The new $26 billion mortgage settlement agreement between state attorneys general and major banks will help make restitution to millions of homeowners defrauded and damaged by lenders. But justice requires more than compensating the past victims -- we must protect Californians from future abuse, improve laws regulating foreclosure and ensure they are enforced.
While we all knew the problems in our housing markets were severe -- just how severe had never been thoroughly quantified until my office in San Francisco released the results last week of an independent audit of nearly 400 foreclosures over the past three years.
The audit findings show that irregularities are not just frequent -- they are pervasive.
Like just about everyone else involved in this issue, I knew there were widespread problems. But the independent audit commissioned by my office showed fully 84 percent of the foreclosure files contained at least one clear legal violation and more than 66 percent of the files contained multiple violations. Nearly 60 percent of documents were backdated in some fashion, which is significant in an environment in which documents are filed under penalty of perjury. As far as we know, this is the first comprehensive audit of foreclosure files.
Why does this matter so much? First of all, the widespread fraud in mortgage lending and documentation that led to the epidemic in foreclosures was abetted by lax legal and regulatory standards that failed to spot, stop and prevent abuse.
Here in California these lax standards are particularly damaging because lenders (and the subsequent mortgage holders who frequently acquire loans) do not need to seek a court order to force a foreclosure. With little direct court oversight, we must rely on the administrative procedures and state regulations to protect owners from fraud.
This matters because families facing foreclosures are entitled to know exactly who holds their loan and to see for certain that the foreclosure is justified. In one case, our audit showed a foreclosure initiated by a party that had no title to the property -- and in a number of other cases, we found two competing claims to the title.
This new data matters to all of us because the wave of foreclosures that broke over California affected every single Californian, not just those losing their homes. The massive loss of housing value meant we lost billions in tax revenues needed to fund our schools, protect our communities and invest in our future. And the administrative and recovery costs alone are staggering -- with some estimates showing that each foreclosure costs local cities up to $20,000 for each home.
And finally it matters because transparency matters. The state constitution created assessor-recorder offices like mine in every county because economic security and basic justice were advanced by creating clear and transparent property records.
Moving forward, it is clear that our laws and regulations need to be adapted to the new era in which mortgages are rapidly resold, split up and "securitized" to the point where it is actually hard to know who owns a home.
The attorneys general, led by our own Attorney General Kamala Harris, were the first to acknowledge that their hard-won settlement was only the first step in addressing the problem.
Criminal prosecutions are still a possibility. But legislative reforms are clearly required. As we take a look at these reforms, we now have hard data showing exactly how widespread the problem has become. This is not just some loans, or many loans. Our findings show the problem of fraud, muddled title or irregularities has spread in fact to nearly all loans.
Phil Ting is the assessor-recorder of San Francisco.