Give credit to U.S. House Speaker Nancy Pelosi and House Democrats from California for shining the spotlight on mortgage lenders that engaged in questionable practices in processing home foreclosures.
No state has been more devastated by the foreclosure crisis than California, where more than 700,000 homes currently are in the process of being seized by banks.
Indeed, a report by the Center for Responsible Lending estimates that foreclosures will cost California homeowners a whopping $60 billion in lost property values. And a report by the US Conference of Mayors estimates that the foreclosure crisis will cost California’s financially strapped cities $4 billion in property, sales and transfer taxes.
Led by Pelosi, California’s House Democrats sent a letter last week to Federal Reserve Chairman Ben Bernanke, Attorney General Eric Holder and John Walsh, the acting Comptroller General of the Treasury, urging an investigation of “possible violations of law or regulations by financial institutions in their handling of delinquent mortgages, mortgage modifications, and foreclosures.”
Prompted by the prospect of such a federal investigation, three financial institutions in question – Bank of America, JP Morgan Chase and Ally GMAC mortgage – announced that they were suspending foreclosure sales while they examined whether there were irregularities with documents they filed as part of the foreclosure process.
At first, the suspensions were limited to states that handle foreclosures through the court system – which excluded California. However, B of A subsequently decided to apply the suspension to all 50 states.
It remains to be seen whether JP Morgan Chase and Ally GMAC will follow B of A’s lead. It also remains to be seen whether other financial institutions – like Wells Fargo – will join the moratorium on foreclosures at all.
If they don’t, the state of California might very well take matters into its own hands, as state Assemblyman Ted Lieu proposes.
The Torrance Democrat, who has authored several mortgage-related bills, wants the state Department of Financial Institutions and the Department of Corporations to impose a 60-day moratorium on foreclosures while they investigate whether big banks are complying with California law regulating foreclosures.
“There is every reason to believe there is a worse problem here,” Lieu said, “because there is no judicial oversight. There is no judge looking over the lender's shoulder.”
B of A has done the right thing by voluntarily suspending foreclosures – in California as well as other states – pending review of its procedures and practices. If other financial institutions refuse to follow suit, then the state’s regulatory agencies should insist that they do so.