Pressure on banks and processing firms to suspend foreclosures over concerns of paperwork errors continues to mount as a group of as many as 40 state attorneys general plans to announce a multi-jurisdictional investigation Wednesday.
Iowa Attorney General Tom Miller is leading the bipartisan multi-state group that will undertake a coordinated probe of potentially flawed foreclosures nationwide. (The New York State Attorney General’s Office on Tuesday would not say whether the state is taking part in the group, preferring to allow Miller to announce today precisely which 40 states are participating.)
At issue is whether employees at banks and foreclosure processing firms signed court documents that had unverified or false information in an attempt to speed up the process.
Miller spokesman Geoff Greenwood said Bank of America’s decision last week to temporarily halt foreclosures nationwide showed that the industry needed to slow down.
JPMorganChase and GMAC also halted foreclosures in the 23 states where a court reviews the case. New York is one of those states.
According to news reports, PNC Financial Services Group Inc. said it would halt sales of foreclosed homes for a month as it reviewed documents. Also on Friday, Houston-based Litton Loan Servicing LP, owned by Goldman Sachs, agreed to halt some foreclosures.
“The mortgage industry is getting the message that this is serious, it’s wrong, and we will stop it,” Miller said in a prepared statement.
In some states, lenders can foreclose quickly on mortgage borrowers who are delinquent. But other states — including Ohio, Connecticut, New York, New Jersey and Illinois — use a lengthy court process for foreclosures, requiring documents to verify the accuracy of the loan information, including who owns the mortgage.
In what has become known as “robo-signing,” some employees have admitted under oath to signing thousands of affidavits and documents without fully reading or understanding them. The affidavits verify the accuracy of the loan information, including who owns the mortgage. The long-standing practice has sparked concerns in some states that people have lost their homes due in part to sloppy paperwork.
Sharon Kleinpeter, a spokeswoman for Louisiana Attorney General James D. “Buddy” Caldwell, said that state would also be part of the multi-state effort. Louisiana has seen an increase in foreclosures related to a moratorium on deepwater drilling in place since May.
“Right now we are aggressively pursuing an investigation into what role do we play and what actions could be taken,” Kleinpeter said.
A number of states are taking local action in addition to joining the multi-state effort. Holly Hollingsworth, spokeswoman for Ohio Attorney General Richard Cordray, said that state will take part in the probe while pursuing a separate lawsuit against GMAC. Ohio is seeking $25,000 per violation on every violation of Ohio’s Consumer Sales Practices Act.
A spokesman for Connecticut Attorney General Richard Blumenthal, a Democrat who is running for the U.S. Senate, would not say whether that office planned to participate in the multi-state effort. Blumenthal is seeking a statewide 60-day moratorium on foreclosures, however. He asked the Connecticut judiciary on Oct. 1 to consider the two-month halt on foreclosures.
“Banks that lured consumers into loans they couldn’t afford now seek to stampede them into foreclosure,” Blumenthal said in a statement at the time. “We must stop this runaway foreclosure train, restoring proper procedure and property owner rights.”
Some — including the Obama administration — are concerned a widespread moratorium could have a negative impact on the economy.
White House adviser David Axelrod on Sunday said the administration is pressing lenders to accelerate their reviews of foreclosures to determine which ones have flawed documentation. Axelrod said flawed paperwork was hurting the nation’s housing market as well as lending institutions, but said there are valid foreclosures that probably should go forward because there were not problems with the documents.
Rick Sharga, a senior vice president at foreclosure listing service RealtyTrac Inc., agreed it was easy to see where the public outcry against the banks and processing firms came from, but a blanket moratorium could hinder a housing market trying to recover.
“Clearly the kind of shortcuts they were taking were inexcusable, especially five years into this mess,” Sharga said. “It’s easy to understand the outrage, but you have to be a little careful of overreacting that could have some serious unintended consequences for the economy.
“The last thing this economy needs is a moratorium of any sort,” Sharga added. “It would be disastrous for the housing market.”