Banks under fire over their foreclosure practices face twin hearings in Congress this week, at which they will come under renewed pressure to find ways to keep borrowers in their homes.
The hearings on Tuesday and Thursday will include the first appearances by executives from major lenders like Bank of America and JPMorgan Chase since the furor over sloppy foreclosure paperwork erupted in September.
Banks are accused of having used “robo-signers” to sign hundreds of foreclosure documents a day, a fiasco that has reignited public anger with banks that received billions of dollars in taxpayer aid during the financial crisis.
Lenders will be pressed on whether the paperwork problems are further evidence that modifying loans is a better alternative to eviction.
“Foreclosure should be the last option and we need to examine barriers to mortgage modifications,” Democratic Senator Tim Johnson, expected to lead the Banking Committee next year, said in an emailed response to Reuters.
Other witnesses at Tuesday’s Senate Banking Committee hearing include Iowa Attorney General Tom Miller, who is leading a 50-state probe of foreclosure practices.
Miller’s testimony will be closely watched. A settlement with lenders could include fines or commitments to loan modifications.
Bank of America and JPMorgan were among banks that temporarily suspended foreclosures pending internal reviews of their practices, but have since begun to resume sales of foreclosed properties.
Some lawmakers and consumer activists called in October for all lenders to institute a national moratorium on foreclosures, but they failed to gain traction due to fears it would further depress home sales and crimp economic growth.
Real estate data company RealtyTrac said the temporary suspensions by banks led to a 9 percent drop in U.S. foreclosures in October from the month prior.
Republican Representative Spencer Bachus, the front-runner to be chairman of the House Financial Services Committee next year, said the paperwork problems are “disturbing,” but singled out federal regulators for criticism.
“It is disappointing that the regulators didn’t catch this before the media since most of the problems in the contested foreclosure proceedings occurred at the nation’s largest banks,” Bachus told Reuters in an email.
The House panel’s foreclosure hearing is set for Thursday.
COST TO BANKS
The mortgage paperwork mess threatens to eat into bank profits by delaying sales of bank-owned properties, drawing fines from regulators, and spawning lawsuits from both homeowners and investors in mortgage-backed securities.
Some industry analysts have said a bigger cost for banks stems from investor demands that they buy back billions of dollars of mortgage bonds because they misrepresented the quality of the underlying loans.
Georgetown University law professor Adam Levitin, a witness on Tuesday, sees a fundamental danger highlighted by the sloppy paperwork. He believes the mortgage industry has failed to properly track the ownership of loans, undermining the legal standing of mortgage-backed securities.
The U.S. government’s Home Affordable Modification Program has had limited success and banks have been reluctant to reduce the principal owed, a step that can require approval by multiple investors, and causes banks and investors to take losses.
Nevertheless, some economists and housing experts believe the time has come for lenders and mortgage investors to accept reductions in the amounts they are owed.
“It just cannot be the case that foreclosure is preferable to modification — including reductions of principal — for a significant proportion of mortgages where the dead-weight costs of foreclosure, including a distressed sale discount, are so high,” Federal Reserve Governor Daniel Tarullo said in a speech at George Washington University law school on Friday.
The Fed and other federal banking regulators are reviewing the processes large banks have in place for foreclosures.
Congress is currently led by the Democrats, but big losses at the November 2 elections mean Republicans will control the House next year while Democrats retain the Senate with a reduced majority.
That split in control could ensure legislative gridlock and minimize lawmakers’ influence on the foreclosure issue.
“I have no hopes for this Congress whatsoever,” said John Taylor, president of the National Community Reinvestment Coalition. Taylor said he is placing his hopes for a mortgage modification push in the state attorneys general.
