October 14, 2010 12:05 am

Spotlight falls on Wells foreclosure procedures

Wells Fargo, the second-biggest US mortgage servicer, has remained above the fray in recent weeks as banks have come under scrutiny for rubber-stamping thousands of mortgage documents without verifying their contents as required by law.

Unlike Bank of America, JPMorgan Chase and GMAC, Wells Fargo has not halted foreclosures and has maintained that it has no problems with its procedures.

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Yet, a sworn deposition by one of its loan documentation officers suggests otherwise. Xee Moua said she signed as many as 500 foreclosure-related papers a day on behalf of the bank. Ms Moua said the only information she had verified was whether her name and title appeared correctly.

Asked whether she checked the accuracy of the principal and interest that Wells Fargo claimed the borrower owed – an important step in banks’ legal actions to foreclose – Ms Moua replied: “I do not.”

Ms Moua nevertheless signed affidavits, reviewed by the Financial Times, that said she had “personal knowledge of the facts regarding the sums of money which are due and owing to Wells Fargo”. These affidavits were used in lawsuits brought by Wells Fargo to repossess homes.

Ms Moua said it was her understanding the foreclosure documents had been reviewed by outside lawyers before reaching her.

The statements by Ms Moua, who was deposed on March 9 as part of a Palm Beach County, Florida, lawsuit, is the latest twist in a mushrooming problem that raises questions about the US foreclosure process and has prompted a probe by the attorneys-general of all 50 states.

The banks insist that the problems are procedural and have not resulted in any improper foreclosures.

But critics say the paperwork problem is another example of how banks cut corners to increase profits at the expense of struggling borrowers.

The uproar also cuts to deeper issues that could throw the entire foreclosure process, involving more than 4m homes, into flux. Record keeping has not kept pace with the explosion of mortgage originations and securitisations that took place during the housing boom. As a result, many lenders are finding that they do not have the legal documents required to foreclose on delinquent borrowers.

Back in the days before loans were packaged into securities and sold to investors, a mortgage was filed with the local county land registry at the time of origination and those records were updated each time the loan changed hands, creating a tangible paper trail.

Securitisation allowed mortgages to be transferred among owners, known as securitised trusts, much more frequently. Banks were either unwilling or unable to keep up with the paperwork, according to scores of lawsuits brought by homeowners.

In one case, a Texas judge ruled Wells Fargo had no right to foreclose on a homeowner because the bank was unable to prove it owned the loan. “We mistakenly characterised the loan as ours when it was owned by Freddie Mac,” Wells Fargo said.

Wells Fargo declined to comment on Ms Moua’s deposition but said its records showed its “foreclosure affidavits are accurate”.

The bank added: “When we find team members who do not follow procedure, we fix what is done incorrectly. Until this case is resolved, we should keep in mind that a deposition does not suggest a wrongful foreclosure.”

Wells Fargo said it was reviewing its procedures as part of normal business practice and maintained “checks and balances” to prevent any serious lapses from occurring. For instance, Wells Fargo said: “The person signing the affidavit is supposed to personally review all of the information.”

Ms Moua is not the only employee who claims to have signed documents on behalf of Wells Fargo without verifying the accuracy of the information they contained.

Herman John Kennerty, a Wells Fargo employee based in Fort Mill, South Carolina, said in a May 20, sworn deposition that he signed as many as 150 documents a day without checking their contents.

Wells Fargo won the foreclosure case in which Mr Kennerty was deposed. “But that doesn’t change the fact that he didn’t know what he was signing,” said Melissa Huelsman, the lawyer who represented the borrower in that case.

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