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OCC Foreclosure Reviewer Fabricated Documents for Servicers

On an uneventful conference call about the not-new new housing programs announced today, HUD Secretary Shaun Donovan said that the documents for the foreclosure fraud settlement have been “essentially completed,” and that they were in the process of gathering the signatures of all the parties in the settlement, including the state AGs, banking regulators and the banks. He added that the settlement would be filed in court in “the next few days.” So that would put the distance between the settlement announcement and the filing at about a month, and we have no idea about the machinations or negotiations in that interregnum period.

But there is something we do know today. Not about the foreclosure fraud settlement, which remains mired in secrecy. But we know something about the OCC foreclosure reviews, which you might remember Donovan cited as another way wrongfully foreclosed borrowers could seek relief. The same day of that statement, a whistleblower working with one of the independent consultants carrying out the foreclosure reviews related that they are a sham. And we have more evidence of that today. Yves Smith brings it to us:

Reader Lisa N. pointed me to a troubling October 2010 press release by SolomonEdwardsGroup, a company that describes itself as a “national financial services consulting and staffing firm” about its remediation services for “significant loan documentation problems.” Alert readers will recognize that this is shortly after the robosiging scandal broke.

Here are the key parts of the press release:

“SEG’s teams can also be rapidly deployed across the U.S., to help banks and servicers ‘scrub’ files and determine which foreclosures may have been tainted by incorrect loan documentation and processing issues such as robo-signing….

For instance on a recent engagement, SEG quickly deployed a 25-person team to review a single-family loan portfolio containing 5,000 loans and within six weeks brought the portfolio into compliance with investor guidelines. During another recent engagement, SEG successfully completed the same type of project involving 20,000 single-family loans tainted by fraud allegations.”

Needless to say, this sounds consistent to the charges we’ve heard from borrower attorneys and have even seen at trial: that of “tah dah” documents appearing suddenly in court that solved all the problems with the evidence presented. A not that unusual case occurred last week, in Kings County, New York, where in HSBC v. Sene, when the lawyers for the bank tried submitting two notes (borrower IOUs), the second attempting to remedy problems raised by the first one, each presented as the original.

It turns out that Solomon Edwards Group also conducts servicer reviews for the OCC process. So they are reviewing work that they themselves may have “scrubbed” previously. (UPDATE: Yves writes in to say that “SolomonEdwards stressed that not only were they not reviewing prior work in their OCC foreclosure work, they would not pitch regulatory work that would put them in that position.” Duly noted, I regret the error.) Yves stressed that SEG is probably one of the more careful firms engaged in this. But in the process of their bringing loan portfolios into compliance, they may be willfully engaging in the fabrication of documents, by adding “allonges” or other extra-legal documentation after the time at which this would be legal and allowable. As Yves writes, “This confirms, as we have said repeatedly, that there was a massive failure in the industry to conform to the requirement of the legal agreements that it devised. And there is a very big business, now with a government seal of approval, in covering up that fact.”

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David Dayen

David Dayen