Timeline: The Steps Leading to the Foreclosure Crisis
Monday, January 14, 2013
The events in the housing and mortgage markets over the past several years led to the current agreement put in place with those banks – Ally, Wells Fargo, Bank of America, Citi, and Chase – through the National Mortgage Settlement. GoLocal breaks down the major milestones on the timeline that led to the violations of that federal agreement today.
- The housing market bubble burst in the end of 2005, following the peak of the housing market earlier in the year.
- The Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 made it more difficult for households to file for Chapter 7 bankruptcy, which would discharge credit card bills and other unsecured debts, freeing up income to continue to pay secured debts like mortgages. The reforms took the option of filing for bankruptcy to save one's home off the table for many distressed borrowers. This brought on a first wave of foreclosures; a total of 846,982 properties were in some stage of foreclosure in 2005, a number that would increase 42% in 2006.
- A worldwide "credit crunch" kicked in as subprime mortgage backed securities were discovered in the portfolios of banks and hedge funds.
- American Home Mortgage filed for Chapter 11 bankruptcy.
- Countrywide Financial, a subprime mortgage lender, was purchased by Bank of America for $4.1 billion, making the bank the nation’s biggest mortgage lender and loan servicer at that time. The purchase ended up costing Bank of America $40 billion.
- The Federal Housing Finance Agency announced its decision to place the government-sponsored mortgage lenders Fannie Mae and Freddie Mac, into conservatorship run by the agency.
- An investigation into mortgage lending started in October 2010, led by state attorneys general from all 50 states, state banking regulators, the Departments of Justice, Housing and Urban Development, and the Treasury.
- The attorney general launched a robo-signing probe to investigate the alleged false affidavits submitted in foreclosure proceedings. The scope of the investigation broadened to encompass a long list of mortgage servicing issues, such as lost paperwork, and long delays and missed deadlines for loan modifications.
- State attorneys general and the federal government announced a joint state-federal settlement with the country’s five largest mortgage servicers: Ally/GMAC, Bank of America, Citi, JPMorgan Chase, and Wells Fargo.
- The agreement settled state and federal investigations, finding that the country’s five largest mortgage servicers routinely signed foreclosure related documents outside the presence of a notary public and without really knowing whether the facts they contained were correct.
- According a report from the Monitor of the Office of Mortgage Settlement Oversight, under the February 2012 agreement, banks would receive a 25 percent bonus for loan modifications and other consumer relief activities completed by March 1, 2012, which pushed them closer to the total amount of consumer relief they were required to pay forward. Monitor Joseph A. Smith stated that the settlement was a response to “a serious problem.” This bonus would make it advantageous for banks to expedite foreclosures.
- Under the federal mortgage settlement, banks were expected to meet certain benchmarks. July 1, 2012 marked the beginning of the fiscal quarter that they would be evaluated against in terms of delivering consumer relief.
- The over 200 affidavits that GoLocal reviewed were all filed after the July 2012 deadline to ensure banks were under the binding agreement of the national mortgage settlement.
- As the Monitor's report stated, in order to meet this deal, banks could offer a variety of creditable consumer relief activities, including first and second lien modiﬁcations, enhanced borrower transitional funds, facilitation of short sales, deﬁciency waivers, forbearance for unemployed borrowers, anti-blight activities, beneﬁts for members of the armed services, and reﬁnancing programs.
- Review of the settlement began. Smith released an initial report, "First Take," which detailed specific information about the settlement, including what procedures banks were expected to follow in filing foreclosure affidavits and documenting the process of a foreclosure.
- According to the Monitor’s report, one of the standards, the "integrity of documents," was in place as of the date of the report – August 2012. This standard required the five banks to “state the following about documents (affidavits, sworn statements, and Declarations) filed in bankruptcy and foreclosure proceedings. Such documents are based on the affiant’s personal knowledge; fully comply with all applicable state law requirements; are complete with required information at time of execution; are signed by hand of affiant (except for permitted electronic filings) and dated; and shall not contain false or unsubstantiated information.”
- The Monitor's report specifically defined the personal knowledge requirement as: “Servicer shall ensure that affidavits, sworn statements, and Declarations are based on personal knowledge, which may be based on the affiant’s review of Servicer’s books and records, in accordance with the evidentiary requirements of applicable state or federal law.”
- Smith released the second review of the settlement, the Office of Mortgage Settlement Oversight progress report, "Continued Progress," in November 2012, which was intended to inform the public about the implementation of the settlement, and it discussed the measures taken against the five big banks to ensure they were providing consumers with adequate relief.
- The settlement required these banks to “provide specific dollar amounts of relief to distressed borrowers within a three-year period,” according to Smith's report. These amounts included the minimum $200,000,000 for Ally, $8,574,200,000 for Bank of America, $4,212,400,000 for Chase, $1,789,000,000 for Citi, and $4,337,000,000 for Wells Fargo.
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