Nov
16 The nation’s largest banks that were responsible for erroneous foreclosure paperwork will go before Congress this week to further determine how to rectify the situation and allow borrowers to save their homes.
Congressional hearings will take place on Tuesday and Thursday and include leaders from Bank of America and JP Morgan Chase, among others. During the sessions, lenders are likely to face pressure from the government to push for more home loan modifications in place of evictions and foreclosure, according to Reuters. Lenders have been hesitant to modify a large number of mortgage loans, as reducing the principal balance would constitute a loss for investors.
“It just cannot be the case that foreclosure is preferable to modification – including reductions of principal – for a significant proportion of mortgages where the dead-weight costs of foreclosure, including a distressed sale discount, are so high,” Reuters quotes Federal Reserve Governor Daniel Tarullo as saying in a speech at George Washington University law school.
The foreclosure crisis erupted in September upon the discovery that thousands of foreclosure documents were pushed through the system without proper verification. Representatives at some lending firms admitted that some paperwork was signed off on fraudulently. The event forced many lenders, including Ally Financial, Bank of America and JP Morgan Chase, to halt evictions and foreclosure proceedings in more than 27 states, pending further investigation. However, the banks recently renewed their proceedings, despite public outcry and a number of lawsuits.
Bank of America and JP Morgan Chase have said although they are continuing foreclosure proceedings, they are also reviewing their internal procedures to avoid future issues. Ally Financial is reviewing foreclosed accounts on a case-by-case basis.
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