Last week, some of the nation’s largest lenders, such as Bank of America and Ally Financial (formerly GMAC), resumed processing foreclosures after a temporary moratorium to redo, recheck and resubmit some paperwork. The banks have asserted that, despite some possibly faulty paperwork, they have so far found no homes that were foreclosed upon in error and feel confident to move forward.
Federal banking regulators, however, have decided to open an investigation into lenders’ foreclosure practices. On Monday, Federal Reserve Chairman Ben S. Bernanke said that investigators are looking into whether there exist “systematic weaknesses” that are resulting in “improper foreclosures.”
Bernanke said that some preliminary results should be available next month. According to the Los Angeles Times, federal banking regulators are also trying to determine if and how the issues with incomplete or sloppy paperwork by lenders will end up affecting banks and the housing market.
Agencies investigating banks’ foreclosure practices include the Department of Housing and Urban Development, the Treasury Department and the Justice Department. Attorneys general in all 50 states have also opened a joint investigation to find out the extent of the errors in foreclosure documents and whether any homes were improperly foreclosed on or whether there is any evidence of fraud.
According to the Los Angeles Times, even as the federal officials have opened their investigations, most agree that banks should continue with foreclosure processing rather than extend the moratorium. The federal regulators believe that an extended moratorium would further hurt an already weak housing market.
Bernanke says banking regulators are investigating foreclosure practices (Los Angeles Times)