This is much more complicated than it sounds.
Banks and mortgage companies do not loan most of the money for homes any more -- they sell the loan, which is "serviced" by mortgage servicing companies. In these cases the bank or mortgage company just originates the loan. When I was a kid, for the most part, banks actually lent homeowners money, based on the deposits they had on hand. But that soon changed...
Banks and mortgage companies do not actually do the foreclosure documentation, they hire other companies to do it, the largest of which is LPS. A lot of the current documentation fraud problems lead to us directly to one company: LPS. The robo-signers work for LPS. However, many banks contract this company.
All of this does not absolve the financial "loan originator" of responsibility. Typically banks do a good job of documenting paperwork, mortgage brokers can be worse. If you have ever financed a home, you know there are a few pounds of paperwork in the loan package. The problem usually starts when the loan is sold, and it gets worse from there.
Who created the mortgage backed securities industry? Guess who....
hint: think Freddie Mac and Fannie Mae).
Both were created to increase and regulate the money supply. And it got worse...
Fannie Mae's mantra is to "provide financial products and services that increase the availability and affordability of housing for low-, moderate- and middle income families... (quote from their Website)" It was created in 1938 to provide banks with taxpayer money to increase homeownership and affordable housing, since the government was unhappy that banks were unwilling to lend money for home loans -- it was too risky at the time. In 1968, Fannie Mae was "privatized." But is classified as a Government Sponsored Enterprise. The reason to "privatize" Fannie Mae, was to get it out of the Federal Budget, because along with the Viet Nam war, the budget was looking pretty dismal. Pretty creative financial move.
Freddie Mac "Works with mortgage lenders to help people get lower housing costs and better access to home financing (quote from their Website)." It was created in 1970 by the government, so Fannie Mae would not be a monopoly.
Freddie Mac and Fannie Mae control 90% of the secondary mortgage market, and hold over 50% of all home loans. We have two government sponsored, investor owned companies that have a monopoly on the secondary mortgage market that the government created. Unless it has changed, these two GSE's are exempt from registering with the SEC, or paying state & local income taxes. Sweet!!
The government has provided over $110 billion to Fannie and Freddie in bailout money.
So what have the regulators been doing to oversee the GSE's they created?
Any fraud committed should be punished. But, what is the root cause of the problem?