NEW YORK - Foreclosure-fraud class action lawsuits are starting to pile up against major banks across the country, threatening a besieged industry with billions more in potential losses.
Bank executives are swarming Capitol Hill this week to defend themselves against multiple foreclosure-related investigations, including one by all 50 state attorneys general. Talks are under way in that probe in hopes of reaching a settlement, but that wouldn't extinguish the mounting threat of an avalanche of class actions.
A congressional watchdog said in a report Tuesday that the foreclosure document debacle could threaten major banks with billions of dollars in losses, further prolong the housing depression and damage government effort to keep people in their homes.
The class actions, which could be expanded nationally, seek damages for homeowners whose properties were illegally foreclosed upon by banks using fraudulent documents. Suits have been filed in Maryland, New Jersey and Massachusetts that target Bank of America Corp., Wells Fargo & Co., HSBC PLC and J.P. Morgan Chase & Co. In Florida and Maine, Ally Financial, formerly known as GMAC Mortgage, is also being targeted.
A bigger threat may be suits that contend banks' foreclosure machinery amounted to racketeering. One case, an Indiana suit against Bank of America, was filed under civil Racketeering Influenced and Corrupt Organizations laws, which allow damages to be tripled.
The race is on for banks to keep the scandal from metastasizing. Crisis management specialists are working around the clock to help banking executives stem the financial and public relations disaster. Shares of Bank of America, the nation's biggest lender, are down 21 percent for the year, making it the biggest laggard in the 30 stocks that make up the Dow Jones industrial average.
Even if a settlement materializes with the state attorneys general, it won't necessarily stop all the class actions, although it could slow their momentum and limit their scale. A settlement would also help assuage public distrust and outrage.
The probe by the state prosecutors amounts to far more than an effort to root out the "robo-signers," whose back-office antics of signing thousands of foreclosure affidavits a day helped trigger the scandal. Lawmakers are also pressuring the banks to re-engineer their entire mortgage and foreclosure process to rid it of what they say is systemic dysfunction.
