Stocks of the largest financial institutions were off as the markets open. Wells Fargo was down 4%, JPM 3%, BAC 4%, C 3.2% PNC 2.1% and USB is down 1.7%. The banks are being sold off on "Robogate" which is a foreclosure scandal that could hit many of the nations lenders.The scandal involves foreclosures on houses by the banks without the necessary documentation and the foreclosure of houses using robo-signers which is when workers involved in forclosures indicate the documentation is present when it is not. This has caused an investigation into whether the banks have violated the law in certain states. Banks are known to be more at risk in the "so-called judicial states." The Judicial States make it mandatory for a lender to go to court before it can foreclose on a loan. In non-judicial states, banks aren’t required to submit anything to the court until they are sued by a homeowner seeking to stop a foreclosure. The problem can be two-fold for the banks. The first one being that they may have violated the law in certain states and the second one being they do not have the necessary documentation required for future foreclosures.
Some of the banks are having trouble of identifying the owner of the actual mortgages. This was caused by the securitization of the mortgages industry which also led to the financial crisis in 2008. The securatization is the repackaging of mortgages into smaller pieces and then selling them like bonds or stocks to investors. The issue would be if banks have submitted forged documents in order to get the foreclosure processed and if the banks have the documents necessary to foreclose on future loans. All of these problems are rectified if the banks prove they own the mortgage.
One would hope that a bank which primary business is usually mortgages would keep appropriate documentation to prove that they own their most important asset. If the banks do not have this documentation who is the customer and who is the bank?
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