Federal Reserve steps up pressure on banks by joining
Raising pressure on banks, the Federal Reserve is wading into the
investigation of whether mortgage lenders cut corners and used
flawed documents to foreclose on homes.
Major banks are already under investigation by state officials with
subpoena power, who could force them to detail how they handled
hundreds of thousands of foreclosure cases.
Federal Reserve Chairman Ben Bernanke added weight to those efforts
Monday by saying the central bank would look "intensively" at
policies and procedures that might have allowed banks to seize
"We take violation of proper procedures very seriously," Bernanke
said in remarks to a housing-finance conference in Arlington,
The Fed has the power to impose penalties on some of the nation's
largest banks. Still, most legal experts expect an investigation by
attorneys general in all 50 states to have a swifter and more
Big mortgage lenders are looking into whether employees signed
foreclosure documents without reading them. Some banks have halted
tens of thousands of foreclosures since similar practices became
While the banks say there's little if any evidence that any
foreclosures were improper, regulators around the country have
suggested the banks were in a rush to foreclose and may have
committed outright fraud.
Bank of America and Ally Financial Inc.'s GMAC Mortgage have
started processing foreclosures again, after calling a temporary
halt while they reviewed mortgage documents.
It's happening as the housing market struggles to recover. Sales of
previously occupied homes rose 10 percent in September, but the
foreclosure problem surfaced only at the end of the month. Industry
experts say fears could keep buyers on the sidelines now.
Ohio Attorney General Richard Cordray said Bernanke's speech will
force financial institutions to take the matter more seriously. In
stepping up their inquiries, the Fed and other bank regulators are
"not giving aid and comfort to institutions that want to sort of
minimize this and almost sweep it under the rug," Cordray said.
The Fed is working with the Treasury Department's Office of the
Comptroller of the Currency and the Federal Deposit Insurance Corp.
They have a range of options. They include ordering companies to
stop certain practices, imposing fines and working with lenders to
come up with a fix. Bernanke provided no details in his speech
about any penalties being weighed.
According to two officials familiar with the joint federal inquiry,
the banking agencies are looking into whether companies had
controls in place when foreclosure documents were signed and
whether employees involved in the foreclosure process were
adequately trained. The officials spoke on condition of anonymity
because they weren't authorized to speak about the inquiry.
Ultimately, though, the mess will probably be settled by the
"They can move more quickly than the Fed, and I think they have
more leverage over banks to get them to quickly settle," said Mark
Williams, a former bank examiner at the Fed and now a lecturer at
Some analysts suggested the Fed is trying to send the message that
it's helping to manage the foreclosure controversy. The central
bank shared blame with other federal regulators for failing to head
off the 2008 financial crisis.
"The Fed is already late to the crime scene," Williams said.
Like the Obama administration, Bernanke and other federal
regulators have declined to call for a national moratorium on
foreclosures. At least one regulator, Sheila Bair, chairman of the
FDIC, is even discouraging homeowners from overloading the courts
"The regrettable truth is that many of the properties currently in
the foreclosure process are either vacant or occupied by borrowers
who simply cannot make even a significantly reduced payment," Bair
said in a speech Monday.
In home markets that have been devastated by the housing bust, the
paperwork mess is already causing buyers to be wary of purchasing
homes in foreclosure. Some buyers are worried the sale will be
canceled because the previous owners were wrongly foreclosed
Roy Weiner, a Las Vegas real estate agent who specializes in
foreclosures, said potential buyers of those properties have been
aggressively inquiring about which bank holds the defaulting
borrower's loans -- and whether the foreclosure was handled
"They are asking a whole lot more questions," Weiner said.
Written by: AP Business Writers Marcy Gordon in Washington and