The Legacy of Foreclosure Fraud Could Help Decide Whether Ohio Turns Blue on Tuesday

Eight years ago, the Tea Party wave helped oust Democratic Attorney General Richard Cordray. Now he could take over the governor’s mansion.

David Dayen November 5, 2018

The 2018 Ohio governor's race is a repeat of the 2010 attorney general race. (Angelo Merendino/Getty Images)

In 2010, two can­di­dates bat­tled one anoth­er in a low-pro­file race in Ohio. Repub­li­can Mike DeWine, who was oust­ed from the U.S. Sen­ate in 2006 by Sher­rod Brown, thought he could return the favor to state attor­ney gen­er­al Richard Cordray.

The facts are clear: When nobody would call out banks for their malfeasance, one public official stood up for the rule of law.

This year DeWine and Cor­dray are fac­ing each oth­er again, in the race for gov­er­nor of Ohio. But the cir­cum­stances of that 2010 con­test reveal how much it mat­ters who rep­re­sents the pub­lic at crit­i­cal moments, even in down-bal­lot seats.

Weeks before the 2010 elec­tion, the nation’s lead­ing banks were forced to come clean. They had mass-pro­duced mil­lions of pieces of false evi­dence in fore­clo­sure cas­es, kick­ing peo­ple out of their homes by rely­ing on dodgy doc­u­ments. Amer­i­cans were intro­duced to the term robo-sign­ing” — refer­ring to indi­vid­u­als who signed thou­sands of affi­davits attest­ing to the truth­ful­ness of bank claims about fore­clo­sures, with­out know­ing any­thing about the under­ly­ing cas­es. One of these robo-sign­ers was Jef­frey Stephan, an employ­ee for GMAC Mort­gage, ini­tial­ly the financ­ing arm of Gen­er­al Motors which went on to become the nation’s fifth-largest mort­gage ser­vic­ing company.

Stephan admit­ted in mul­ti­ple depo­si­tions to sign­ing 10,000 fore­clo­sure affi­davits a month, with­out ver­i­fy­ing the amounts due, the chains of own­er­ship, or any­thing else about the loans. Once a judge in Maine sanc­tioned GMAC for Stephan’s prac­tices and vacat­ed a GMAC fore­clo­sure judg­ment that Sep­tem­ber, the com­pa­ny sus­pend­ed all its fore­clo­sure cas­es in state courts.

In Ohio, Cor­dray saw the Stephan doc­u­ments as instances of mass per­jury, orches­trat­ed by a major mort­gage com­pa­ny to swin­dle mil­lions of peo­ple out of their homes. Behind the robo-signed affi­davits were a mess of false doc­u­ments and fore­clo­sure process­es that threw into ques­tion the true own­er of mil­lions of prop­er­ties. Demand­ing account­abil­i­ty around these cas­es could help to unfurl all of the mort­gage industry’s crimes.

Cor­dray filed a law­suit in Ohio against GMAC and Stephan, cit­ing the use of false doc­u­ments to increase… prof­its at the expense of Ohio con­sumers and Ohio’s sys­tem of jus­tice.” The suit treat­ed every false affi­davit as a sep­a­rate vio­la­tion, sub­ject to a fine of $25,000, plus addi­tion­al resti­tu­tion for wrong­ly fore­closed home­own­ers. Giv­en the num­ber of fore­clo­sures filed in Ohio at the time, and the fact that robo-sign­ing was a stan­dard prac­tice, the fines for the entire indus­try would total up to $11 bil­lion in Ohio alone.

We’re at the begin­ning of this, not the mid­dle or end,” Cor­dray said on Octo­ber 6, 2010, when he filed the law­suit. It is now becom­ing clear that fraud, decep­tion, and an utter dis­re­gard for accu­ra­cy are in part to blame for our nation­al fore­clo­sure dis­as­ter.” When chal­lenged on whether the bor­row­ers hadn’t paid their mort­gages, Cor­dray pushed back. If we would file a case with an affi­davit we know to be false, that is seen as a very seri­ous mat­ter by the court. I don’t see why this should be tak­en any more lightly.”

At the time, Cor­dray was the only state attor­ney gen­er­al to have actu­al­ly sued a bank over fore­clo­sure fraud. But he had a prob­lem: his re-elec­tion. Fac­ing a tough polit­i­cal land­scape for Democ­rats, one which recent research shows was exac­er­bat­ed by mass fore­clo­sures that sig­nif­i­cant­ly decreased vot­er turnout, Cor­dray lost by 48,686 votes out of more than 3.8 mil­lion cast.

Ohio v. GMAC passed into the hands of DeWine, and it nev­er even got to tri­al. The case was set to turn on the ques­tion of whether mort­gage ser­vicers, which col­lect mort­gage pay­ments on behalf of loan own­ers, were sub­ject to Ohio’s con­sumer pro­tec­tion laws. But two days before a sched­uled hear­ing, on Feb­ru­ary 6, 2012, DeWine noti­fied the court that he had accept­ed a federal/​state set­tle­ment on robo-sign­ing and oth­er issues with five mort­gage com­pa­nies, includ­ing GMAC. That nation­al set­tle­ment includ­ed dis­miss­ing the claims in the GMAC case.

