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Regulatory Failure Evident Throughout Housing and Foreclosure Crisis

The report that regulators are failing to enforce compliance on Servicemember Civil Relief Act violations fits in a continuum of regulatory failure around the foreclosure crisis. We know that HAMP and HARP have underperformed, and that the settlements around foreclosure fraud fell somewhat below a slap on the wrist. The foreclosure review process, initiated by the OCC and the Federal Reserve, have only served to confuse borrowers:

Nothing about the letter that Keturah Miller received late last year indicated it could be worth as much as $125,000 to her. So she put it aside, forgetting about it for months until she stumbled across it while cleaning.

Miller, 34, a family liaison worker with the New York City Department of Education, read it over four times. It still made no sense to her.

“I can read the words, but the meaning of what they’re saying? That’s the confusing part for me,” she said […]

So far, fewer than 5 percent of the potential beneficiaries – 214,000 – have requested a review of their cases, a number critics say confirms their suspicion that the process was designed to protect banks, not help consumers.

While there is no national figure for how many families were harmed by servicing errors, a February 2012 audit by San Francisco County officials found that about 84 percent of the 400 foreclosures they examined contained irregularities.

I’ve previously discussed the GAO report on the foreclosure review process, showing that the forms were unintelligible and the process generally designed to find little or no flaws with the banks.

The public wants effective oversight of Wall Street, but you cannot really accomplish that by continuing to empower the same regulators failing at their jobs with more regulations to enforce. We’re talking about a regulatory apparatus that has done nothing in the face of this:

In Clawson, Mich., Nancy Cox returned home to find her possessions in the front yard, smashed with a sledgehammer, and a chalk drawing of a clown face on her garage with the tagline, “another job well done.”

For Kenneth and Margaret Karpa in Pittsburgh, china and photos of their daughter were damaged. Missing belongings included a coin collection and the family cat.

In Kansas City, Allen Danforth discovered his elderly parents’ furnishings — tables, chairs, family heirlooms — gone.

These homeowners allege in separate lawsuits that a contractor hired by a major bank to preserve abandoned properties against damage, mistakenly entered their homes while they were still occupied. In most cases, it appears that the contractor, known as a property inspector or property preserver, broke in after ignoring obvious signs of occupation: lights turned on, grass mowed and homes fully furnished […]

A review of court records by The Huffington Post turned up more than 50 homeowner lawsuits against banks and the two largest property management contractors in the U.S., Safeguard Properties and Lender Processing Services, stemming from break-ins of occupied homes. The allegations follow five years of generally woeful management of the foreclosure industry by all involved, as the inspector general for the Federal Housing Finance Agency, which oversees Fannie Mae and Freddie Mac, is raising red flags about the lack of contractor oversight by the government-backed mortgage giants.

If regulators cannot safeguard against illegal breaking and entering, I don’t know what hope there is for actual accountability for other crimes.

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David Dayen

David Dayen