A lot of homeowners face foreclosure. The overwhelming majority of them haven't been making their house payments.
This simple truth has been obscured by the foreclosure paperwork scandal.
In 23 states, foreclosures must be accomplished through the court system. (In the other states, lenders handle foreclosures administratively, although homeowners can choose to defend themselves in court.)
Lenders are overwhelmed by paperwork and time-consuming legal procedures in the 23 judicial foreclosure states. They resort to shortcuts by hiring law firms (dubbed "foreclosure mills" by consumer advocates) that ram foreclosures through the court system as swiftly as possible. According to depositions, some of these law firms employ "robosigners" whose job is to glance at foreclosure files and sign papers that say that the signer has personal knowledge that the legal documents are true. In fact, they lack such personal knowledge.
You know how, when you download a software update on your computer, you have to check a box attesting that you read the end user license agreement, and you click the box, even though you didn't read the contract? That's kind of what the robosigners did, except the stakes were bigger: They were signing papers that took people's houses away.
At least three major servicers -- Bank of America, JPMorgan Chase and Ally -- have suspended foreclosure actions in judicial foreclosure states while they review pending cases. It's too soon to know what the consequences will be.
I frequently talk to a mortgage banker named Michael Moskowitz, president of Equity Now, in New York City. He playfully calls himself a "right-wing bigot," which is half true: He's right-wing, but not a bigot. He knows we disagree on a lot of stuff. But we agree that this scandal about robosigners is making a tornado out of a puff of wind.
"My attitude is, you owe the money, you didn't pay. Now, give me the damn keys," Moskowitz says.
No one, not even a right-wing bigot, is happy when a homeowner loses a house to foreclosure. On the other hand, I don't like it when deadbeats try to use legal technicalities to weasel out of their debts.
When a judge is confronted by a homeowner who complains that a foreclosure is invalid because the servicer used a robosigner, I hope the judge's first question is: "When is the last time you made a mortgage payment?" The rest is just details.