Pri­vate home­own­ers took over the case from DeWine, and it dragged on for years until the Ohio Supreme Court final­ly dis­missed it in 2016. The dis­missal did not rest upon whether GMAC filed false evi­dence in state courts, but whether the pri­vate home­own­ers were part of GMAC’s 2012 bank­rupt­cy pro­ceed­ings and sub­se­quent­ly had stand­ing to sue.

In 2013, Cor­dray became head of the Con­sumer Finan­cial Pro­tec­tion Bureau, while DeWine served two terms as state attor­ney gen­er­al. Their cur­rent race for Ohio gov­er­nor has been large­ly focused on the opi­oid cri­sis and pre-exist­ing health con­di­tions, not fore­clo­sure fraud. But I can’t help but think that the expe­ri­ence of Ohio v. GMAC speaks volumes.

There’s no guar­an­tee that things would have turned out dif­fer­ent­ly if Cor­dray had nar­row­ly won his attor­ney gen­er­al race, instead of nar­row­ly los­ing. Democ­rats and Repub­li­cans, many of whom ini­tial­ly talked tough about fore­clo­sure fraud, togeth­er accept­ed the weak nation­al set­tle­ment and relin­quished the prospect of real account­abil­i­ty. I even crit­i­cized Cordray’s CFPB for inad­e­quate pun­ish­ment against mort­gage ser­vicers, and while the agency even­tu­al­ly rec­ti­fied the sit­u­a­tion, it came far too late.

But there’s no ques­tion that DeWine didn’t put up any kind of fight in the GMAC case. He qui­et­ly went along with the set­tle­ment and fold­ed his fraud alle­ga­tion in with it. Ohio v. GMAC was Cordray’s brain­child; it’s not implau­si­ble that he might have held out to achieve jus­tice for fraud upon state courts, or con­tin­ued to inves­ti­gate the cor­rupt prac­tices of oth­er ser­vicers, mak­ing a weak set­tle­ment polit­i­cal­ly impossible.

The facts are clear: When nobody would call out banks for their malfea­sance, one pub­lic offi­cial stood up for the rule of law. But we nev­er got to see his fol­low-through, and his replace­ment set­tled for a wrist-slap on the banks that infu­ri­at­ed the pub­lic and taught them the sys­tem is rigged. This unher­ald­ed Ohio attor­ney general’s race eight years ago played a role, in my view, in the rise of Trump-style right-wing pop­ulism, as a snake-oil anti­dote to an era of no accountability.

So many out-of-the-spot­light races on Tues­day could have a sim­i­lar impact. Dis­trict attor­ney races could shape the future of crim­i­nal jus­tice; school board seats will deter­mine the sur­vival of pub­lic edu­ca­tion; bal­lot mea­sures in Ida­ho, Nebras­ka, and Utah would expand Med­ic­aid in those states, direct­ly sav­ing thou­sands of lives. Con­gres­sion­al and guber­na­to­r­i­al races are impor­tant, but the deci­sions buried deep­est on the bal­lot are often the ones with the most direct bear­ing on people’s lives. And you nev­er know when some­thing like the fore­clo­sure cri­sis will thrust unknown pub­lic offi­cials into the foreground.

Mean­while, the lin­ger­ing con­se­quences of the demise of Ohio v. GMAC can be seen by how per­pe­tra­tors of fore­clo­sure fraud keep pop­ping up in posi­tions of pow­er. Steven Mnuchin, the Trea­sury Sec­re­tary, chaired ser­i­al fore­clos­er OneWest Bank; top bank reg­u­la­tor Joseph Otting was its CEO.

Kevin Stitt, the for­mer CEO of Gate­way Mort­gage, is in a dog­fight in his race for gov­er­nor of Okla­homa, despite being a Repub­li­can in a red state. Gate­way Mortgage’s shady fore­clo­sure prac­tices were com­mon for the indus­try. In fact, in 2010 the web­site 4closurefraud iden­ti­fied a promi­nent robo-sign­er pen­ning doc­u­ments on behalf of Gateway.

That robo-signer’s name? Jef­frey Stephan.

David Dayen is an inves­tiga­tive fel­low with In These Times’ Leonard C. Good­man Insti­tute for Inves­tiga­tive Report­ing. His book Chain of Title: How Three Ordi­nary Amer­i­cans Uncov­ered Wall Street’s Great Fore­clo­sure Fraud won the 2015 Studs and Ida Terkel Prize. He lives in Los Ange­les, where pri­or to writ­ing about pol­i­tics he had a 19-year career as a tele­vi­sion pro­duc­er and editor.
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