HUD Report: Banks Hampered Foreclosure Inquiry

Several major US banks obstructed a government inquiry into unlawful foreclosures, according to a report released today by the inspector general for the Department of Housing and Urban Development.

The report is released just a day after the United States Jutice Department and several large banks agreed to a $25 billion settlement for the banks role in numerous foreclosures that did not conform to HUD regulations. HUD spent 16 months investigatiing the foreclosure practices of Bank of America, JPMorgan Chase, Wells Fargo, Citigroup and Ally Financial over a two-year span from October 1, 2008 to September 30, 2010. These banks were found to have foreclosed on numerous homes prematurely, often without contacting homeowners to discuss options to avoid foreclosure, HUD concluded.

Today, the inspector general's office reports that these banks hampered an early HUD investigation with shoddy paperwork, and restraints on the ability for investigators to interview bank employees.

The Huffington Post reported on several of these transgressions.

Though the report describes a pattern of misconduct that appears widespread, it fails to quantify the damage to homeowners or, ultimately, how many home loans were affected. It also clearly reflects the frustration that investigators felt in conducting the review. Even as negotiators for the banks were fighting to win the best possible deal, their lawyers were stonewalling other government investigators trying to ascertain the scope of the "robo-signing" abuses.

Wells Fargo provided a list of 14 affidavit signers and notaries -- but then stalled while the bank's own attorneys interviewed them first. The bank then tried to restrict access to just five of those employees. The reason? "Wells Fargo told us we could not interview the others because they had reported questionable affidavit signing or notarizing practices when it interviewed them," the report says.

In other words, Wells Fargo did not want the government to talk to employees who might discuss wrongdoing. Eventually, the bank allowed investigators to talk to the remaining employees -- but only on the condition that bank management and attorneys attend the interviews as "facilitators." This condition resulted in delays that may have limited the effectiveness of the interviews, the report says.

Bank of America only permitted its employees to be interviewed after the Department of Justice intervened and compelled the testimony through a civil investigation demand. Even so, the review was hindered, the report says.

"On a number of occasions, Bank of America's attorneys refused to allow employees to answer questions, stopped them in the middle of clarifying information already provided, or counseled them in private before allowing them to provide a response. Further, [the bank] would not permit an effective walk through of its document execution process that would have facilitated an understanding of its process."

The investigation into Citigroup's mortgage division was "significantly hindered" by the bank's lack of records. Citigroup simply did not have a mechanism for tracking how many foreclosure documents were signed.

Both JPMorgan Chase and Ally Financial refused to provide access to some employees or documents or otherwise impeded the investigation, according to the report.

Rueters also reported on the inspector general's findings and has a Bank of America spokeperson denying the government's accusations:

Bank of America, for example, provided only excerpts of files, incomplete documents, and conflicting information to government investigators, and refused to provide some of its foreclosure policies.

It also limited employee interviews, and refused to let employees answer certain questions, the report said.

In the Bank of America investigation, the HUD watchdog said it had to enlist the Justice Department's help to issued civil subpoenas in order to secure documents and obtain testimony.

Bank of America spokesman Dan Frahm disputed HUD's report.

"Bank of America fully cooperated with the HUD Office of the Inspector General's review of mortgage servicing practices and any suggestion otherwise is both inaccurate and inconsistent with how we work with all regulators," Frahm said in a statement.