the affidavit they've just filled out is true, and sign it.
"It's
exactly like an assembly line," said the loan processor in that office.
"You sign it, you push it off to a notary, they stamp it, you put it in a
box and it goes somewhere else."
Judges
rely on these affidavits to approve home seizures by lenders.
"These
are not technicalities, if you're going to take someone's home," said
Schack, the New York State judge, speaking generally about the foreclosure
process. "We've got something called due process of law. And you've got to
play by the rules. "
Those
rules require that an attorney be given the opportunity to challenge any piece
of evidence presented to the court. But because the Wells Fargo legal process
specialists are rarely available for cross-examination, that test is very hard
for a homeowner's attorney to apply.
"An
affidavit, to be admissible, has got to meet the same test as if a witness was
really in court in the box testifying," said Gardner.
The
Wells Fargo legal process specialist said she has not been called once to
testify in court to the accuracy of her work in the past six months. Court
appearances by her co-workers are a rare event, she said.
Asked
if she could she explain to a judge how she had obtained personal
"knowledge, information and belief" that the documents she prepares
are accurate, she said, "I wouldn't even feel comfortable answering that
question."
