Federal banking regulators are examining whether mortgage companies cut corners on their own procedures when they moved to foreclose on people’s homes, Federal Reserve Chairman Ben Bernanke said Monday.
Preliminary results of the in-depth review into the practices of the nation’s largest mortgage companies are expected to be released next month, Bernanke said in remarks prepared for delivery to a housing-finance conference in Arlington, Va.
“We are looking intensively at the firms’ policies, procedures and internal controls related to foreclosures and seeking to determine whether systematic weaknesses are leading to improper foreclosures,” Bernanke said. “We take violation of proper procedures seriously,” he added.
Bernanke’s remarks come as attorneys general in all 50 states plus the District of Columbia are jointly investigating whether mortgage companies improperly evicted people from their homes. They are looking into whether paperwork and legal procedures were handled properly.
At the same time, staff members at the Fed and other federal agencies are evaluating the potential effects of the foreclosure debacle on the real-estate market and on financial institutions, Bernanke said.
Bank of America and Ally Financial Inc.’s GMAC Mortgage have resumed processing foreclosures, after halting them temporarily to review documents. Both lender face allegations that employees signed but didn’t read foreclosure documents that may have contained errors. Other companies, including PNC Financial Services Inc. and JPMorgan, have halted tens of thousands of foreclosures after similar practices became public.
Dubious mortgage practices and lax lending standards were blamed for contributing to a housing bubble that eventually burst and thrust the economy from 2007-2009 into the worst recession since the 1930s. Many Americans took out home loans that they didn’t understand and bought homes that they couldn’t afford.
As a result, foreclosures have soared to record highs. It’s one of the negative forces restraining the economy’s ability to get back on sounder footing.
Now more than 20 percent of borrowers owe more than their home is worth, and an additional 33 percent have equity cushions of 10 percent of less, putting them at risk should house prices decline much further, Bernanke said.
“With housing markets still weak, high levels of mortgage distress may well persist for some time to come,” Bernanke warned.