Posted on Tuesday, October 19, 2010
Bank of America announced on Monday that it would resume home foreclosures in nearly two dozen states, despite the running controversy over how banks handled tens of thousands of cases of homeowners facing eviction. Bank of America, the nation’s largest bank and the servicer of roughly one in five American mortgages, insisted that it had not found a single example where a foreclosure proceeding was brought in error.
The move is also likely to encourage other giant lenders, like JPMorgan Chase, to resume the foreclosure process that threatens two million homeowners.
Meanwhile, GMAC Mortgage, whose procedures helped prompt the controversy when one its executives testified that he had signed 10,000 documents in a month, is also proceeding with foreclosures.
“We announced a temporary suspension of evictions and foreclosure sales in the 23 judicial states several weeks ago so we could commence the appropriate review,” said Gina Proia, a spokeswoman for GMAC. “As cases are being reviewed and, when needed, remediated, the foreclosure process moves forward as appropriate.”
Guy Cecala of Inside Mortgage Finance, an industry publication, said: “This draws a line in the sand that the banks expect this problem will be over in relatively short order and it will be back to business as usual. If Bank of America can do it, certainly the smaller ones will follow suit.”
Bank of America plans to begin filing new paperwork for 102,000 foreclosures by Monday.
Consumer advocates and lawyers for homeowners expressed skepticism that Bank of America could complete a review of the paperwork so quickly. But the banking industry has come under increasing pressure from investors to resolve the problem.
Investors have fled bank stocks in recent days, worrying that the foreclosure halt would cost banks billions of dollars and inflict further harm on the nation’s struggling housing market. Bank of America is scheduled to report its latest quarterly results on Tuesday. Its shares have suffered more than those of other big banks, so any sign that the crisis is easing is likely to be greeted favorably by shareholders.
Reports of improper procedures at mortgage servicers, like having officials sign thousands of documents a month — so-called robo-signers — also have set off a political furor. On Wednesday, all 50 state attorneys general announced an investigation of mortgage servicing.
Bank of America said it would resume foreclosures in the 23 states where judicial approval was required after an internal review turned up no evidence that cases were filed in error.
However, Bank of America’s suspension will remain in effect in the 27 other states that do not require a judge’s approval to foreclose, as the bank’s paperwork review proceeds state by state. It was the only bank to initiate a nationwide freeze.
“We did a thorough review of the process, and we found the facts underlying the decision to foreclose have been accurate,” said Barbara J. Desoer, president of Bank of America Home Loans. “We paused while we were doing that, and now we’re moving forward.”
In the other 27 states, Ms. Desoer said, she expects foreclosures to resume within weeks.
Bank of America was careful to note that the major holders of mortgages — Fannie Mae and Freddie Mac — as well as private investors had signed off on its decision and had been consulted during the review. Of the 14 million mortgages it services — about $2.1 trillion worth — about half are owned by Fannie Mae and Freddie Mac, the giant mortgage holding companies now controlled by the Treasury.
About 30 percent are owned by institutional investors, like hedge funds, pension funds and insurance companies, while Bank of America holds 20 percent.
“We voluntarily paused our process in the 23 judicial states, not because there was evidence of problems — there was not — but because we wanted to ensure our customers they are being treated fairly,” said Dan Frahm, a bank spokesman.
Even as Bank of America and GMAC signaled their resumption of foreclosures, a Citigroup executive said the company was confident in its procedures. “The integrity of Citi’s foreclosures process is sound,” John C. Gerspach, Citigroup’s chief financial officer, said on a conference call.
In Bank of America’s case, the foreclosures are resuming in the 23 states where judicial procedure is required because the halt was initiated there first, on Oct. 1. It was extended to the other 27 states on Oct. 8.
From the beginning, Bank of America signaled that it did not expect the review to go on for an extended period. On Oct. 8, its chief executive, Brian Moynihan, promised a quick conclusion.
“We haven’t found any problems with the foreclosure process, and what we’re saying is that we’ll go back and check our work one more time,” he said at the time. “We expect to be done in a few weeks’ time.” Still, it is far from certain that banks will be able to calm the public controversy easily or quickly. Besides the robo-signers, lawyers for homeowners have found evidence that documents were lost or even thrown out. Armed with this information, lawyers are gearing up for protracted court battles.
