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Banks Balancing Competing Foreclosure Interests, Lawmakers Told

Bank of America Corp. and JPMorgan Chase & Co. must balance the interests of homeowners and investors in handling foreclosures, executives from both companies told lawmakers at a U.S. Senate hearing.

“We put the interests of the customer front and center, since that’s part of the core value of Bank of America, but we also have to reference the interests of investors,” Barbara Desoer, president of Bank of America’s home loan division, told the Senate Banking Committee at the hearing on legal questions surrounding documents used in foreclosure proceedings.

Desoer and David Lowman, chief executive officer of JPMorgan’s home-loan unit, appeared alongside consumer advocates at the first congressional hearing on the topic since both companies temporarily froze foreclosures while they examined claims that paperwork was flawed. Ally Financial Inc.’s GMAC Mortgage unit also halted foreclosure proceedings.

Congress was on a fall recess when questions about foreclosure documentation arose in September and October and lawmakers took up the issue as one of the first orders of business upon returning to Washington. The House Financial Services Committee will hold a hearing Nov. 18 where at least five other bank officials are scheduled to testify.

It’s in JP Morgan’s interest “to find ways to make loans performing,” Lowman said. At the same time, “we have to do what’s right for the investor,” he said.


Attorneys general from all 50 states announced an investigation on Oct. 13 in response to revelations that banks used so-called robo-signers -- people who sign affidavits without actually reviewing the facts underlying foreclosures.

Iowa Attorney General Tom Miller, who is leading that investigation, told senators at today’s hearing that the group expects to complete their investigation in a matter of months.

“Our belief is that a lot more modifications should be made that aren’t being made,” Miller said. “We’re going to try to find out why that’s happening.”

Senator Christopher Dodd, the Connecticut Democrat who leads the Banking Committee, pressed Desoer and Lowman to consider lowering the principal of some loans when borrowers owe more than their homes are worth.

Banks can’t reduce principal and maintain investor confidence, Lowman said.

Protecting Collateral

“If we want to continue to have investors in banks continue to have the confidence in the market, we have to make sure that collateral values are there,” he said.

Desoer said she wanted to look for ways to change a practice known as dual-tracking, in which foreclosures and mortgage modifications proceed at the same time on the same home loans, often leading to confusion for borrowers. Consumer advocates have criticized the practice.

“Investor requirements” are preventing mortgage servicers from halting the practice, Desoer said.

Dodd, who is leaving the Senate at the end of the year, said he would hold a second hearing on foreclosures, calling regulators to testify before the end of the session in a few weeks.

Senator Richard Shelby of Alabama, the Banking Committee’s senior Republican, said he wanted to hear from private mortgage securitizers and representatives of mortgage-finance companies Fannie Mae and Freddie Mac, which are operating under U.S. conservatorship.

Securitizers Criticized

“What role did the GSEs and the larger securitization market play in this debacle?” Shelby said. “Did their actions contribute to the problem? Were Fannie and Freddie complicit in any way?”

Because Congress will be in session only a few more weeks and the calendar is already full, any legislative action related to foreclosures will likely wait until the new session in January.

The House hearing will include officials from Bank of America, Wells Fargo & Co., Citigroup Inc., Ally Financial and JPMorgan Chase. House lawmakers will also call in overseers and regulators from government agencies, including the Office of the Comptroller of the Currency and the Federal Housing Finance Agency.

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