WASHINGTON (Legal Newsline) - One U.S. senator is demanding that the U.S. Department of Justice "fully investigate" fraudulent foreclosure practices by banks before approving a rumored $20 billion settlement that absolves them of liability.
Sen. Maria Cantwell, D-Wash., sent a letter Thursday to U.S. Attorney General Eric Holder, saying homeowners in Washington and across the nation deserve a better deal.
Earlier this month, Iowa Attorney General Tom Miller, who is leading the talks with the nation's top mortgage servicers, said he hoped a settlement with the banks would be finished by Christmas.
For months, Miller and a group of state attorneys general have been in discussions with the five banks over their mortgage foreclosure practices, including Wells Fargo & Co., JPMorgan Chase & Co., Citigroup Inc., Ally Financial Inc. and Bank of America Corp.
The probe began last October with inquiries into so-called "robosigning" practices by several mortgage companies, and has since broadened into identifying and addressing additional alleged improper foreclosure practices.
Miller has said the deal wouldn't stop individuals or government prosecutors from suing the banks.
But Cantwell isn't buying it.
"Recently reported settlement proposals will effectively absolve these financial institutions of substantial civil and criminal liability in one of the largest alleged fraud schemes during the financial crisis," the senator wrote Holder.
"Continued reports of wrongful foreclosures, forged documents and an inability of servicers and banks to prove chain of title and the legal right to foreclosure, raises the very alarming possibility that these defects were endemic to the mortgage servicing industry across the country."
She added, "The sheer magnitude of the potential fallout from these defects demands that we undertake a full investigation to uncover the true scope of wrongdoing before providing blanket immunity to the perpetrators."
Cantwell noted that from January through June, her own home state had the 15th highest foreclosure rate in the country with 4,450 new foreclosure filings in June alone and 29,398 foreclosure properties overall.
A $20 billion settlement simply isn't enough for those victims of foreclosure fraud or the millions still facing foreclosure, she said.
"Large financial institutions helped inflate the housing bubble through tranching and securitizing mortgages at a frenetic pace while disregarding mortgage and foreclosure laws," she wrote Holder.
"Collecting fees from issuing mortgages then selling to investors securities backed by these mortgages allowed the largest financial institutions to pump up profits and home prices, while dumping any potential losses on homeowners, taxpayers and investors. When the housing bubble burst taxpayers were forced to bail out the largest financial institutions."
Without a "thorough" investigation, Cantwell said it is impossible to truly estimate how pervasive the defects in the foreclosure and securitization process are.
In her letter, she also raised concerns that not enough reforms are in place to prevent another crisis.
"The goal of servicing mortgages must be accuracy and adherence to the law, not expediency and corner-cutting," she wrote. "Confidence must be restored that proper transference of notes and mortgages was followed and clear chains of titles are available for all mortgages. Until then, the burden of proof must be on financial institutions to prove that they have the legal authority to foreclose."
Until financial institutions can prove they have the legal authority to foreclose, Cantwell said she also wants the Mortgage Electronic Registration System to be shut down.
"The Mortgage Electronic Registration System should be dissolved and shut down, and the shortcut that allowed banks to avoid hundreds of millions, if not billions, in local fees to local registrars of deeds be closed off," she wrote.
From Legal Newsline: Reach Jessica Karmasek by email at email@example.com.