UPDATE 2-JPMorgan delays foreclosure process for review

Wed Sep 29, 2010 6:21pm EDT

* Hires external counsel to review affidavit process

* Bank has about 56,000 current foreclosure proceedings (Adds shares, size of servicing portfolio)

NEW YORK, Sept 29 (Reuters) - JPMorgan Chase and Co (JPM.N) said on Wednesday it is delaying current foreclosure proceedings, adding to worries U.S. mortgage servicers are struggling to deal with the millions of homeowners unable to pay their mortgages.

The New York bank's decision to temporarily suspend current foreclosure proceedings follows a similar move by Ally Financial last week, after that company found some of its employees had not personally checked information in foreclosure documents filed to court.

At least four state attorneys general are investigating Ally, formerly known as GMAC, for its foreclosure procedures.

"It would not surprise me if other banks now look at this issue," said Frank Hirsch, partner at Alston & Bird in Raleigh, North Carolina.

Foreclosures have been spiraling in the United States as unemployment remains close to 10 percent and U.S. home prices are hovering near multi-year lows.

JPMorgan's move comes after a Florida law firm earlier this week said it planned to question the bank about its foreclosure practices at a hearing next month.

The law firm, Ice Legal, discovered through deposing a bank executive that she had authorized a foreclosure proceeding without properly reviewing the right documents. [ID:nN27263592]

A JPMorgan spokesman on Wednesday confirmed a report by Housing Wire, an industry publication that the bank has begun to systematically re-examine documents filed in current foreclosure proceedings.

"We believe the accuracy of the factual loan information contained in the affidavits was not affected by whether or not the signer had personal knowledge of the precise details."

The review process should be completed in a few weeks, he said. The bank will then submit updated affidavits to the courts as appropriate, he added.

The bank also said it is hiring outside counsel to help it review its process.

A person familiar with the process said the bank has about 56,000 current foreclosure proceedings that will be affected by the delay.

MORTGAGE SERVICING

The second-largest U.S. bank by assets, JPMorgan is also the third largest mortgage servicer, according to data from Inside Mortgage Finance.

The bank serviced $1.4 trillion in mortgages at the end of the second quarter, behind Bank of America Corp (BAC.N) -- which serviced over $2 trillion -- and Wells Fargo & Co (WFC.N) which serviced $1.8 trillion, according to Inside Mortgage Finance.

Ally is the fifth largest mortgage servicer, servicing $349 billion in mortgages, according to the publication.

On Monday, Connecticut Attorney General Richard Blumenthal joined regulators in California, Illinois and Ohio in opening inquiries into the practices discovered at Ally, once known as GMAC.

Ally said it addressed errors in processing its foreclosures months ago and is confident the mistakes did not wrongly turn people out of their homes. [ID:nN24242956]

JPMorgan shares closed down 1.4 percent at $38.41. Shares in rivals Wells Fargo and Bank of America were both down 1.2 percent. The broader KBW Banks Index was down just 0.4 percent. (Reporting by Elinor Comlay; Editing by Steve Orlofsky, Leslie Gevirtz)