The Obama administration said Wednesday that it found no sign of “systemic” troubles s with U.S. home mortgages, as banks sought to play down a crisis over accusations of shoddy foreclosure practices.
But Housing and Urban Development Secretary Shaun Donovan insisted the government would “take every action” to press banks to fix paperwork problems at the core of a foreclosure crisis that has put major financial firms on the hot seat.
Donovan spoke after huddling with Treasury Secretary Timothy Geithner and top Justice Department official Thomas Perrelli to coordinate the government’s response to a foreclosure mess that poses potential risks to the fragile housing market and the economy.
With less than two weeks to go before midterm elections that threaten Democrats’ grip on Congress, the Obama administration has come under growing pressure to show it is on top of the situation.
This also comes as investors continue to hold banks accountable for sales of billions of dollars in mortgage-backed securities, accusing lenders of sometimes misrepresenting the underlying loans.
A group of eight investors has accused Bank of America of inappropriately pooling certain mortgages into more than $47 billion of bonds. The bank has said it will fight being held responsible for the investors’ losses.
The foreclosure documents fiasco, in which banks are accused of using “robo-signers” to sign hundreds of foreclosure documents a day, has reignited public anger with banks, blamed for helping cause the recent financial crisis and recession.
“We will follow up vigilantly on the noncompliance, the potential noncompliance, that we have found and I want to be clear that we will demand that servicers take actions as required by FHA (Federal Housing Administration) to do everything they can to keep borrowers in their homes,” Donovan told a news conference at the White House.
He insisted that a government probe, while finding significant differences of performance among mortgage servicers, uncovered no evidence of a system-wide paperwork problem.
“We have not found any evidence at this point of systemic issues in the underlying legal or other documents that have been reviewed,” Donovan said.
But he said some servicers have followed the rules and others have not, and “where there have been mistakes made or errors, we will hold those entities, those institutions accountable to stop those processes and review them and fix them as quickly as possible.”
Donovan said the government would press banks to clear up problems and make affected homeowners “whole.”
Wells Fargo & Co. insisted Wednesday that its foreclosure practices were in order.
“We are confident that our practices, procedures and documentation for both foreclosures and mortgage securitizations are sound and accurate,” Chief Executive John Stumpf said as bank reported higher third-quarter earnings.
Wells Fargo said it has seen its number of mortgage repurchase demands fall in the last two quarters.
Larry Fink, chief executive of BlackRock Inc., the world’s largest asset manager, said banks may have to buy back bad loans that they packaged into mortgages, but the impact on banks will not be as significant as some investors fear.
Fink said selling in bank stocks this week is “overdone.”
But Oppenheimer & Co. downgraded Bank of America to “perform” from “outperform,” saying the involvement of the New York Federal Reserve in the accusations over its mortgage securities dulled the broker’s enthusiasm for the stock.
Oppenheimer said this was likely the opening round in a series of legal battles which could take years to resolve.
