Posted on Friday, November 12, 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.”
By NELSON D. SCHWARTZ and ANDREW MARTIN