American Banks IllegallyEvicted Mortgagees

“The notion that the institutions that provoked the real estate crisis have rendered the situation of their debtors worse than necessary is not only frustrating — it’s a shame.” It is in these terms that the Secretary of Housing and Urban Development expressed himself this Sunday. At the same time the administration attempts to calm the game, the anger that seizes the American population against the banks reaches a peak.

More large American banks put a stop to the eviction procedures they have initiated, due to the discovery of irregularities in their own procedures. This seems hardly believable: In a situation where the mortgage companies place entire families in difficulties because of the (in)famous “subprime” mortgages, the files don’t seem to be the subject of a serious test.

Yet last week, President Obama vetoed a measure voted by Congress (and thus by a number of Democrats) that would impose a moratorium on these procedures on a national level. This demand comes from all over the states, worried about seeing an increasing number of private owners removed from their residence. In September alone, more than 100,000 evictions were carried out, with 17,000 in California.

What is this about?

To understand the massive evictions carried out in the United States, one must appreciate the fundamental difference between mortgages in Europe and in America. In Europe, if a mortgage falls into default, the bank can sell the residence, but if this sale doesn’t cover the overdraft, the debtor rests liable by the terms of the contract for the eventual loss.

In the U.S., an owner fears leaving the key under the doormat, and the bank doesn’t have anything but the good real estate to reimburse itself. If this sale is carried out to half of the credit value, for example, the debt of the debtor is removed. Moreover, when the rates are lowered, the debtor can renegotiate a new rate and even another term with his banker or another without any penalty.

In clear terms, a part of evictions are due to the fact that the bank in the U.S. is less well “protected” than its European equivalent. As soon as it doubts the capacity of its client to face these charges, it goes directly to eviction, which is the easy solution.

What is serious is the discovery that eviction procedures were managed in a negligent and scandalous manner by the banks and their lawyers. The latter were paid for a number of evictions where the bankers were not verifying the legitimacy of the eviction, to the point that thousands of these evictions were, in fact, illegal. Some responsible employees signed records that, contrary to their signed declaration under oath, haven’t even been opened. The documents presented to the courts were sometimes false. One speaks of the “robot signatures” in the banks because the people that signed the records signed thousands of them each month. It is the house photographed here that got this national revision going. Once more it is the complete absence of consideration of the banks for their clients where the economy in general is criticized: The irregularities transform indignation into anger.

Behind the idea of a national moratorium, it isn’t the debtor that Congress protects, but the banks; it gives them the time to tidy up their records. Bank of America completely stopped evictions. Other banks signaled that they were suspending evictions in the states where the courts have the right to look at these procedures!

It has become clear that the president of the United States counts using his veto right for the first time to avoid the harmful consequences of an interruption of evictions over the price of residential property, and with it, economic revival. In reality, it is impossible to predict what this moratorium will have as a consequence. Furthermore, these problems fall within the jurisdiction of the states, not the federal government. They should be examined locally, according to the laws that govern the mortgage credit, which are not uniform throughout the U.S.

The state attorneys general gathered together to analyze and remedy fraudulent or simply irresponsible practices. It must be said, about 20 or so days before the elections, this subject takes on the dimension of an electoral issue. The 1.3 million households thrown out and the manner by which these evictions were practiced create an anger in a great part of the population, particularly among the most disadvantaged.

It is difficult to measure the extent of these problems; bank shares have declined just to 10 percent. Last week, J.P. Morgan Chase raised its mortgage reserves from $1 billion to $3 billion. Fannie Mae and Freddie Mac, the nationalized governmental agencies that represent about 90 percent of the market of mortgage companies, announced that they would be able to reclaim reimbursement for their interventions in the case of irregularities in evictions. There will be some for $44 billion, according to an analysis by Goldman Sachs.

At a little more than two weeks before the midterm election on November 2, it is impossible to not make it an electoral issue.