Robo-signing is the automatic signing of documents, without reading them.
What does that have to do with bankruptcy? I’m glad you asked me that.
Robo-signing was one of many shortcuts used by the big banks that caused the real estate bubble, the explosion of which is still causing bankruptcy filings, both Chapter 7 and Chapter 13 bankruptcy, in Detroit, Michigan and around the USA.
One of the crooks was convicted recently, in Michigan. Lorraine Brown was the president of DocX, a company based on robo-signing. She
established and orchestrated a widespread scheme of ‘,’ a practice in which employees were directed to fraudulently sign another authorized person’s name on mortgage documents in order to execute these documents as quickly as possible,” Schuette’s office said in a release.
(from WOOD-TV site)
People borrowed too much money on their homes, made possible partly because of the robo-signers who cranked out some of the documents necessary for mortgages to be bought and sold.
Yes, mortgages are bought and sold like everything else. As the real estate bubble was being inflated, more and more mortgages were issued as borrower standards to reduced to “if you could fog a mirror” you qualified. Appraisers were in on it, as mortgage brokers only used folks who appraised the value necessary for the loan to close. Brokers got their commissions and split, no skin in the game if the mortgage never got paid. Mortgage originators sold most mortgages in the first month.
This is where they needed robo-signers. Because, if you can churn out 500 documents in a day, we can hire your company, rather than pay people who are actually reading/verifying the documents they are authenticating. Another nickel saved, another nickel profit, accuracy and honesty be damned.
The bubble burst in 2008. Home values crashed. Equity disappeared, people who had ARMs, adjustable rate mortgages, got hammered when rates went up a little, could not refinance because the equity cushion had disappeared, ARM teaser rates expired, and so on. More foreclosures, more homes for sale, increased supply, decreased demand, prices go down more, more foreclosures, the vicious circle continued.
And, people filed Chapter 13 bankruptcies trying to save their home, stripping off second mortgages. Or, Chapter 7 bankruptcy, because they were losing the home, and did not want to be stuck with a deficiency on the first mortgage, and/or the entire balance due on the second mortgage.
When balloons burst, the economy is whacked, and bankruptcy filings go up.
Great to see one of the crooks brought to justice.