WASHINGTON (Reuters) – U.S. regulators will be under pressure Wednesday to show lawmakers they are better policing foreclosures amid widespread evidence that lenders used shoddy paperwork to evict delinquent borrowers.
The Senate Banking Committee is holding a hearing on problems in the mortgage servicing industry and whether they pose a broader risk to the economy or amount to an isolated if nettlesome problem.
The issues facing the still-struggling housing market have been exacerbated by allegations that banks have used "robo-signers" to sign hundreds of foreclosure documents a day without proper legal review.
Regulators have been criticized for not catching the widespread flaws, which have reignited public anger with banks that received billions of dollars in taxpayer aid during the financial crisis.
Federal bank regulators and all 50 state attorneys general are probing Bank of America (BAC.N), JPMorgan (JPM.N), and other major mortgage servicers, many of whom temporarily halted foreclosures to examine their practices, only to then resume them.
These regulators, including Federal Deposit Insurance Corp Chairman Sheila Bair and Federal Reserve Governor Daniel Tarullo, are expected to provide an update on the probe and how big a threat the documentation problems could pose to the banks and housing market recovery.
Representatives from mortgages finance companies Fannie Mae (FNMA.OB) and Freddie Mac (FMCC.OB) have also been summoned to appear.
Fannie Mae and Freddie Mac officials will likely be questioned on their recent decision to resume sales of foreclosed properties.
"I want to hear why they feel that they have corrected policies that have allowed the foreclosures to take place without the rubber stamping and all the excesses that took place in the foreclosure practices," Robert Menendez, chairman of the Senate banking panel's housing subcommittee, told Reuters.
AG PROBE TALKS IN FLORIDA
Much of the action pertaining to foreclosures is taking place outside Washington, with state attorneys general taking a prominent role in investigating the servicing problems.
Officials from Bank of America and JP Morgan Chase have said they would like to have a settlement with states soon, but so far a deal remains elusive and it could be months before one is reached.
The attorneys general are gathering in Florida this week for the winter meeting of their national association. Among their guests will be Elizabeth Warren, President Barack Obama's top adviser on consumer issues.
Warren was scheduled to attend a reception Tuesday night to hear where the attorneys general foreclosure investigation stands and to provide state officials with an update on efforts to stand up the new Consumer Financial Protection Bureau.
Attorneys general and lawmakers have taken aim at the so-called "dual track" practice in which mortgage servicers go ahead with foreclosure proceedings even as they negotiate possible loan modifications aimed at keeping struggling borrowers in their homes. They have derided the process as confusing for borrowers.
A top housing regulator as well as officials from Fannie and Freddie defended the process, however, in testimony prepared for Wednesday's hearing and obtained by Reuters.
"At times, simultaneous actions are necessary because of the long timeframes of the foreclosure process and because borrowers are not always responsive to foreclosure alternative offers," Edward DeMarco, acting director of the Federal Housing Finance Agency, said in prepared testimony. His agency regulates Fannie and Freddie.
(Reporting by Dave Clarke and Corbett B. Daly)