Systemic failures at the country's banks and mortgage servicers have exacerbated the most severe foreclosure crisis since the Great Depression, and government efforts to limit the damage have fallen short. ProPublica created an unrivaled database of homeowners who have faced foreclosure, opened a Facebook page to encourage homeowners to share their stories, wrote profiles of some of them, and incorporated their experiences into our reporting. We also provided a comprehensive rundown of the numbers behind the crisis.
In order to ram foreclosures through the courts, many mortgage servicers – companies that handle mortgage payments and that are often subsidiaries of banks – resorted to robo-signing. In thousands of cases, employees falsely swore that they’d personally examined each homeowner’s file. They also routinely submitted false documents in support of their claims to foreclose on homes. ProPublica revealed how employees of one of the nation’s largest servicers, GMAC, effectively posed as employees of a company that was no longer in business, signing documents on behalf of that defunct firm to push borrowers out of their homes. GMAC lacked the legal authority to act on this company’s behalf.
In 2009, the Obama administration created Making Home Affordable, a $75 billion foreclosure prevention program. The centerpiece of that program – HAMP, short for Home Affordable Modification Program – focused on modifying loans to reduce the monthly mortgage payments of struggling homeowners. But, as ProPublica has reported in dozens of stories over the past couple years, extreme delays, errors, lost documents, and frustration have been the norm for homeowners. In many cases, banks simply ignored hard-won loan modifications and kept reporting borrowers as delinquent, damaging their credit, and sometimes even threatening foreclosure.
The program’s architects assumed that in return for modest incentives, servicers would develop the capacity to fairly and efficiently help homeowners modify their mortgages. But servicers don’t own the loans, so they don’t bear the loss from foreclosure. In fact, investing in the necessary staff and systems to effectively handle modification requests hits the servicers’ bottom lines, and modifications have remained relatively rare.
Despite the fact that the big banks and servicers that participate in the program have regularly broken its rules, the government has handed down only a few weak penalties. Instead, the program has been characterized largely by lax enforcement and deference to servicers. Indeed, government audit reports obtained by ProPublica under the Freedom of Information Act showed that the government’s supervision of the program ranged from non-existent to weak. The audits covered GMAC, the fifth largest servicer, and the company itself said it hadn’t reversed a single foreclosure as a result of a government audit.
Recently, federal banking regulators stepped in with a new program to compensate homeowners for “harm” they may have suffered at the hands of banks and mortgage servicers. But the most central question — how compensation will be calculated — has not been determined, regulators said. It’s even unclear what type of compensation borrowers would get, cash or a non-monetary remedy, and many elements of the program have been kept secret, including the specific bank errors or abuses that would merit compensation.
ProPublica will be tracking the foreclosure review process as it progresses. Homeowners going through the process should read our FAQ, fill out our foreclosure questionnaire if they haven’t already, and let us know what’s happening.