Mortgage Foreclosures: Documentation Problems Reveal Need for Ongoing Regulatory Oversight Page: 2 of 16
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Chairman Menendez, Ranking Member DeMint, and Members of the
Subcommittee:
Thank you for the opportunity to discuss our work on mortgage servicing
issues. With record numbers of borrowers in default and delinquent on
their loans, mortgage servicers-entities that manage home mortgage
loans-are initiating large numbers of foreclosures throughout the
country. As of December 2010, an estimated 4.6 percent of the about 50
million first-lien mortgages outstanding were in foreclosure-an increase
of more than 370 percent since the first quarter of 2006, when 1 percent
were in foreclosure.' Beginning in September 2010, several servicers
announced that they were halting or reviewing their foreclosure
proceedings throughout the country after allegations that the documents
accompanying judicial foreclosures may have been inappropriately signed
or notarized.2 The servicers subsequently resumed some foreclosure
actions after reviewing their processes and procedures. However,
following these allegations, some homeowners challenged the validity of
foreclosure proceedings against them. Questions about whether
documents for loans that were sold and packaged into mortgage-backed
securities were properly handled prompted additional challenges.3
My statement today focuses on (1) the extent to which federal laws
address mortgage servicers' foreclosure procedures and federal agencies'
authority to oversee servicers' activities and the extent of past oversight;
(2) federal agencies' current oversight activities and future oversight plans;
and (3) the potential impact of foreclosure documentation issues on
homeowners, servicers, regulators, and investors in mortgage-backed
securities. It is based on the report we issued on May 2, 2011, on
foreclosure documentation problems that Chairman Menendez, Senator
'A home mortgage is an instrument by which the borrower (mortgagor) gives the lender
(mortgagee) a lien on residential property as security for the repayment of a loan. A first-
lien mortgage creates a primary lien against real property and has priority over subsequent
mortgages, which generally are known as junior, or second, mortgages. That is, first liens
are the first to be paid when the property is sold.
2State laws primarily govern the foreclosure process and treat foreclosures differently, with
some states requiring court action-that is, judicial foreclosure.
3These challenges have centered on whether the paperwork documenting transfers of loans
into securities pools adequately proves that the trust (the entity formed to hold the
securitized loans) seeking to foreclose on a property was the actual mortgage holder with
the authority to foreclose.GAO-11-649T
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United States. Government Accountability Office. Mortgage Foreclosures: Documentation Problems Reveal Need for Ongoing Regulatory Oversight, text, May 12, 2011; Washington D.C.. (https://digital.library.unt.edu/ark:/67531/metadc293092/m1/2/: accessed March 19, 2024), University of North Texas Libraries, UNT Digital Library, https://digital.library.unt.edu; crediting UNT Libraries Government Documents Department.