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Administration Officials Reject Idea of National Foreclosure Moratorium

By Carrie Bay:

Evidence of several major servicers mishandling foreclosure paperwork and in some instances, breaking the law in their rush to work through the still-growing backlog of cases has cast a cloud of doubt over the entire industry and servicing procedures across the board.

Consumer advocacy groups and a number of state attorneys general have demanded a nationwide moratorium on foreclosures. But a senior White House official has indicated that the Obama administration will not support an all-out foreclosure freeze.

David Axelrod, one of President Obama’s top advisors, appeared on CBS’ Face the Nation this weekend, and the foreclosure paperwork debacle was Bob Schieffer’s topic of choice.

Axelrod acknowledged that the allegations of faulty foreclosure documentation are a “serious problem” and “thrown a lot of uncertainty into the housing market.”

But he quickly added, “I’m not sure about a national moratorium because there are, in fact, valid foreclosures that probably should go forward and where the documentation and paperwork is proper.”

“We are working closely with these institutions to make sure that they expedite the process of going back and reconstructing these and throwing out those that don’t work,” Axelrod said, noting that the administration’s hope is that the process will “move rapidly and get unwound very, very quickly.”

In an email to the Washington Post, David Stevens, commissioner of the Federal Housing Administration (FHA), echoed Axelrod’s stance.

“We believe freezing foreclosures for all banks in all states, whether we have reason to believe them to be in error or not, is simply not the prudent step to take in this fragile

housing market,” Stevens wrote to the Post. “While we understand the eagerness to make sure that no American is foreclosed upon in error, we must be careful not to over-reach and apply a remedy that will make the underlying problem of foreclosures worse.”

So far, five companies have announced voluntary foreclosure suspensions because of potential deficiencies in the legal paperwork.

GMAC Mortgage was the first to halt foreclosures in 23 judicial states.

JPMorgan Chase and Bank of America followed suit two weeks later. On Friday, BofA announced that it is expanding its moratorium to include all 50 states.

PNC Financial and Goldman Sachs’ Litton Loan Servicing have also called for a stop to foreclosures in certain states.

The servicers contend that any errors made are procedural and have stated that they expect only minor and temporary delays in foreclosure timelines due to the suspensions, but others say the latest developments are sure to disrupt the already tenuous balance of the housing correction.

Mark Zandi, chief economist for Moody’s Analytics, told the Associated Press that the foreclosure paperwork scandal could prolong housing’s slump for at least several more years. A mere month ago, before the documentation mistakes came to light, Zandi was predicting that an upturn would be well under way by this time next year.

The Mortgage Bankers Association (MBA), along with several other industry trade groups, sent a letter to members of Congress on Friday expressing concern over the additional damage a blanket national moratorium would bring.

The letter stated, “It is important to note…that these are document process reviews; in almost all cases there are no factual disputes about whether the mortgage is delinquent, the amount of the arrears or whether foreclosure is proper. In the overwhelming majority of cases, we believe the facts presented to the courts in foreclosure proceedings about the debt amounts and delinquencies have been accurate.”

According to MBA’s letter, “A foreclosure moratorium would not change the ultimate outcome for borrowers impacted by this situation,” but only cause further harm to communities at risk, the unstable housing market, and the fragile economy.