Recently, three major banks — Bank of America, JP Morgan Chase, and Ally Financial (a wing of GMAC Mortgage) — have instituted foreclosure moratoriums in some states, in the face of a growing numbers of revelations regarding the “robo-signers”: bank employees who were approving foreclosures, sometimes hundreds a day, without properly verifying documentation, in potential violation of the law. They were joined by a fourth, PNC Bank, late yesterday. And now Bank of America has taken its moratorium another step, freezing foreclosures in all 50 states:
Bank of America Corp. is placing a moratorium on all foreclosure proceedings and sales across the U.S. amid mounting political pressure on big U.S. banks to examine foreclosure-documentation problems…The decision by Bank of America to extend its postponement to all 50 states takes effect Saturday. The bank doesn’t intend to lift the moratorium until its assessment of all documentation is complete, a spokesman said.
The banks are realizing that they have a real mess on their hands. As the Washington Post detailed today, the banks have relied on a system of electronic document processing of questionable legality, so now the lenders can’t come up with the proper documents showing title to the homes they’re trying to foreclose upon. They don’t really understand what sort of legal trouble these revelations are going to bring them, so they’re stopping the foreclosure train in its tracks until they can sort it out.
At this point, the other large banks should be following BofA’s lead, particularly those like Wells Fargo that have yet to implement a moratorium of any kind (despite one Wells official testifying that he only checked the dates on the paperwork for the up to 150 foreclosures he approved daily). And while they’re pausing, it’s time for the government to gets its own foreclosure prevention programs in order.
President Obama’s veto yesterday of legislation that would have forced states to accept documents notarized documents from all over the county was a good step that preserved due process for homeowners, but that doesn’t address the underlying weakness in federal anti-foreclosure efforts, which have been quite disappointing. As I laid out here, there are some steps that the government can take, including allowing housing counselors to approve loan modifications and significantly ramping up mortgage mediation programs, that would significantly help troubled borrowers stay in their homes.
As David Dayen put it, “the lenders can assess the risks, and make the conclusion that the best-case scenario for them is to modify loans on a massive scale.” And the government should be doing all it can to facilitate that.
Read more about fighting back on foreclosures in today’s Progress Report.