|The Bank of America building is shown at the Bank of America Plaza in downtown Los Angeles on Friday Oct.8,2010. Bank of America Corp., the nation's largest bank, said Friday it would stop sales of foreclosed homes in all 50 states as it reviews potential flaws in foreclosure documents. (AP Photo/Richard Vogel)|
Bank of America stops US foreclosures for review
WASHINGTON—Bank of America on Friday halted foreclosures on homes across the country so it could review paperwork in tens of thousands of cases for flaws, expanding a crisis at a perilous time for the housing market.
The move came as PNC Financial Services became the fourth major bank to announce that it would stop foreclosures in at least some states. It added to growing concerns that mortgage lenders have been evicting homeowners despite flawed court papers.
Bank of America, the largest U.S. bank, had said a week earlier it would stop foreclosures in the 23 states where the process must be approved by a judge. Ally Financial's GMAC Mortgage unit and JPMorgan Chase had announced similar plans.
The bank said it had not found any widespread problems in the foreclosure process, but "We'll go back and check our work one more time," CEO Brian Moynihan told the National Press Club in Washington.
A Bank of America spokesman acknowledged that the bank acted in response to pressure from state attorneys general and other public officials inquiring about the accuracy of foreclosure documents.
"We feel the need to address that and demonstrate that our process is accurate," said the spokesman, Dan Frahm.
A document obtained last week by The Associated Press showed a Bank of America official acknowledging in a legal proceeding that she signed thousands of foreclosure documents a month and typically did not read them. The official, Renee Hertzler, said in a February deposition that she signed up to 8,000 such documents a month.
The bank said it would take a few weeks to tackle the problem. It did not say how many foreclosure cases would be affected but estimated the figure would be in the tens of thousands.
Senate Majority Leader Harry Reid, whose state of Nevada has been among the hardest hit by foreclosures since the recession began, and who is in a difficult fight for re-election, applauded the bank "for doing the right thing by suspending actions on foreclosures while this investigation runs its course."
Sen. Christopher Dodd, D-Conn, the chairman of the Senate Banking Committee, said he would hold a hearing on the issue next month.
The decision should help Bank of America manage its image during a dicey time for the industry, said Michael Robinson, a crisis communications expert with Levick Strategic Communications. Banks have been the target of widespread public anger since the financial meltdown.
"All the other banks are going to end up there anyway, either because they're going to be forced, or by political pressure," he said. "Americans, otherwise known as customers and voters, aren't over the economic crisis. You don't want to become a political pinata."
Banking and housing analysts fear the foreclosure document problems could prolong the already slow recovery in the housing market. Even if foreclosure is inevitable for tens of thousands of homes, the process could now drag out for years.
"If you are looking at the key in this country to economic stability, it's the housing industry," said banking analyst Nancy Bush of NAB Research. "This is a huge mess that helps nothing."
And some analysts and real estate agents worry that the uncertainty about the document mess could make potential buyers change their mind about purchasing foreclosed properties. That's because of fears that the former owners could turn around and sue.
"It's going to make people even more cautious: `Gosh, do I go in on a foreclosure?'" said San Diego real estate agent Jerry Adams Jr., who said he has seen one sale get put on hold. "It concerns me a lot."
The suspension in foreclosures could prop up home prices in the short term because fewer cheap homes would pour onto the open market in coming months. When those properties ultimately do go up for sale, the overall economy could be in better shape.
"The irony is, it may actually support the recovery," said Mark Zandi, chief economist at Moody's Analytics. "It may be that when those properties actually hit the market, the economy is in a better place."
PNC said its halt on most foreclosures and evictions applied to 23 states for a month, so it can review whether documents it submitted to courts complied with state laws.
An official at the Pittsburgh bank confirmed the decision on Friday after it was reported earlier by The New York Times. The official requested anonymity because the decision hasn't been publicly announced.
Also Friday, Litton Loan Servicing LP, a smaller mortgage company based in Houston, halted some foreclosures and evictions so it could review its handling of foreclosures. It made the disclosure in an e-mail to The Associated Press and did not say which states are affected.
Litton, owned by Goldman Sachs Group Inc., is a mortgage servicer. It collects payments but doesn't make loans.
And Stewart Title Guaranty Co. is clamping down on sales of foreclosed homes that may be linked to flawed documentation.
Houston-based Stewart issued guidelines to its agents that make it difficult to write policies on property foreclosed upon by JP Morgan Chase, Bank of America, OneWest Bank or GMAC, according to an internal memo obtained by The Associated Press.
Title insurance provides protection to a homebuyer and mortgage provider in the case of any unpaid taxes, questionable ownership or other problems.
AP Business Writers Michelle Conlin and Pallavi Gogoi contributed to this report from New York. AP Business Writer Daniel Wagner contributed from Washington.