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Contents : Banks Ignored Signs of Trouble in Foreclosures - NYTimes.com Reprints Close This copy is for your personal noncommercial use only. You can order presentation-ready copies for distribution to your colleagues clients or customers here or use the "Reprints" tool that appears next to any article. Visit www.nytreprints.com for samples and additional information. Order a reprint of this article now. October 13 2010 Bankers Ignored Signs of Trouble on Foreclosures By ERIC DASH and NELSON D. SCHWARTZ At JPMorgan Chase & Company they were derided as Burger King kids walk-in hires who were so inexperienced they barely knew what a mortgage was. At Citigroup and GMAC dotting the i s and crossing the t s on home foreclosures was outsourced to frazzled workers who sometimes tossed the paperwork into the garbage. And at Litton Loan Servicing an arm of Goldman Sachs employees processed foreclosure documents so quickly that they barely had time to see what they were signing. I don t know the ins and outs of the loan a Litton employee said in a deposition last year. I m not a loan officer. As the furor grows over lenders efforts to sidestep legal rules in their zeal to reclaim homes from delinquent borrowers these and other banks insist that they have been overwhelmed by the housing collapse. But interviews with bank employees executives and federal regulators suggest that this mess was years in the making and came as little surprise to industry insiders and government officials. The issue http://www.nytimes.com/2010/10/14/business/14mortgage.html r 1&emc eta1&pagewanted print (1 of 5) 10/14/2010 10:09:20 AM Banks Ignored Signs of Trouble in Foreclosures - NYTimes.com gained new urgency on Wednesday when all 50 state attorneys general announced that they would investigate foreclosure practices. That news came on the same day that JPMorgan Chase acknowledged that it had not used the nation s largest electronic mortgage tracking system MERS in foreclosures since 2008. That system has been faulted for losing documents and other sloppy practices. The root of today s problems goes back to the boom years when home prices were soaring and banks pursued profit while paying less attention to the business of mortgage servicing or collecting and processing monthly payments from homeowners. Banks spent billions of dollars in the good times to build vast mortgage machines that made new loans bundled them into securities and sold those investments worldwide. Lowly servicing became an afterthought. Even after the housing bubble began to burst many of these operations languished with inadequate staffing and outmoded technology despite warnings from regulators. When borrowers began to default in droves banks found themselves in a never-ending game of catchup unable to devote enough manpower to modify or ease the terms of loans to millions of customers on the verge of losing their homes. Now banks are ill-equipped to deal the foreclosure process. We waited and waited and waited for wide-scale loan modifications said Sheila C. Bair the chairwoman of the Federal Deposit Insurance Corporation one of the first government officials to call on the industry to take action. They never owned up to all the problems leading to the mortgage crisis. They have always downplayed it. In recent weeks revelations that mortgage servicers failed to accurately document the seizure and sale of tens of thousands of homes have caused a public uproar and prompted lenders like Bank of America JPMorgan Chase and Ally Bank which is owned by GMAC to halt foreclosures in many states. Even before the political outcry many of the banks shifted employees into their mortgage servicing http://www.nytimes.com/2010/10/14/business/14mortgage.html r 1&emc eta1&pagewanted print (2 of 5) 10/14/2010 10:09:20 AM Banks Ignored Signs of Trouble in Foreclosures - NYTimes.com units and beefed up hiring. Wells Fargo for instance has nearly doubled the number of workers in its mortgage modification unit over the last year to about 17 000 while Citigroup added some 2 000 employees since 2007 bringing the total to 5 000. We believe we responded appropriately to staff up to meet the increased volume said Mark Rodgers a spokesman for Citigroup. Some industry executives add that they re committed to helping homeowners but concede they were slow to ramp up. In hindsight we were all slow to jump on the issue said Michael J. Heid copresident of at Wells Fargo Home Mortgage. When you think about what it costs to add 10 000 people that is a substantial investment in time and money along with the computers training and system changes involved. Other officials say as foreclosures were beginning to spike as early as 2007 no one could have imagined how rapidly they would reach their current level. About 11.5 percent of borrowers are in default today up from 5.7 perce

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