Reprinted from L A Times
With calls mounting for a national moratorium, Bank of America Corp. said Friday that it would halt the sale of foreclosed homes indefinitely in all 50 states as the nation's largest lender widens its investigation into how it seized homes from troubled borrowers.
The freeze, which takes effect Saturday, came after lawmakers, consumer groups and civil rights organizations called for a moratorium on bank seizures. State attorneys general across the country, including California, have also called on lenders to prove that they are complying with state laws as they process record numbers of repossessions.
The action could put off a day of reckoning for hundreds of thousands of homeowners, including Renee P. Lee, 53, a call center operator for the California Franchise Tax Board who has taken a pay cut because of the state budget crisis. She said she had been fighting Bank of America to keep her home for 18 months.
"I was ecstatic," Lee said of the moratorium. "I said, 'Thank you, Jesus!' "
Another Bank of America customer, Cha Cha Ramos, 60, of Victorville, said the lender spurned her family's efforts to stay in their home of 30 years.
When her husband lost his job driving a truck, she said, they missed some payments and tried to work with the bank to modify their loan after he got a new job. After seven months of making payments, she said, they were notified that the property was going into foreclosure Oct. 24.
"The bank wanted more and more and more," Ramos said.
A Bank of America spokeswoman said she could not immediately comment on the individual cases, but added, "We are going to do everything we can to try and see what the issue is."
The bank could not say how many homes would be affected by its action. It had 420,000 properties in some stage of foreclosure through the first half of the year, according to Irvine-based RealtyTrac. About 126,000 of those were in California, which has been among the states hit hardest by the foreclosure crisis.
The freeze comes as disclosures of alleged irregularities, including mishandling of records in the foreclosure process, have raised concerns that lenders have been evicting homeowners using flawed procedures.
BofA's announcement is likely to increase pressure on other big banks to declare similar national moratoriums, analysts said.
"It is going to give politicians more ammunition to say, 'If Bank of America can do it, don't tell us you can't," said Guy Cecala, publisher of Inside Mortgage Finance.
PNC Financial Services said Friday that it was reviewing its foreclosure practices, and Litton Loan Servicing, a mortgage servicer owned by Goldman Sachs Group, said it had suspended foreclosure proceedings in certain cases while it completes a review.
Before Friday, three major banks — Bank of America, Ally Financial Inc. and JPMorgan Chase & Co. — had said they were suspending foreclosures in the 23 states that process repossessions through the courts. California is not one of these judicial foreclosure states, and the vast majority of repossessions conducted in the state are done without a court order.
The foreclosure crisis, which began with a collapse in housing prices, has been worsened by continuing high unemployment, now at 9.6% nationally. More than half of all people who applied for modifications under a government program cited loss of income as the reason they were missing payments, said Paul Habibi, a professor of real estate at the UCLA Anderson School of Management.
"When labor markets are in a state of disarray, you're naturally going to have a downward spiral in house prices," he said.
But economists said a move to halt foreclosures could hinder the housing market's recovery, essentially delaying the inevitable, because many borrowers simply cannot afford to pay their mortgages.
"It is highly likely that mistakes are being made when you have that volume of paperwork going through the system," said Richard Bove, a banking analyst with Rochdale Securities.
"I am sure there are a lot of people that are being treated unfairly, but I think the vast majority of them can't pay their mortgage, and if they can't pay their mortgage they are going to lose the house anyway."
Bove estimated that the moratorium could cost BofA about $400 million every three months.
In 2009, banks slowed the pace of foreclosure under pressure from the Obama administration and state governments, including California. This year, however, the rate of foreclosures has picked up as temporary loan modifications and other measures expired.
Now, with foreclosures grinding to a halt again, home sales could be hurt as buyers grow concerned about investing in a foreclosed property, said Jill Berni, a Sacramento real estate agent.
"We have a lot of confusion," Berni said. "A lot of people are just reacting and freezing in place."
The moratorium will also mean that fewer houses are available on the market, which could make it more difficult for buyers to find homes, said Christopher Walker, a Riverside broker.
In an open letter to Congress two financial industry groups, the Mortgage Bankers Assn. and the Financial Services Roundtable, said a national foreclosure moratorium could be detrimental to the economy.
"Calls for a blanket national moratorium on all foreclosures are a bad idea and would cause significant harm to communities at risk, the unstable housing market and the fragile economy," the letter said.
Although it will halt seizures and sales of foreclosed homes, BofA said it would continue foreclosure proceedings against homeowners who are late on their payments.
If a borrower is delinquent, the bank will still issue a notice of default and pursue efforts to modify certain mortgages, the bank said.
"Our ongoing assessment shows the basis for foreclosure decisions is accurate," BofA said in a statement posted on its website.
Politicians and consumer advocates, however, called on other lenders to follow Bank of America and stop foreclosures until the questions can be resolved.
California Atty. Gen. Jerry Brown — who said his office has held discussions with Bank of America, Ally, Chase, Wells Fargo and OneWest over their foreclosure practices — called for a statewide moratorium on home seizures until those banks could demonstrate that they were complying with state law.
"All lenders should halt foreclosures until they clear up this mess and ensure that the process is fair," Brown said. "Bank of America has taken an important step, and the other major lenders should follow its lead."
Consumer advocates said the move by BofA suggested that the problems mortgage servicers were facing with processing foreclosures were more widespread than initially thought.
"There is a serious problem with the reckless and careless way in which the banks and servicers are processing foreclosures and taking people's homes," said Kevin Stein, associate director of the California Reinvestment Coalition.
By Alejandro Lazo and Alana Semuels, Los Angeles Times
October 9, 2010
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