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Obama resists call to halt foreclosures nationwide

Top White House officials say a moratorium could backfire by driving home prices down further and delaying the real estate recovery.

October 14, 2010|By Jim Puzzanghera and Alejandro Lazo, Los Angeles Times

Reporting from Washington and Los Angeles — As all 50 states escalate efforts to quell a rising tide of foreclosures, one prominent figure is resisting calls for the federal government to do more: President Obama.

Banks seized 102,134 homes in September, a record for any month, RealtyTrac reported Wednesday. California led the nation with 17,756, the Irvine company said.

Even so, top White House officials worry that imposing a national moratorium on foreclosures would backfire by driving down prices even more, delaying the real estate shakeout and potentially creating more foreclosures as additional homeowners find themselves underwater.

"In places that have been particularly hard hit like Los Angeles and California … where foreclosures make up about 40% of home sales, that has the potential to hurt not only those individual home buyers but to delay the recovery of the housing market," Housing and Urban Development Secretary Shaun Donovan said in an interview.

Rather than calling for a moratorium, a key federal regulatory agency on Wednesday directed lenders to verify their foreclosure processes, quickly fix any problems and refer potential fraud to authorities.

In the absence of problems, the Federal Housing Finance Agency stressed that foreclosures on delinquent homeowners "should proceed without delay."

"Delays in foreclosures add cost and other burdens for communities, investors and taxpayers," said the agency, which regulates seized mortgage financing giants Fannie Mae and Freddie Mac.

Donovan and other administration officials have strongly called for fixing any improperly conducted foreclosures, noting ongoing inquiries by federal regulators and the Justice Department. The White House also has praised the expanding state efforts to investigate the problem.

Others contend that foreclosures should be halted, saying banks have taken too many shortcuts in seizing homes from delinquent borrowers. And Wednesday, attorneys general from all 50 states announced a joint investigation into how lenders have verified foreclosure documents.

Led by Iowa Atty. Gen. Tom Miller, the probe follows disclosures by some major lenders, including Bank of America Corp., JPMorgan Chase & Co. and Ally Financial Inc., that employees dubbed "robo-signers" had vouched for the accuracy of foreclosure documents without even reading them.

"This is not a silver bullet to keep millions of Americans in their homes," Miller said, adding that the action was not a call for a nationwide moratorium. "This is a chance to right the law and get the process right."

He noted that the issue is "primarily a case of state law … so we think it's quite appropriate that the states play a very significant role in this."

If the investigation uncovers violations, he suggested that instead of seeking fines, the states might prod the banks to put money toward modifying mortgages for homeowners to reduce monthly payments.

Administration officials contend that problems with foreclosures should rightly be dealt with by the states, instead of the federal government.

"I don't give the administration much credit on anything, but to their credit they're backing off on the moratorium talk," said Bert Ely, an independent banking analyst. "The real danger here, a serious danger to the economic recovery and a housing recovery, is some blanket, nationwide foreclosure moratorium."

Still, Obama faces pressure from his allies on the left to prescribe stronger medicine. The administration's mortgage modification efforts have been ineffective in significantly slowing foreclosures since it began last year. More than half of the 1.3 million borrowers who have received lower monthly payments have dropped out of the main program.

Rep. Maxine Waters (D-Los Angeles) reiterated her call for a nationwide moratorium. She is among numerous lawmakers and advocacy groups that have pressed the administration to do more.

"Let's take a step back, take a deep breath and figure out what is the fairest, kindest, most gentle way of dealing with millions of homeowners facing foreclosure," said John Taylor, president of the National Community Reinvestment Coalition.

The group's board met with Federal Reserve Chairman Ben S. Bernanke and the other members of the Fed's Board of Governors on Wednesday to push for a moratorium, and the board will meet with top administration economic officials Thursday, Taylor said.

Obama's response to the problem so far has been "disappointing and hard to fathom," he said. Although there are legal limitations, Taylor said, Obama could use the presidency's bully pulpit to call for a six-month halt in foreclosures to find a way to allow people to stay in their homes.

"Lenders will listen. Consumers will listen," Taylor said. "It offers hope."

But the administration believes a moratorium could worsen what appears to be a limited problem with some foreclosure paperwork.

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