Arizona showing commitment in foreclosure investigation

Arizona is taking a leading role in a multistate probe of prominent banks amid mounting scrutiny over foreclosure practices.

The effort spearheaded by the attorneys general of all 50 states, plus most state bank regulators, aims to size up the scope of the problem, order solutions if necessary and consider fines or other penalties.

"We're really talking about a lot of clout, with the ability to bring simultaneous lawsuits across the country," said Terry Goddard, Arizona's attorney general.

However, Goddard said he hoped a thorough review of practices at mortgage-servicing firms will clear up problems cited by borrowers and improve the odds for successful loan modifications or other remedies short of foreclosure.

Announcement of the multistate investigation coincided with a new Arizona State University report showing that Phoenix-area foreclosures in September rose to their highest level of 2010, making up 46 percent of total sales.

Recent allegations of improper foreclosure proceedings, capped by the investigation, casts more uncertainty over a fragile market, said Jay Butler, an associate professor of real estate at ASU.

"It impacts the one area of the market where there's been any activity," Butler said.

The multistate investigation will scrutinize whether the use of "robosigners" in foreclosure procedures could be illegal. The term refers to mortgage-company employees who might sign off on dozens or scores of foreclosure documents in a day without confirming their accuracy.

The attorneys-general group indicated that foreclosure documents have been signed by people lacking personal knowledge of the facts and that affidavits have been signed without a notary present.

Several large mortgage-servicing firms have said that employees signed documents without reviewing the contents, but they have mostly cast the problems as technical in nature.

Goddard said the attorneys-general reaction suggests otherwise.

"This is the first 50-state investigation since I've been attorney general," he said. "Allegations of fraud regarding robosigning are very serious."

The combined investigation means the states can pool resources and work more efficiently.

Although Arizona will take a leading role, the ability to share costs will help keep expenses down, Goddard said.

Arizona will be one of 12 states on the group's executive committee.

The probe will include participation from the Arizona Department of Financial Institutions and bank or mortgage regulators from 36 other states.

It will focus on whether mortgage servicers have improperly submitted documents in support of foreclosures and whether firms have worked in good faith with borrowers to resolve issues before they reach that stage.

The aim will be to review and stop bad practices, order solutions and establish a means to monitor things in the future.

Goddard said his office continues to hear the same complaints it was receiving four years ago, from lost paperwork to a failure by mortgage servicers to respond to homeowners. Also troubling, he said, are situations in which a lender forecloses on a property at the same time a borrower thinks a mortgage is being successfully modified.

State officials could levy fines, require mortgage firms to revamp their policies or take other actions.

"Nothing is off the table," Goddard said.

Butler said he sees the robosigning issue as one marked mostly by procedural errors that haven't resulted in many people losing homes by mistake.

He also predicts the issue could die down after midterm elections.

Several members of Congress have joined the chorus of criticism against banks.

Election results will change the lineup in several attorney-general offices, including Arizona, where Goddard is stepping down to run for governor against Jan Brewer.

But Goddard expressed confidence that enthusiasm for the probe will continue after the election.

"There's just so much frustration that there are still no set, clear foreclosure guidelines," he said.

by Russ Wiles The Arizona Republic Oct. 14, 2010 12:00 AM




Arizona showing commitment in foreclosure investigation