California to join multistate inquiry of foreclosures by banks

California will join a multistate investigation into whether banks violated laws by cutting corners while foreclosing on homes as the Obama administration made clear Tuesday that it would not support a nationwide moratorium.

The moves came as one of the nation’s major lenders, Ally Financial Inc., said it would expand the review of its foreclosure practices nationally to include states such as California where courts do not hold jurisdiction over the process. The company stopped short of saying it would suspend foreclosure sales in all 50 states, as Bank of America Corp. did last week, while it conducted this review.

In addition, Wells Fargo & Co. said that it had begun reviewing its pending foreclosures in the 23 states where courts preside over the seizure of homes. Wells Fargo spokesman Jason Menke said the bank was not instituting a moratorium on foreclosure sales and evictions, as other big lenders have done.

As the scope of the problem has increased, state officials around the country have begun inquiries. A multistate task force is expected to be publicly unveiled Wednesday. It will be headed by Iowa Atty. Gen. Tom Miller, who has taken the lead role in previous mortgage-related inquiries conducted by coalitions of state officials.


Officials from 38 states took part in a recent conference call on the investigation, although it’s not clear how many will sign on. But the Golden State is in: “California has decided to join the other attorneys general in the multistate group,” said Jim Finefrock, a spokesman for state Atty. Gen. Jerry Brown, in an e-mail Tuesday to The Times.

???Several large banks, including home-lending giants Bank of America and JPMorgan Chase & Co., have acknowledged paperwork errors, such as legal affidavits signed by employees who failed to read the documents. But they contend the errors were procedural and that the underlying facts in these cases justified foreclosures.

A Bank of America spokesman said that the typical foreclosure by the bank involves a borrower who hasn’t made a mortgage payment in 18 months. A third of the Charlotte, N.C., bank’s foreclosures are of homes that the borrowers have abandoned, spokesman Dan Frahm said.

Many lawmakers have called for investigations and moratoriums on foreclosures. But the White House on Tuesday rejected calls for a nationwide halt.

“We support the stance that the attorneys general and federal regulators are taking to get to the bottom of and to fix the process in the mortgage industry,” White House Press Secretary Robert Gibbs said. “There are a series of unintended consequences to a broader moratorium.”

Such a national moratorium “would impact the recovery in the housing sector” because pending sales of foreclosed homes would be stopped, Gibbs said.

Ally (formerly known as GMAC) was the first big mortgage servicer to begin the suspension of evictions and foreclosure sales in the 23 so-called judicial foreclosure states after it found that its employees signed thousands of legal affidavits assuring judges of facts regarding defaulted loans — without reading the documents.

The bank, and representatives of the mortgage banking industry, have described the problems as procedural, saying the foreclosures were justified even if the paperwork was botched.

Jim Olecki, a spokesman for Ally, said Tuesday that the company was hiring several legal and accounting firms to conduct independent reviews of its process nationally out of “an abundance of caution.”

“We took this step to just make sure that everything is aligned in all 50 states, that we are complying with local laws and that everything is buttoned up,” Olecki said. He declined, however, to say whether the company would suspend foreclosure sales and evictions in states such as California if it did find systematic improprieties.

Times staff writer Alejandro Lazo in Los Angeles contributed to this report.