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WSJ: Foreclosure Detectives Hunt for Lies


URBANDALE, Iowa—In two squat, suburban office-park buildings here, Richard Barrent is digging through loan files that could help decide who pays for the mortgage-paperwork debacle.

The former Wells Fargo & Co. quality-assurance manager's two-year-old company is part of a cottage industry of loan detectives obsessed with detecting fraud, misrepresentations and violations of underwriting guidelines. Such discoveries can be used as ammunition to force banks and other lenders to buy back loans from bond insurers, holders of mortgage-backed securities and other customers of forensic loan-review firms.

The tedious business, usually involving hundreds of pages per loan, has taken on new urgency since the foreclosure problems erupted in mid-September. Losses to U.S. banks from loan repurchases could reach $40 billion to $90 billion, according to J.P. Morgan Securities. Previous estimates were much higher but have declined partly because it is so difficult to compel lenders to take back loans.

Loan files sometimes can be hard to get. And mortgage companies often dig in their heels when confronted with a demand to repurchase a loan. That can result in negotiations or lawsuits that can stretch for months or more—or a stalemate.


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