Review of botched foreclosures has found no ‘systemic’ threat to financial system, Cabinet official says
A government review of botched foreclosure paperwork so far has found that the problems do not pose a “systemic” threat to the financial system, a top Obama administration official said Wednesday.
But Housing and Urban Development Secretary Shaun Donovan said a comprehensive review of mortgage foreclosure procedures would not be completed until the end of the year. He said the administration was “very, very focused” on addressing the issue, promising to hold banks accountable if problems are uncovered.
“This is getting the highest attention from the president and the White House,” Donovan told reporters after a meeting he and Treasury Secretary Timothy F. Geithner had with officials from the Justice Department and other agencies.
The Justice Department is leading an investigation of possible crimes involving mortgage fraud. Federal officials are working with the attorneys general of all 50 states, who last week announced a joint investigation into how lenders have verified foreclosure documents.
The Obama administration has strongly resisted calls from many lawmakers and housing advocates for a nationwide moratorium on foreclosures while the paperwork problems are investigated.
Donovan said the administration was moving as quickly as possible to finish its review. But ultimately resolving the problems is not the government’s responsibility, said Michael Barr, assistant Treasury secretary for financial institutions.
“Fundamentally, this is up to the banks and the servicers to fix,” he said. “They can fix it as fast as they feel like.”
Donovan said that banks should not wait for the government to finish its review.
“We will not tolerate business as usual in the mortgage market,” he said. “Where there have been mistakes made or errors, we will hold those entities, those institutions, accountable to stop those processes, review them and fix them as quickly as possible.”
Along with its broad investigation of the foreclosure process, HUD has been reviewing since May the top five banks that service loans insured by the Federal Housing Administration to determine whether they are following agency guidelines to try to keep borrowers in their homes.
Donovan said that review has found “significant differences in the performance of servicers.” He would not name the servicers but said they could face fines or other penalties.
This week, Bank of America Corp., the nation’s largest mortgage servicer, ended a self-imposed moratorium on foreclosures in 23 states but said it was still reviewing its actions in California and 26 other states to make sure they complied with states’ laws.
Another major servicer, Ally Financial Inc., formerly GMAC Inc., also has resumed some foreclosures after its own moratorium.
Donovan said the administration did not have a problem with those servicers resuming foreclosures, saying it was “their business decision.”