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Major U.S. mortgage lenders have announced a suspension of foreclosure proceedings in the wake of damning revelations that many banks had forged documents to hasten the foreclosure of underwater mortgage properties.
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Bank of America (BofA) halted foreclosures in all 50 states in the U.S. on Friday while JPMorgan Chase, GMAC Mortgage unit and PNC Financial have stopped foreclosure proceedings in the 23 states where foreclosures should be subjected to a judicial review.
According to RealtyTrac, mortgage lenders repossessed more than 95,000 homes in August, even as bank repossession activity increased 25 percent from last year and rose 3 percent from the previous month.
The revelation that banks have taken unlawful routes to deprive U.S. homeowners of their homes has come at a time when one in every 381 U.S. housing units has received a foreclosure notice.
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The White House has taken an ambivalent position on the crisis saying it's a serious problem, airing at the same time concern over a blanket stoppage of foreclosures which could clog the foreclosure pipeline and deal a fresh blow to housing recovery.
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"It is a serious problem," said David Axelrod, top White House adviser. "I'm not sure about a national moratorium because there are in fact valid foreclosures that probably should go forward," he added.
Some analysts have said the stoppage of foreclosures will have serious implications on a housing market reeling from underwater mortgages.
However, there are others who think homeowners have been dealt a double whammy by the banks, whose predatory lending practices led to the housing bubble and created the crisis which left hundreds of thousands of U.S. homeowners owing more to the banks than their houses were worth.
"The scandal speaks both to the dimensions of the social crisis and the criminality of the big banks. The immediate cause of the mortgage lenders’ rampant cheating on foreclosure paperwork is the tidal-wave of families ruined by the economic crisis—a crisis itself set into motion by the banks’ predatory lending practices. The goal was to get people out of their homes as efficiently and ruthlessly as possible, skating over legal requirements relating to documentation," wrote analyst Tom Eley in Global Research.
Eley says the net impact of the latest action by the big banks would be a further weakening of house prices as it will delay hundreds of thousands of foreclosures and lead buyers away from foreclosed homes already on the market.
He also raises the question whether the administration is standing with the homeowners or the big banks on this issue.
"It can be safely predicted that the Obama administration and both major parties will take as their primary duty the protection of the banks, as has been their overriding concern since the eruption of the financial crisis two years ago."
The massive irregularity came to the fore last month when Ally Financial (formerly GMAC Mortgage) stopped foreclosures in the 23 states where a court order is needed to take over a property. Ally Financial’s move was followed by JPMorgan Chase and Bank of America.
However, it appears that all major mortgage lenders resorted to similar unlawful methods to speed up foreclosures.
