Bank Expands Freeze After Pressure From Government-Run Mortgage Firm
OCTOBER 9, 2010 WSJ.com
By DAN FITZPATRICK, DAMIAN PALETTA And ROBIN SIDEL
Bank of America Corp. imposed a nationwide moratorium on foreclosures and the sale of foreclosed homes after it came under intense pressure from a government-run housing-finance giant worried about documentation problems, people familiar with the situation said.
The bank called the halt as concern mounted from legislators and state prosecutors about procedures used by lenders to foreclose on homes. Many banks use so-called robo signers, employees who sign hundreds of documents a day, without carefully reviewing their contents, when foreclosing on homes. Critics say that could result in improper foreclosures.
Freddie Mac, the government-run mortgage-finance company that along with Fannie Mae owns many of the mortgages serviced by banks, pressed Bank of America to expand its search for problems with the foreclosure documentation process, said the people familiar with the situation.
On a call Thursday with several banks that included Bank of America, a Freddie official said the mortgage company wanted the institutions to look at foreclosure documentation across all 50 states, and asked them to consider putting a stop to the entire foreclosure process, say people familiar with the call.
Bank of America has decided to halt all foreclosure sales. So will other banks follow BofA’s lead and what impact will the move have on the housing market? Rick Brooks and Brett Arends discuss. Plus, the Dow tops 11,000 and the $2.8 million car.
Many in the banking industry fear that the widening paperwork problem could cause further delay on foreclosures and threaten an already weak housing market, which in turn is stalling the broader U.S. economic recovery. On the other hand, it could provide a brief financial respite to people who have defaulted on their mortgages and are still occupying their homes.
As of August, there were more than 4.4 million home loans that were either in the foreclosure process or 90 days past due, according to mortgage research firm LPS Analytics. Since 2006, about 6.4 million homes have been lost through the foreclosure process.
Edward DeMarco, who heads the Federal Housing Finance Agency, which regulates Fannie Mae and Freddie Mac, said in an interview that officials were working to find a “tailored” response to the foreclosure problem that won’t cause broader problems for the fragile housing market. “We are trying to be quick but measured in the approach and the response taken,” he said. “We’re concerned about the whole housing market, and we’re concerned about what this means for taxpayers and other market participants.”
Last week Bank of America, J.P. Morgan Chase & Co. and Ally Financial Inc. agreed to more closely examine documents used in 23 states where a court’s approval is required to foreclose on a home. J.P. Morgan said its review suspended nearly 56,000 foreclosures.
In conversations with Bank of America, Freddie said financial penalties or litigation could result if the bank did not take additional steps, said a person familiar with the conversations. Bank of America told Freddie that an audit of procedures in the 23 states uncovered no errors, this person said.
But Freddie said the work didn’t go far enough and asked for a review in all 50 states, as well a stop to any foreclosure sales, said people familiar with the situation. Freddie Mac declined to comment.
Bank of America Chief Executive Brian Moynihan said Friday that the bank hasn’t found problems in its foreclosure process, but opted to temporarily halt all foreclosures to “clear the air.” He said the bank wants to “go back and check our work one more time.”
Its decision is expected to stop “a couple of thousand” foreclosure sales scheduled for the next week, according to one person familiar with the matter said. The bank declined to specify how many homes it has in the foreclosure pipeline.
So far, Bank of America is the only lender to expand its foreclosure freeze, but others may be forced to begin or broaden a review, banking executives say. Wells Fargo & Co., one of the nation’s largest mortgage lenders, says it hasn’t stopped foreclosing on any properties.
At this point, J.P. Morgan isn’t expanding its foreclosure moratorium, but is widening its document review beyond the 23 states where it has frozen foreclosures, according to a person close to the bank.
Bank of America services 14 million mortgages, or one out of every five in the U.S., and its loan-servicing portfolio exceeds $2.1 trillion in size. Of its mortgages, 10 million came from its 2008 acquisition of troubled California lender Countrywide Financial Corp. More than 80% of its delinquent loans were acquired through Countrywide.
A push over the last week from politicians and law-enforcement officials troubled by reports of foreclosure problems only intensified the pressure on Bank of America, which has been working to improve its relations in Washington. It concluded that reviews in just 23 states wouldn’t cut it with elected officials in the other states, a person close to the bank said.
“In this intense political season we are in, it didn’t play well to say do it in some states but not your state,” this person said.
Senate Majority Leader Harry Reid (D., Nev.), whose state has been hit hard by foreclosures, and House Oversight and Government Reform Committee Chairman Edolphus Towns (D., N.Y.), both said Friday they welcomed Bank of America’s move and called on other banks to follow.
Cassandra Toroian, chief investment officer at Bell Rock Capital LLC, a money-management firm, says the additional reviews are unlikely to significantly impact the outcome for homeowners who are facing foreclosure. “It’s just delaying the inevitable,” she says.