Peter Ticktin, a lawyer in Deerfield Beach, Fla., questioned how Bank of America could validate the paperwork in its foreclosure cases so quickly, particularly for those loans that were repackaged as mortgage-backed securities.
“This wasn’t just a simple little mistake of forgetting to dot the ‘i,’ ” Mr. Ticktin said. “There was a whole system put in place to make false affidavits. How are they going to erect a new system to do 102,000 affidavits unless they are going to use the same old law firms to make a second generation of bad affidavits?”
Ira Rheingold, executive director of the National Association of Consumer Advocates, also expressed skepticism that Bank of America could clean up its problems with foreclosures so quickly.
“These are lawyers. These are banks going to court and committing fraud,” he said. “For them to say this is a minor technical problem is mind-boggling.”
It was good news for real estate agents, who had watched sales grind to a halt since major banks halted foreclosures late last month and in early October.
Kevin Corasio, a Realtor in Fort Myers, Fla., who specializes in foreclosed properties, said his business had fallen 60 percent in recent weeks. “I hope what you are telling me is true,” he said. “It’s going to mean a lot of property on the market.”
Nicholas Bogos, a tax lawyer, said he was dealing with a foreclosure suit on his dead brother’s home in Tampa, filed by Bank of America. He said he had not heard that the bank had lifted its foreclosure suspension but nonetheless did not think it could sort out the problems so quickly.
“I don’t see how they could have cleaned up, straightened up the back-office messes,” he said. “I have utmost confidence that it’s a snafu.” Reid is running for reelection in Nevada, a state where one in six borrowers was delinquent on his mortgage at the end of 2009, where foreclosure filings hit one in 17 homes during the first half of this year, and where more than half of home sales were foreclosure sales in the second quarter of 2010. "There's no question that this foreclosure issue is, in certain parts of the country, a huge issue, and anything that can be done to stop foreclosures is important," said Mark Mellman, a Democratic pollster working for Reid. "No one wants to seem like they're on the side of the banks."
Not surprisingly, Reid has called for a nationwide moratorium. "It is only fair to Nevada homeowners to suspend foreclosures until a thorough review of foreclosure processes is completed," Reid said earlier this month.
Other Democrats, including Rep. Chris Van Hollen (Md.), the head of the Democratic Congressional Campaign Committee, have also called for temporary bans.
Obama, by contrast, has been muted while administration officials call attention to dangers to the economy, neighborhoods and people seeking to sell homes.
A freeze in foreclosure sales also hurts private investors - including endowments, pension funds and mutual funds - who in good times greased the wheels of the real estate market by buying mortgage securities, but who but who have been largely absent the past two years. The void has been filled by government-owned mortgage agencies Fannie Mae and Freddie Mac.
"If the government wants to get out of the mortgage business, then private capital has to come in," said Barbara Novick, vice chairman of BlackRock, a big asset-management firm in New York. "We're moving in the other direction."
The foreclosure mess resembles many of the hot-button political issues earlier in the economic downturn, such as executive compensation. By opposing a national moratorium on foreclosures, Obama risks being seen as a friend of big banks.
HUD Secretary Donovan's article in the Huffington Post was a way to court liberal voters. "The notion that many of the very same institutions that helped cause this housing crisis may well be making it worse is not only frustrating - it's shameful," he wrote.
Because the foreclosure mess could cost banks billions of dollars, the president may have to decide again whether the banks are too big to falter at this point in the economic recovery. Some solutions might end up stowing some costs in Fannie and Freddie in less obvious ways, but taxpayers would still pay the price. Another political factor: people struggling to keep paying their mortgages who are upset that deadbeat borrowers may get a break.
"I pay my mortgage every month; that was the deal I made," Kevin McGrath, a Virginia realtor, wrote in an e-mail. "I know I am currently throwing money into a depreciating asset that every day feels more and more like the Black Hole of Calcutta, but that's ok; I placed my bet, and I am willing to ride this pony until she breaks.
"But wait a minute; now I look over at my neighbor and I see he is in the same situation, upside down on his mortgage, except he has not made a payment in a year or so. He has multiple cars in his driveway, some of them newer than mine, he just got back from a trip to Best Buy, and he is still living in his house. There are all kinds of neat things to do with your money when your housing costs are zero. Where is my free rent?"
NELSON D. SCHWARTZ and ANDREW MARTIN