COP: Robo-signers may jeopardize 33 million mortgages, securitization

The Congressional Oversight Panel called on the Treasury Department to investigate documentation problems in the mortgage industry. It's a threat, the panel said, that could call into question the validity of 33 million mortgages in a worse-case scenario.


Major servicers such as Bank of America (BAC: 12.10 -0.17%), JPMorgan Chase (JPM: 40.08 +1.19%), Ally Financial's (GJM: 22.72 -0.70%) GMAC Mortgage and Wells Fargo (WFC: 27.65 +0.40%) have begun refiling hundreds of thousands of foreclosure affidavits employees may have signed without a proper review of the documents. Wells said their move was a precautionary one.

In response, 50 state attorneys general offices and11 federal regulators have launched investigations, along with a slew of lawsuits demanding the banks and their servicing arms prove they have the right to foreclose on a homeowner.

Those 11 regulators, however, have found no evidence of a systemic risk to the broader financial system, according to a Treasury official.

Threat to Secondary Market

According to the COP report, if this documentation problem has spread to the securitization process, banks may not know which mortgages they own.

Securitizing a mortgage loan requires many transfers of title. Any missteps could bring ownership of the loan into question.

The concern, COP says, is that robosigners may prove to be a weak link in the chain of mortgage finance (chart below):

Read on.