Managers at Wells Fargo and other major banks ignored widespread errors in the foreclosure process, in some cases instructing employees to adopt make-believe titles and speed documents through the system despite internal objections, according to a wide-ranging review by federal investigators.

The banks have largely focused the blame for mistakes on low-level employees, attributing many of the problems to the surge in the volume of foreclosures after the housing market collapsed and the economy weakened in 2008.

But the report concludes that managers were aware of the problems and did nothing to correct them. The shortcuts were directed by managers in some cases, according to the report, which is by the inspector general of the Department of Housing and Urban Development.

The examination is among the most extensive to date of the banks' foreclosure practices, which caused a national uproar and prompted a $25 billion settlement between the banks and the government that was filed in federal court Monday.

"I believe the reports we just released will leave the reader asking one question - How could so many people have participated in this misconduct?" David Montoya, the inspector general of the housing department, said in a statement. "The answer - simple greed."

What is more, rather than focusing on misconduct at outside law firms, loan processors and other third parties, as some past inquiries did, the department's investigation takes aim at internal bank processes and the chain of command. It does not name the supervisors or indicate how many knew of the problems, however.

At Bank of America, which until late last year was the nation's largest mortgage servicer, two employees testified that they had raised concerns about whether documents were being properly notarized, but managers told them to proceed. One vice president said documents in her department were checked only for "formatting and spelling errors," not the underlying figures or facts in the case.

At San Francisco's Wells Fargo, now the nation's largest mortgage servicer and originator, employees told the inspector general's office that the company's management had assigned them bogus titles, including "vice president of loan documentation," even though they had no training in document review. Before becoming vice president, one employee worked at a pizza restaurant.

Wells Fargo's management quashed an independent study by a manager responsible for overseeing the affidavit process. The study had started to show that the document department was critically understaffed. "The midlevel manager was directed to stop the study and return to the practice of signing affidavits without reading or verifying data," the report said.

And instead of remedying the problems, Wells Fargo's management shortened the review period to less than 48 hours instead of five to seven days, the employees said.

The banks have argued that despite document errors, foreclosures were justified because borrowers had fallen behind on their payments. But the report, which focused on foreclosures from 2008 to 2010 of federally backed loans serviced by five major banks, suggests that the banks violated state laws governing the foreclosure process.

This article appeared on page D - 2 of the San Francisco Chronicle
New York Times
Wednesday, March 14, 2012
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