Copyright © 2010 Reuters Ltd
3 thoughts on “Banks face Congressional wrath over foreclosures”
Now they’re angry over how the banks ‘operate’ concerning foreclosures? They weren’t interested in controlling their slipshod loan practices when this nightmare started ramping up once Bush got in office. A decade has gone by and now we’re trying to shovel our way out of the financial wreckage of that which was enabled by the very same Congressional regulators who failed their duty to protect borrowers, homeowners and even investors in mortgage backed debt from outright fraud and financial destruction.
To me, these ongoing investigations supported by feigned outrage are nothing but ‘high theater’ to placate the damaged, downtrodden, unwashed masses.
Bush/Cheney/Paulson handed their debt ball off to OBama/Biden/Geithner, both regimes controlled by the same Fed Chairman. Instead of the regime calling for new ideas and a plan, continued the game, business as usual; ie., the creation, along with the care feeding of that which is now a monster extraordinaire devouring our society and that of the world at large…”corrupt bankers gone wild”. : |
Carl Nemo **==
Hey Carl, you may want to take a look at this brief from the Clinton administraion, circa 1995.
Excerpt:
“At the request of President Clinton, the U.S. Department of Housing
and Urban Development (HUD) is working with dozens of national
leaders in government and the housing industry to implement the
National Homeownership Strategy, an unprecedented public-private
partnership to increase homeownership to a record-high level over the
next 6 years. The ideal of homeownership is so integral a part of the
American Dream that its value for individuals, for families, for
communities, and for society is scarcely questioned. This paper
provides a brief survey of research into the nature and significance of
homeownership’s presumed benefits, particularly for lower income
households and other underserved populations.”
Thanks griff for the link to the Clinton era brief. I was aware that very roots of this debacle goes back to the Clinton/Gore/Rubin era including the elimination of the constraints of Glass-Steagall replacing it with Gramm-Bliley-Leach creating a ‘blue sky’ pirate capitalist environment for Wall Street, large center banks and mega-insurers such as AIG with the end result being the havoc in the real estate and construction sectors while Congressional and regulatory oversight became minimal to none.
I’d say the basic theory of encouraging home ownership was an ok idea, but to simply turn the concept loose while depending upon the captains of these sectors to run a straight casino was too much to assume. That was Greenspan’s theory in that the market along with responsible corporate governance will regulate itself which turned out to be pure b.s. !
Currently Bernanke/Geithner are running the unholy Fed~U.S. Treasury axis in an irresponsible nation-wrecking fashion while our ‘dear leader’ refuses to use his “bully pulpit” as President to stand up to this nonsense such as QE2 which is encouraging inflation in the commodities and wholesale sectors. Instead of feathering back on the controls to see what effect their initial QE efforts might be, they are rushing headlong into creating inflation in the worst of times which could drop upon us virtually overnight.
European central bankers including Germany have accused Bernanke and no doubt Geithner as being “clueless”. I’d say they are spot-on. There is a subplot though in that Bernanke’s QE2 will allow speculators such as Goldman Sachs to make a fortune in the commodities markets for their investors by building huge positions that will benefit from this ‘irresponsible’ canard of intentional reinflation. They want to recapture the same winds resulting in obscene, bloated profits up to the bust in 2008. They are junkies; ie., “buck junkies” and can never be satified with a reasonable return on investment as a function of non-rigged market forces of supply vs. demand, which in the end will be our nation’s downfall.
Everyone is beginning to notice price creep in the grocery stores along with manufacturers repackaging items that look similar in size as those previously on the shelf, but shy anywhere from a couple of ounces to pounds in the new packaging. Ouch I say for folks having to raise families or seniors on fixed incomes with the luxury of COLA as most government employees and even SS recipients Granted there haven’t been any increases as a function of COLA due to cooked government stats on how to measure the cost of living.
The majority of American citizens don’t make fatcat government wages, pensions or bennies nor have COLA integrated into their pensions. Whatever they went out the door with per month is what they’ll continue to receive until the checks implode in value due to hyperinflation brought on by irresponsible fiscal governance unlike those that at least enjoy COLA adjustments.
Carl Nemo **==
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