Growing foreclosure scandal raises call for nationwide moratorium
Evidence of illegal foreclosure practices have forced three major lenders to freeze evictions and foreclosure proceedings in 23 states. Wednesday the Justice Department announced it will investigate reports that some of the nation’s biggest mortgage lenders submitted illegal foreclosure documents to the courts. On Capitol Hill, House Democrats accused financial firms involved in the foreclosure scandal of violating the law. The prospect of a nationwide foreclosure moratorium is gaining momentum.
Banks back off as foreclosure investigations multiply
Illegal foreclosures became a nationwide issue when some major mortgage lenders admitted that employees signed off on tens of thousands of foreclosure documents without reading them. Bloomberg reports that J.P. Morgan, Bank of America and Ally Financial have backed off on foreclosures or evictions in the 23 states where courts have jurisdiction over home seizures. At least seven states are investigating lenders for using fraudulent documents and signatures to justify hundreds of thousands of foreclosures. State officials and legal experts have said the number of investigations is bound to increase.
Congress: Mortgage lenders violated the law
The foreclosure scandal is emerging as Congress tries to lean on banks and mortgage lenders to give a growing number of struggling homeowners a break. The Hill reports that House Speaker Nancy Pelosi and 30 California House Democrats submitted a letter to the Justice Department requesting an investigation of financial firms for “possible violations of the law.” The letter said banks had misled and obstructed homeowners from benefiting from a foreclosure prevention program funded by $50 billion set aside from the financial bailout to help the housing market.
Nationwide foreclosure moratorium
The letter to the Justice Department is expected to embolden support for a nationwide foreclosure moratorium, according to the Washington Post. Tuesday, the AFL-CIO joined other consumer groups calling for a foreclosure moratorium. But real estate analysts told the Post that the a moratorium could overwhelm the court system and further weaken the housing market by killing potential deals on foreclosed properties. Guy Cecala, publisher of Inside Mortgage Finance, said millions of homes in foreclosure remain “in limbo” until they are processed by the courts. A foreclosure moratorium would further delay a stabilization of home prices and a recovery for the housing market.