Did Bank of America just get called out for failing to follow crucial procedures?
Most of what I have to say about the settlement is in this post over at Naked Capitalism. But there is a remarkable tidbit I left out, which the HUD OIG noted in a wry part of the audit on Bank of America.
Bank of America may have conveyed flawed or improper titles to HUD because it did not establish control environment which ensured that affiants performed a due diligence review of the facts submitted to courts and that employees properly notarized documents.
This is the so-called "clouded title" problem, which is to say that bank servicers might have been foreclosing on properties they had no legal claim to. Yves Smith and Tom Adams jumped up and down on this in 2010 over a lawsuit called Kemp versus Countrywide. In this suit, a Bank of America employee revealed that Countrywide didn't properly follow securitization procedures to establish a clear chain of title. Therefore, the investors should technically get all their money back, because the loans were never actually turned into mortgage-backed securities. This is a multi-trillion dollar problem, a put-the-toothpaste-back-in-the-tube issue that no one wants to even whisper about.
And the HUD OIG somewhat alluded to the fact that it's out there. Awkward.
Matt Stoller is a Fellow at the Roosevelt Institute and former Senior Policy Advisor to Congressman Alan Grayson.