12 June 2011

Legislative updates from Attorney Sonya Ziaja and KingCast/Mortgage Movies: Senators Pat Leahy and Kelly Ayotte.

Background: I emailed Harvard Professor Elizabeth Warren on this. Check out this WashPost story on the CFPA.
I just returned from the Nation's Capitol where shooting for the first Rod Class/Judicial Committee video went smoothly!

My next short film from this week's visit with Senator Ayotte regarding a potential vote to gut the Consumer Financial Protection Agency (CFPA) will join this space later today along with a scribd or wepapers version of Attorney Ziaja's commentary on the Anti-Foreclosure Fraud Bill introduced by Senator Leahy. As you can see from the campaign trail, the Good Senator doesn't typically like to answer any of my questions, but as a public servant she can be prepared to field quite a few more of them. 
Anti-Foreclosure Fraud Bill Introduced in U.S. Senate:

Senator Leahy (D – VT) introduced S1054, aimed at preventing fraud in foreclosure cases. Speaking from the senate floor, Senator Leahy declared that the bill, the Fighting Fraud in Bankruptcy Act, is "another step forward in the Judiciary Committee’s important efforts to protect American citizens from fraud.”  

There are solid reasons for this bill. It is a response to what the senator calls “ a pattern of negligent, reckless, or fraudulent conduct on the part of mortgage lenders and servicers.” Even if such conduct is not systematic or intentional, the industry's failure to accurate grasp the scope of the problem is sufficient to warrant more oversight.

Industry insists that loan servicing errors are not systemic and effect only a small percentage of foreclosure cases. For example, in 2008, a Countrywide Financial executive testified before the Senate Judiciary Committee that Countrywide's  internal reviews “indicate an error rate of less than one percent for mistakes that adversely impact a borrower.” But, as Senator Leahy writes, the actual percentage is much larger, “the trustee found an error rate based upon blatant, obvious errors more than ten times greater than what was testified to before the Judiciary Committee.” CBS News too reports that some companies resort to forgery (60 Minutes "Next Housing Shock"in order to foreclose on houses. More at Mortgagemovies Journal.

Moreover, Leahy forecasts that the foreclosure fraud problem could get worse......
....without better oversight, “[a]s this [foreclosure] crisis continues to deepen, the incentives for lenders and servicers to cut corners, inflate profits, rush foreclosures, and hide from their misconduct will only increase.” The senator here is not alone in his thinking. The report from Reality Trac earlier this year predicted that home foreclosures will increase in 2011.

What would the legislation do to increase accountability and accuracy? The bill seeks to prevent and penalize fraud in foreclosure cases by establishing audit procedures, allowing the Director of the Executive Office for the United States Trustees to contract with an external auditor, and by confirming civil penalties for fraud. The bill also mandates data collection and transparency measures. At minimum each year the trustee would be required to publish data about foreclosure fraud, including the percentage of cases, by district, in which inaccurate proofs were filed.

Whether the Fighting Fraud in Bankruptcy Act would be able to accomplish its goals is beyond the scope of this post. But, its modest requirements reflect similar state attempts to combat fraud in foreclosure cases. Perhaps the success and findings of these programs will be informative as the federal legislature considers this bill.

Sonya Ziaja, J.D., is a California attorney and co-owner of Ziaja Consulting LLC. She writes regularly for LegalMatch's Law Blog.

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