ProPublica has a terrific report today nailing Ally Financial (the former GMAC) for faking mortgage documents in order to foreclose on a homeowner.

Paul Kiel gets hold of internal documents that show Ally (ProPublica refers to it throughout as GMAC for some reason) wanted to foreclose on a mortgage originated by Ameriquest, but couldn’t find the paperwork showing that it really owned the loan. So it just made one up:

“The problem is we do not have signing authority—are there any other options?” Jeffrey Stephan, the head of GMAC’s “Document Execution” team, wrote to another employee and the law firm pursuing the foreclosure action. No solutions were offered.

Three months later, GMAC had an answer. It filed a document with New York City authorities that said the delinquent Ameriquest loan had been assigned to it “effective of” August 2005. The document was dated July 7, 2010, three years after Ameriquest had ceased to exist and was signed by Stephan, who was identified as a “Limited Signing Officer” for Ameriquest Mortgage Company. Soon after, GMAC filed for foreclosure.

We’ve talked before about how the foreclosure scandal, which broke in earnest last fall, shows that systemic fraud was being committed at every part of the mortgage chain, from origination to securitization to the foreclosures that were inevitable in large part because of the earlier fraud.

In that vein, it’s worth noting that notorious predatory lender Ameriquest (which failed early in the housing crash) originated the specific mortgage in question here. Mike Hudson in his book “The Monster: How a Gang of Predatory Lenders and Wall Street Bankers Fleeced America—and Spawned a Global Crisis”, documents in detail how Ameriquest ran amok, including by forging documents to put people in loans they couldn’t afford.

Kiel and ProPublica find serious problems in hundreds of other loans Roland Arnall’s company created for which servicers now apparently can’t find documents proving ownership:

An examination by ProPublica suggests this transaction was not unique. A review of court records in New York identified hundreds of similar assignment documents filed in the name of Ameriquest after 2008 by GMAC and other mortgage servicers.

It’s worth noting that Ally is the fifteenth biggest bank in the land, with $173 billion in assets, and ProPublica reports that it is still majority owned by the government after having to be bailed out during the crisis.

The evidence in this case is so damning that Ally cops to it. The kicker is that despite all this—despite acknowledging that its employees created a fake document to give it legal authority to foreclose—Ally is going to go ahead and foreclose:

Asked by ProPublica about the document, GMAC acknowledged Stephan did not have authority to sign on behalf of Ameriquest. The bank said it is still planning to push ahead with foreclosure on the homeowner, who remains in the property.

Company spokeswoman Gina Proia said an internal review last fall into “suspected documentation execution issues” had flagged the loan as problematic and that GMAC is “determining what needs to be done in order to receive the necessary authorization.”

“We will determine and complete the necessary steps to remediate and proceed with foreclosure,” Proia said.

Meantime, the employee who signed the fake document still works for Ally.

Why?

It’s clear that this is a serious issue, as Kiel reports:

In New York, it’s a felony to file a public record with “intent to deceive.”

“It’s fraud,” said Linda Tirelli, a consumer bankruptcy attorney. “I want to know who’s going to do a perp walk for recording this.”

Great work.


Ryan Chittum is a former Wall Street Journal reporter, and deputy editor of The Audit, CJR's business section. If you see notable business journalism, give him a heads-up at rc2538@columbia.edu.