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Wall St. pins foreclosure fiasco on homeowners

Wall Street's reaction to the allegations that some banks cut corners while foreclosing on 3 million homes since 2007: Pay your mortgage in the first place.
/ Source: Reuters

Wall Street's reaction to the allegations that some banks cut corners while foreclosing on 3 million homes since 2007: Pay your mortgage in the first place.

The building furor over whether the largest U.S. mortgage lenders used so-called robo-signers and incomplete paperwork to force delinquent borrowers from their homes has mushroomed into a probe by the attorneys general in all 50 states, with U.S. Congressional hearings not far behind.

Those on Wall Street, however, are largely unsympathetic, insisting that possible errors in the foreclosure process are beside the point, that the process begins only when a borrower starts missing mortgage payments.

"If you didn't pay your mortgage, you shouldn't be in your house. Period. People are getting upset about something that's just procedural," said Walter Todd, portfolio manager at Greenwood Capital Associates.

Some said the issue is one of personal responsibility for one's own debts.

"Everyone's responsible for following the law. If we all don't have to pay our mortgage, should we just stop paying taxes, too?" said Anton Schutz, president of Mendon Capital Advisers. "Your mortgage didn't get to a robo-signer by accident, it's because you're not paying."

Robo-signers is the term for bank employees who signed hundreds of foreclosure documents daily without reviewing them.

The lack of review is why officials investigating the issue say that some homeowners may actually have been unfairly evicted from their homes.

Lawmakers in California, in a letter to federal authorities last week, said reports from thousands of homeowners in their congressional districts show an "apparent pattern" of practices that led to foreclosures that could have been avoided.

Thousands of people reported that despite efforts to seek loan modifications or other relief many financial institutions "routinely fail to respond in a timely manner, misplace requested documents, and send mixed signals" about what is required to avoid foreclosures, the lawmakers said.

Who's to blame?
Homeowners and consumer advocates also disagree with Wall Street's characterization of who is to blame.

"We think this is the smoking gun that illustrates widespread problems in the process," said Kathleen Day, spokeswoman for the Center for Responsible Lending, a Durham, North Carolina-based consumer advocate. "No one's saying that foreclosures should stop forever, but lenders need to be abiding by the law."

The executives for the largest lenders and others on Wall Street have downplayed the worries over foreclosures as nothing more than a technical speed-bump in a process that's still accomplishing its main objective of removing delinquent borrowers from their homes.

"We're not evicting people who deserve to stay in their house," Jamie Dimon, JPMorgan Chase chief executive, said on a conference call with analysts on the company's third-quarter earnings on Wednesday.

JPMorgan, the second-largest U.S. bank by assets, said it is reviewing 115,000 foreclosure cases, after suspending foreclosure sales in 23 states last week, and expects the review to be completed in a few weeks.

Dimon said he ultimately expects the review will have little impact on pending foreclosures sales, though JPMorgan's chief financial officer said during the call the bank amended some of its processes.

On Friday, the chief executive of Bank of America Corp, the largest U.S. bank by assets, described the process as clearing the air around the bank's foreclosures, and the lender stood by its work.

"We'll go back and check over our homework one more time," CEO Brian Moynihan said after a speech at the National Press Club in Washington on Friday.

BofA has temporarily suspended foreclosures and sales of foreclosed properties in all 50 U.S. states, pending a similar review.

Finance executives conceded that while mistakes are being made in the foreclosure process, borrowers are often delinquent for years before being removed from their homes.

In announcing its nationwide foreclosure halt, Bank of America disclosed the average borrower missed payments for 18 months before their home was repossessed.

JPMorgan, in its third-quarter earnings presentation, disclosed that the average delinquency at foreclosure was 448 days, with as many as 40 percent of foreclosed homes vacant at the time of the seizure.

In New York and Florida, the bank disclosed, foreclosures can take as long as two years.