Foreclosure Fraud Battle May Reach a Conclusion Soon

By Kyle Chezum Updated on 3/15/2011

Treasury Secretary Timothy Geithner called today for a swift resolution between state attorneys general and major banks over close to a year of mortgage servicing fraud allegations.  "It is very important that we try to bring this to bed as quickly as we can," Geithner said.  "I think all parties, not just the servicers, but the state AGs and the federal agencies have a strong stake in doing that."

State attorneys general and several federal agencies joined forces last year to investigate mortgage servicing issues that came to light during the financial crisis.  Chief among the allegations raised was the claim that banks had been foreclosing homes without proper review of documents.

Negotiations have been ongoing for months as regulators and attorneys attempt to determine adequate financial and legal penalties for the mistakes made.  Banks have complied with the stated goal of developing a “global” settlement rather than facing each charge or lawsuit individually, but this doesn’t mean banks have necessarily complied with all aspects of the investigation.  Investor claim to have encountered major obstacles when seeking paperwork or other documentation.  In some cases, it has taken up to a year for banks to comply with such requests.

Recently, bond trustees have taken up the cause of investors and major pension funds and have helped obtain some documents and other evidence.  Up until now, trustees have mostly avoided legal entanglements on the mortgage fraud front.  Geithner’s call for a swift resolution will likely bring more investors, trustees, and activists out of the woodwork to bring the battle to a close.