As mortgage servicers gear up to restart foreclosures, they must convince regulators and investors that no more gaping holes or legal pitfalls exist in their processes.
Four of the largest servicers — Bank of America Corp., JPMorgan Chase & Co., Ally Financial Inc.'s GMAC Mortgage and Wells Fargo & Co. — plan to resubmit thousands of affidavits that were not properly done the first time around.
Each servicer is doing a quality-control review of its foreclosure procedures, looking primarily at loan files in which employees falsely attested to knowledge of the borrowers' debts.
"The question is whether the bank servicers can fix the issue enough to put out the political fires it has caused," said Craig Focardi, a senior research director for consumer lending at the TowerGroup research firm.
Bank of America has relocated its affidavit signers to the same rooms where its notaries public sit, in order to ensure that the documents are signed in the notaries' presence, said Dan Frahm, a B of A spokesman.
The company is also creating new affidavit forms for the 102,000 judicial foreclosure cases that were delayed Oct. 8 while it reviewed its procedures, Frahm said. The new forms are to be used for all affidavits filed in the 23 judicial foreclosure states.
"Different courts have asked for different things on affidavit forms," he said. "You increase the likelihood of error when you have different types of affidavits." B of A would prefer to work from a single nationwide standard, he said, because only some affidavits have specific language requiring that the signer have full knowledge of the loan file.
As an additional quality-control measure, B of A is also reviewing a sample of several hundred reworked affidavits — to catch problems like misspelled names or transposed numbers — before resubmitting them to the courts.
Instead of looking at samples, Ally is reviewing every case nationwide that is going to a foreclosure sale "to ensure that everything is compliant with the state of jurisdiction and that loan modification efforts have been exhausted," said spokeswoman Gina Proia.
Ally has hired law and accounting firms to review independently its foreclosure procedures in all 50 states, Proia said.
She would not name either firm. The company will discuss the foreclosure issue in more detail on its third-quarter conference call Nov. 3.
JPMorgan Chase said it is reviewing its affidavit process. Wells Fargo, which maintained for weeks that its affidavit procedures were correct before admitting that some signers lacked knowledge of the individual cases, did not return calls for this story.
Ellen Marshall, a partner in the Manatt, Phelps & Phillips LLP law firm, said servicers are changing their affidavit processes to ensure that employees have knowledge of what is contained in a loan file.
"One of the things some servicers are doing is to break up the responsibility," Marshall said. "Instead of having one person sign and another gather the data, they will have a smaller number of loans assigned to people who can credibly say they've looked at the file and have some knowledge of it, if that's what's called for in the state."
Jan Wetzel, the president of Wetzel Trott Inc., a Farmington Hills, Mich., quality-control firm, said servicers are likely to audit a sample of loan files in each state.
But affidavits present problems of their own because the forms vary dramatically.
"There's nothing you can do to cure the problem of the robo-signers," said Wetzel. "But you can have a confidence level that the data is good data and that it can be verified at the time the affidavit was prepared."
Because the servicers each announced a voluntary halt to foreclosures, they do not officially have to get approval from any specific agency to restart the process.
An Office of the Comptroller of the Currency investigation will take four to six weeks, said Bryan Hubbard, a spokesman for the agency.
Freddie Mac spokesman Brad German said the government-sponsored enterprise is monitoring the largest servicers and "providing feedback on an ongoing basis."
The servicers also are talking with state attorneys general, both collectively and individually, before restarting foreclosures. "They are modifying procedures that were near the edge," Marshall said. "They need to deal with this head-on quickly and put it behind them rather than argue for months in court that the processes they had were sufficient."