U.S. lawmakers pushed for the country's largest mortgage lenders to suspend foreclosures in all 50 states after Bank of America Corp announced on Friday it would temporarily halt evictions nationwide.
BofA, the largest U.S. mortgage servicer, is the first U.S. bank to institute a nationwide freeze on foreclosures, expanding on a 23-state suspension announced last week while it conducts a review of its procedures.
Disclosures that some big U.S. mortgage processors filed false affidavits in thousands of foreclosure cases is drawing fresh scrutiny to an industry already in the sights of regulators and lawmakers for its role in the financial crisis.
The U.S. Senate Banking Committee announced on Friday it would hold a Nov. 16 hearing into allegations of improper and fraudulent mortgage servicing and foreclosure processing.
The foreclosure furor is erupting just weeks before Nov. 2 congressional elections where voters look set to take out their anger at high unemployment and a sluggish economy on Democrats who currently control both the House of Representatives and the Senate.
Senate Majority Leader Harry Reid, House Oversight Committee Chairman Edolphus Towns and California Attorney General Jerry Brown, who is running for governor, called on other lenders to follow Bank of America's lead.
Banks are expected to take over a record 1.2 million homes this year, up from about 1 million last year, according to real estate data company RealtyTrac Inc.
While homeowners may cheer efforts to get tough with banks, some experts say a blanket halt to foreclosures could further hobble the economy, preventing banks from resolving bad loans and storing up an inventory of homes still likely to face foreclosure.
Dick Bove, bank analyst with Rochdale Securities, said an industry-wide foreclosure halt would further depress future home prices, as a flood of pent-up foreclosures would re-enter the market at roughly the same time.
BofA will continue to track late payments and pursue delinquent borrowers under the nationwide suspension that starts Saturday, but will stop short of foreclosure sales.
Ally Financial's GMAC Mortgage and JPMorgan Chase and Co also said last week they were suspending foreclosures in the 23 states requiring judicial foreclosure proceedings.
Wells Fargo has said that it is "confident" in its foreclosure paperwork, and Citigroup is also resisting calls for a foreclosure moratorium.
As of Friday afternoon, other major mortgage servicers had not followed Bank of America.
At least one senior official at the Federal Reserve is concerned about the mortgage foreclosure process and its potential impact on the economy.
At a regular meeting this week with investment firm executives, Thomas Baxter, general counsel at the New York Fed, asked for thoughts on how to ensure banks could still foreclose on bad loans, according to two sources familiar with the gathering.
He asked about recent foreclosure moratoriums, and whether they will prevent banks from working through bad loans, the sources said.
The New York Fed declined to comment.
Mortgage industry critics contend banks' used "robo-signers," or people who signed hundreds of foreclosure documents daily without reviewing them, and are unfairly pushing residents out of their homes.
On Thursday, President Barack Obama refused to sign proposed legislation that would have made it more difficult for homeowners to challenge documents in a foreclosure.
The head of the Federal Housing Administration called on Friday for banks that make home loans backed by the agency to ensure they comply with its rules. Those that don't will be subject to "appropriate action."
Bank of America Chief Executive Brian Moynihan said on Friday the company stands by its foreclosure processes, and the temporary stop was designed to "clear the air" around home repossessions.
"We'll go back and check over our homework one more time," Moynihan said after a speech at the National Press Club in Washington, D.C.
Bank of America spokesman Dan Frahm said the company is reviewing its entire foreclosure process, but is focusing on the validation of signatures on foreclosure documents.
Frahm said the average foreclosed borrower has not made a payment in 18 months. He described the review as lasting for weeks, rather than months, and declined to disclose how many foreclosures would be affected by the move.
Bank of America became the largest U.S. mortgage servicer after purchasing Countrywide in 2008 at the height of the financial crisis.
© 2022 Thomson/Reuters. All rights reserved.