Calls for a total freeze on U.S. foreclosures ran into opposition from Wall Street and the White House amid predictions that clearing up faulty paperwork and resuming evictions may take as little as two weeks.
A complete halt would be “catastrophic” for the U.S. economy and hurt home sales, said a statement today from President Tim Ryan at the Securities Industry and Financial Markets Association, Wall Street’s biggest lobby. A day earlier, David Axelrod, a senior adviser to President Barack Obama, also said a moratorium would damage the housing market.
Bank of America Corp. halted foreclosures in all 50 states last week, while lenders including JPMorgan Chase & Co. and Ally Financial Inc. have stopped evictions in 23 states where courts supervise home seizures. They’re checking allegations that employees used unverified or false data to speed the process. Lawmakers, attorneys general and community groups have called for banks to follow Bank of America’s example.
“It would be catastrophic to impose a system-wide moratorium on all foreclosures and such actions could do damage to the housing market and the economy,” said New York-based SIFMA. “The mortgage market, investors and the health of the economy are all inter-related.”
SIFMA, which represents Wall Street securities firms, banks and asset managers, said a moratorium would “unjustly” create losses for housing market investors, including workers with pensions, retirement accounts or mutual funds, and “further constrain consumer credit and spending” because of uncertainty in the securitization market.
Length of Delay
Brian T. Moynihan, chief executive officer at Charlotte, North Carolina-based Bank of America, has said the bank wants to check its work, which could take a few weeks. The halt by U.S. lenders to review documents is just a “processing issue” and won’t affect bank profits, according to Thomas Brown, chief executive officer of Second Curve Capital LLC. His New York- based investment firm specializes in financial companies.
Brown said he met with JPMorgan officials last week and learned the company expects to clear up its foreclosure review in “a couple weeks,” adding that the process for the entire industry could take as long as 30 days.
“People on average have not been paying for a year and a half and that’s not in dispute,” Brown told Tom Keene and Ken Prewitt on “Bloomberg Surveillance” this morning. “A third of these homes that are in foreclosure are completely empty, so people have already left or they never actually owned them because they were investors.”
Among other lenders who have postponed action, Litton Loan Servicing LP, a mortgage-servicing business owned by Goldman Sachs Group Inc., said late last week it’s halting some foreclosures to review how they’re handled, and PNC Financial Services Group Inc. halted sales of foreclosed homes for a month to review documents, according to an Oct. 4 memo.
Attorneys general in about 40 states are planning a joint investigation into potentially faulty foreclosures at the largest banks and mortgage firms, Bloomberg News reported last week, citing a person with direct knowledge of the matter. The investigation may center on claims that employees at home lenders and loan servicers signed court documents without ensuring the information was accurate.
Axelrod said on CBS’s “Face the Nation” program that there are valid foreclosures that ought to proceed, and the White House is urging the industry to get the situation “unwound very, very quickly.”