Faulty foreclosures may cost U.S. lenders $2 billion for every month that home seizures are delayed and the tab could reach $6 billion, according to Paul Miller, the bank analyst at FBR Capital Markets.
Investigations of how banks are seizing homes may prolong foreclosures by as much as three months, at a rough cost of $1,000 per month for each property in the pipeline, Miller, a former bank examiner, said in an interview today. The biggest firms likely need to add staff to comb through the files, costing them each $1 million a year, he said.
“The real true cost is not the expenses, it’s the drag in the foreclosure system,” Miller said.
Attorneys general, consumer groups and some lawmakers have pressed mortgage firms to follow Bank of America Corp., the biggest U.S. lender, which last week suspended all foreclosures to check whether faulty documents were used to confiscate homes. JPMorgan Chase & Co. and Ally Financial Inc.’s GMAC Mortgage unit froze seizures or evictions in 23 states.
A wider moratorium on seizures may endanger a U.S. economic recovery, Senate Banking Committee Chairman Christopher Dodd said in a speech in New York today. His panel has set a Nov. 16 hearing to examine mortgage-servicing and foreclosure practices.
“A broad, sweeping moratorium is probably unwise,” the Connecticut Democrat said. “There are many institutions that are actually engaging the foreclosure process intelligently and well and doing a good job. To stop that across the board from happening would be very harmful for the economy.”
President Barack Obama also is rejecting a nationwide freeze on home foreclosures because of potential “unintended consequences,” White House Press Secretary Robert Gibbs said today. The remarks reinforce comments by White House senior adviser David Axelrod, who said on CBS’s “Face the Nation” program Oct. 10 that a moratorium may damage the housing market.
Obama does support efforts by state attorneys general to examine allegedly faulty home foreclosures, Gibbs said.
Attorneys general in about 40 states may announce this week a joint probe of potentially faulty foreclosures at the largest U.S. banks and mortgage firms, a person with direct knowledge of the matter said Oct. 8. The inquiry may focus on claims that employees at home lenders and loan servicers signed court documents without ensuring the information was accurate.
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