If a customer signs mortgage documents they haven’t read then they deserve what they get.
If a bank does, they also deserve what they get. I can see a scandal if they then try to resell it to some other entity and transfer the problem to them. Ditto to the extent the mortgage is guaranteed by some government entity and it becomes the taxpayers’ problem.
What I don’t understand is why the customer is supposedly harmed if the bank doesn’t read the docs ???
Banks were reselling these loans to Fannie & Freddie and other firms. The signatures of bank officers on the docs indicated that they had performed proper due diligence on the loans, when in fact they had not. The firms buying the loans were defrauded.
In many cases they were rubber stamps of fictitious persons, long gone employees, or someone in a different city who could not have signed at the time and place indicated.
These are legal documents, so the signature is not a “formality”. It indicates the person signing has reviewed and approved the information on behalf of the bank, has personal knowledge of the circumstances of the deal. The banks assumed that the courts would simply take the documents as they were, without questioning the fact the signature was fictitious. Some judges were not so understanding.
If you then resell these mortgages to a third party as securities, then you are trying to pass off as a valid legal document something that you claim is true even if you do not know for sure. You certify in a legal document something to be true (i.e. the mortgagee’s income), and it turns out not to be true - you are liable.
They were doing the customer wrong, because in many cases, they were certifying that a homeowner was not paying his mortgage when he was keeping up payments just fine. In some cases, they foreclosed on houses where the mortgage had been completely paid off, or on houses where another bank held the mortgage.
In some cases, banks even tried to foreclose on people who never had a mortgage at all, as highlighted in the story of a Florida couple who successfully sued Bank of America to halt the fraudulent foreclosure attempt on the house they’d paid cash for. When BoA never bothered to pay the couple’s legal fees, as was stipulated in court, they and their lawyer decided turnabout was fair play, and started a “foreclosure” on the local branch. Seems like checks get written quickly when the local sheriff slaps a lock on your bank’s door.
A mortgage is a legal document, backed by a piece of signed paper. The slicing of mortgages into CDOs was done in such a sloppy way that the pieces of paper somehow disappeared or, any rate, were not in the hands of the mortgage holder(s). Now there are provisions about situations in which a piece of paper disappears and this basically consists of assembling what evidence you have and swearing that “to the best of my belief and knowledge…” and signing it. Well, these documents were issued wholesale and the persons who signed them had no knowledge of (although they may or may not have had belief in) what they were signing. As said they were even foreclosed in this way on people who had no mortgage. The state of Florida brought at least one judge out of retirement whose only job was to approve the foreclosures. They should have called him a robojudge since any robot could have done what he did: approve every foreclosure brought to court, even with utter lack of evidence.