LOS ANGELES (CBS/AP) — Shoddy bookkeeping and allegations of potential industry-wide fraud have threatened to upend the real estate industry as the nation’s largest bank on Friday took the dramatic step of halting tens of thousands of foreclosures across the U.S.
The move, along with another decision on foreclosures by PNC Financial Services Inc., adds to growing concerns that mortgage lenders have been evicting homeowners using flawed court papers, without verifying the information in them.
Charlotte, N.C.-based Bank of America Corp., the nation’s largest bank, said Friday it would no longer complete foreclosures in all 50 states as it reviews documents used to process foreclosures. That applies to homes that the bank takes back itself and those that it transfers to investors such as mortgage giants
Fannie Mae and Freddie Mac.
Distressed Homeowners Welcome Freeze: KNX 1070′s Ed Mertz Reports
A week earlier, the company had said it would only do so in the 23 states where foreclosures must be approved by a judge.
The bank did so in reaction to mounting pressure from public officials inquiring about the accuracy of foreclosure documents. A document obtained last week by the Associated Press showed a Bank of America official acknowledging in a legal proceeding that she signed thousands of foreclosure documents a month and typically didn’t read them. The official, Renee Hertzler, said in a February deposition that she signed up to 8,000 such documents a month.
A company spokesman, Dan Frahm, said the bank still believes its documents are correct but wants to satisfy officials’ concerns.
“Our ongoing assessment shows the basis for our past foreclosure decisions is accurate,” he said.
Banking and housing analysts, meanwhile, fear the foreclosure document problems could prolong the housing bust, and hundreds of thousands of inevitable foreclosures will be pushed off into some legal limbo for years.
“If you are looking at the key in this country to economic stability, it’s the housing industry,” said banking analyst Nancy Bush of NAB Research. “This is a huge mess that helps nothing.”
And some analysts feel that uncertainty about foreclosures could make potential buyers change their mind about purchasing foreclosed properties. That’s because of fears that the former owners will turn around and sue.
However, there could be a silver lining to the problem. A delay in foreclosures could actually prop up home prices in the short term because fewer low-priced homes would pour onto the market in the coming six months. When those properties ultimately do go up for sale, the overall economy could be in better shape, said Mark Zandi, chief economist at Moody’s Analytics.
“The irony is, it may actually support the recovery,” Zandi said. “It may be that when those properties actually hit the market, the economy is in a better place.”
In addition to Bank of America, PNC Financial Services Group Inc., Ally Financial’s GMAC Mortgage unit and JPMorgan Chase & Co. have announced similar moves in the past two weeks.
(©2010 CBS Local Media, a division of CBS Radio Inc. All Rights Reserved. This material may not be published, broadcast, rewritten, or redistributed. Wire services contributed to this report.)