Lenders asked to suspend foreclosures

Attorney General Lori Swanson on Wednesday called on 15 of the nation's largest mortgage lenders to voluntarily stop home foreclosures in Minnesota until they prove they are following correct legal procedures.

Swanson sent letters to Bank of America, J.P. Morgan Chase and Minneapolis-based GMAC Mortgage, as well as a dozen other mortgage lenders and servicers she would not identify, asking them to halt foreclosures in the state until they demonstrate that they have safeguards in place to ensure that their foreclosure process "is far and accurate."

Swanson joins at least six other state regulators looking into allegations that large mortgage firms let employees routinely sign off on foreclosure affidavits without properly reviewing them or verifying their accuracy. Last week, Bank of America, J.P. Morgan Chase and GMAC Mortgage curtailed foreclosures in 23 states, but not in Minnesota.

"We want to know if what's happening elsewhere is happening here," Swanson said.

"If it is, that's very troubling and very traumatic. It is an extreme remedy to take someone's home, and we want to make sure they are crossing their 't's' and doing their due diligence."

A spokesman for J.P. Morgan declined to comment on whether it would comply with Swanson's request to halt foreclosures. Officials at Bank of America and GMAC did not respond to questions late Wednesday.

State regulators in Connecticut, Florida, Iowa, Illinois, North Carolina and Texas have also said they are investigating whether foreclosures may have been handled improperly.

For now, the allegations of sloppy paperwork and inadequate review appear confined to the 23 states where foreclosure actions are initiated in the courts. In these states, lenders often have to sign important documents saying they've reviewed the relevant loan information and that it is accurate.

One employee at GMAC Mortgage said in a deposition that his team of 13 people signed about 10,000 affidavits a month without verifying their accuracy. The affidavits were then used to complete the process of repossessing homes and evicting residents.

It's unclear whether such practices affected Minnesota homeowners. In this state, lenders generally pursue foreclosures outside the court system, through legal advertisements.

As a result, the alleged "robo-signing" of documents would appear less relevant to homeowners here. However, regardless of where a foreclosure action begins, lenders still must authenticate that the amount owed is accurate and that they are foreclosing on the correct house.

Swanson is concerned that the same employees who were signing court documents without reviewing them may have been involved in processing foreclosures in Minnesota. Earlier this week, she asked the 15 large mortgage lenders and services for information on staffing levels in this state and how many foreclosures they are processing per month.

Swanson said she asked for detailed information from GMAC on Sept. 23, and then sent information requests to Bank of America and J.P. Morgan on Monday. Swanson said she is unsatisfied with the timeliness of their responses and decided to ask for a halt to foreclosures.

Swanson said she was disturbed to learn that lenders had failed to hire enough people to process foreclosures accurately.

"We are in year four of the housing crisis," she said. "We've had record numbers of foreclosures. They have had plenty of time to staff up for this. Goodness knows, there are plenty of unemployed people they could have been hiring to ensure they were doing their job properly."

The actions by state regulators come as the housing market shows little signs of a recovery. Foreclosed homes accounted for nearly 25 percent of all U.S. residential sales in the second quarter. A total of 248,534 homes nationally sold in some stage of foreclosure in the second quarter, up 5 percent from the previous quarter.

Taken alone, decisions by Bank of America, J.P. Morgan Chase and GMAC likely will have a substantial impact on the housing market, said Celia Chen, an economist at Moody's Economy.com. Together, these three lenders account for about 36 percent of the mortgage servicing market nationwide, according to Inside Mortgage Finance.

"You'll have greater stability in housing prices in the near term," Chen said. "But it means it will take longer to work through the whole problem of foreclosed houses."