This article said that some consumer advocates and lawmakers thought the policy was soft both on banks and industry insiders and might have little effect. In fact, consumer advocates and lawmakers said that the policy was soft on banks. Industry insiders said that it might have little effect.
U.S. to lenders: No moratorium, but fix the mess
Thursday, October 14, 2010
Federal regulators sought Wednesday to prevent the growing furor over improper foreclosures from escalating, pressing mortgage lenders to replace flawed and fraudulent court documents while insisting that foreclosures continue apace.
The approach adopted by the Federal Housing Finance Agency (FHFA) is Washington's clearest response so far to a crisis that threatens to roil the national real estate market and overwhelm courts around the country.
Some consumer advocates and lawmakers said the policy was soft on banks and industry insiders and may have little effect, because many lenders are already taking such steps. In addition, the handling of individual court cases is the province not of federal officials but of judges at the state level.
Judges handling foreclosure cases in the Maryland suburbs said Wednesday that they have begun to take concrete steps to cope with alarming problems now apparent in legal documents.
In Prince George's County, which has the Washington area's highest foreclosure rate, the circuit court has ordered a special review of cases in which lawyers have acknowledged they did not sign the documents as they had earlier claimed. The circuit court is scheduled later this fall to slowly begin reviewing some of the 14,500 foreclosure cases pending in the county. A judge in Montgomery County said the court is putting about 400 foreclosure sales on hold while waiting for lawyers to explain why they had not actually signed the legal paperwork in those cases as they had initially said.
As a result, some foreclosures in these counties may be dismissed and home buyers who are poised to purchase these properties may lose the chance.
The actions taken at the federal and state level come amid a public debate over whether a moratorium on foreclosure cases - now enacted in some states and by some lenders - should be extended nationwide.
Earlier Wednesday, J.P. Morgan Chase announced that it plans to expand its review of home loans from 23 states to roughly 115,000 in 41 states, saying it had "identified issues" in foreclosure documents. And attorneys general in all 50 states announced that they are joining to probe mortgage loan servicers.
The FHFA's policy statement, which officials said was developed in consultation with other federal agencies, underscores the Obama administration's opposition to a national freeze on the grounds that it could damage the economy.
"Delays in foreclosures add cost and other burdens for communities, investors and taxpayers," the agency said.
The FHFA was established during the financial crisis primarily to regulate Fannie Mae and Freddie Mac, the troubled mortgage finance companies seized by the federal government. While the agency does not oversee banks or most other financial firms directly, the regulator can still exert pressure by way of its authority over Fannie and Freddie, which now own or guarantee well over half the nation's home loans. If banks and other lenders do follow the policy prescriptions, the FHFA could threaten to impose financial penalties and other sanctions.
The policy statement tells lenders to make sure that documents used as part of the foreclosure were properly reviewed and signed. If they weren't, lenders must work with local lawyers on a fix. This could include filing new paperwork.