Earlier this week Nevada Attorney General Catherine Cortez Masto indicted two mid-level employees of Lender Processing Services (LPS) for 606 counts of robosigning, specifically “directing fraudulent notarization and filing of foreclosure documents.” LPS is a major company hired by banks to process foreclosure documents and has been at the center of the robosigning scandal. LPS would allegedly help banks forge documents that were used to foreclose on homeowners in situations where the banks didn’t have any of the required documentation to prove that they had a right to foreclose.
The two employees under indictment are mid-level people, not CEOs and not people who in themselves represent an indictment of the entire industry response to the failure to properly track mortgage documentation during the securitization process. 600 counts likely represents at most a day of work for two robosigners and this is a crisis that has been going on fore years. At Naked Capitalism, Matt Stoller notes that, “These would be the only charges served involving the housing crisis and its link with the structurally corrupt securitization chain so far.” So even if nothing else comes from these indictments and Masto isn’t able to roll them up on their bosses, this is still an important moment for the rule of law as it relates to private property and the housing crisis. Stoller goes on:
At this point, Masto has gone further than any other official in terms of restoring some sort of social contract. And that’s saying something. Leadership can come from anywhere, especially when the corruption seems to be everywhere. And with California AG Kamala Harris putting immense pressure on Fannie/Freddie on foreclosures, it suggests the tide is turning on this issue somewhat.
Our essential economic problem is that our economy allocates resources through a mediating system of banks that are broken and/or corrupt. If you look at a chart of the recession, and then the recovery, you’ll notice that business investment perked up, but residential investment did not. The Fed lowered rates, bought Treasury bonds, and bought mortgage backed securities to lower rates for homeowners. But it’s not really working, because the monetary channel is corrupt. This indictment gets to that problem, it alleges tens of thousands of forged documents (or as a friend told me sarcastically, an afternoon’s worth of work for LPS). These documents represent foreclosures, economic loss, and clouded title. The indictments handed down, and the ones to come, show that corrupting our property laws and the basis of our economy is a crime.
This is incredibly important, since there just hasn’t been the sort of criminal investigation into robosigning and the way it has corroded the entire system of property ownership. With 11 million foreclosures already and quite possibly as many to come in the next few years, the impacts of robosigning are devastating. When a bank can’t prove they have a right to a particular property and hire a company like LPS to forge documents saying they do, and they are allowed to take someone’s home this way without punishment, there can be no functional expectation that any individual’s property is safe from theft. When the improperly foreclosed home is then eventually sold, that new owner will be taking over a property with unquestionably cloudy title.
Plenty of people have been saying robosigning is a criminal act for a long time now. Nevada AG Masto has now validated those people and confirmed that criminal behavior in connection to the housing crisis will not be tolerated, at least not in Nevada. There’s no reason why Attorneys General in every other state cannot do the same, nor is there a reason why the Department of Justice can’t hold people criminally responsible for illegal behavior during the housing crisis and continuing today.