On Dec. 17, Senator Elizabeth Warren (D-Mass.), ranking member of the Senate Banking, Housing, and Urban Affairs Committee, sent a letter to the independent, nationwide monitor of the 2012 National Mortgage Settlement, requesting records of mortgages that were extinguished under the settlement. The letter follows recent reporting that debt collectors are attempting to foreclose on thousands of Americans based on second “zombie” mortgages that many of the homeowners believed were extinguished after they received documents indicating were canceled.

According to the letter, lenders were incentivized to encourage borrowers to take out second mortgages leading up to the Great Recession and foreclosure crisis. A common  arrangement was for the lender to extend a second mortgage to cover a portion or all of the typical 20 percent downpayment. When the housing market crashed, foreclosure rates spiked and mortgage servicers rushed to foreclosure on millions of homeowners, the letter stated.

In 2010, all 50 state attorneys general launched an investigation into banks that had rushed to evict people with incomplete documentation. As a result, the state and federal government established that mortgage servicers had committed a series of lending abuses, including “use of ‘robo-signed’ affidavits in foreclosure proceedings; deceptive practices in the offering of loan modifications; failures to offer non-foreclosure alternatives before foreclosing on borrowers with federally insured mortgages; and filing improper documentation in federal bankruptcy court,” the letter stated.

Bank of America Corp., JPMorgan Chase & Co., Wells Fargo & Co., Citigroup Inc. and Ally Financial Inc. reached a $25 billion settlement with 49 states and the federal government (the National Mortgage Settlement), the letter reported. The servicers forgave over $15 billion of second mortgages and earned a set amount of “credit” for the extinguishment towards their settlement obligations.

The letter raised concerns about recent reports that indicated that some of the second mortgages may have not been extinguished. According to the reporting, some homeowners no longer received statements on their second mortgages, received tax documents saying the second mortgage was canceled, and then learned that the second mortgage was still active.

“Given how many second mortgages were extinguished as part of the National Mortgage Settlement, I am concerned that banks may have received credit for extinguishing second mortgages in the settlement, when in fact they sold those loans to debt collectors,” Warren wrote.

Warren requested the following information from the independent monitor no later than Jan. 7:

• Any records related to the second mortgages that were extinguished under the terms of the National Mortgage Settlement.
• Any records related to the second mortgages that were extinguished under the terms of the other settlements monitored.
• Any communications between the monitor and defendants related to the extinguishment of second mortgages.