WRAPUP 4-White House rejects U.S. foreclosure moratorium
* W.House worried about "unintended consequences"
* NY AG: robo-signing "slap in the face of New Yorkers"
* Wells Fargo reviews documents, GMAC finds no negligence
* 40 state AGs to announce joint investigation (Adds mortgage bond reaction)
WASHINGTON, Oct 12 (Reuters) - The Obama administration rejected calls for a nationwide moratorium on housing foreclosures amid fears that such a move could cripple an already slow recovery of the U.S. housing market.
White House spokesman Robert Gibbs signaled on Tuesday the administration's wariness of backing populist calls to halt evictions. A moratorium would benefit only a small minority of homeowners while risking a backlash if it impeded the economy.
"There are a series of unintended consequences to a broader moratorium," Gibbs told reporters.
Industry experts warn that a ban would add to lenders' losses, raise the cost of new mortgages, and create a backlog of homes that would further depress real estate prices.
Take a Look-U.S. foreclosures under fire [ID:nN11106777]
Breakingviews-Foreclosure fiasco [ID:nN11132857]
The push for the moratorium has rapidly gathered momentum in the past week.
Senate Majority Leader Harry Reid, who faces a tough fight in Nevada in the Nov. 2 congressional elections, has joined some other Democratic lawmakers in pushing for the largest mortgage lenders to suspend foreclosures in all 50 states.
Forty state attorneys general, many facing re-election, are also expected to announce a joint investigation on Wednesday into the allegations that some banks used shoddy paperwork to kick struggling borrowers out of their homes.
New York Attorney General Andrew Cuomo said on Tuesday he was expanding a state-wide investigation into foreclosures. He called "robo-signing", a method used by some banks to speed through paperwork, a "fraud upon our courts and a slap in the face of New Yorkers struggling to get by in this economy."
Iowa Attorney General Tom Miller told CNBC television the investigations were not aimed at collecting evidence for future lawsuits but to improve lenders' foreclosure practices.
Nevertheless, at least three law firms are known to be already exploring filing class-action lawsuits. [ID:nN12180742]
MORTGAGE BONDS STEADY
Prices of U.S. residential mortgage bonds were steady, despite numerous warnings of the effect of delayed foreclosures on these investments. Investors were still buying the riskiest of these instruments, analysts said. [ID:nN12252211]
Bank of America Corp (BAC.N), the largest U.S. mortgage servicer, has temporarily halted evictions nationwide while it reviews its processes. Other lenders have declared more limited suspensions or left their foreclosure policies in place.
GMAC Mortgage, a unit of Ally Financial and one of the nation's largest mortgage servicers, said on Tuesday an independent review had found no evidence of any inappropriate foreclosures.
Wells Fargo & Co (WFC.N), another major mortgage servicer, said it was doing additional reviews on all pending foreclosures. "This is in response to requests for information from elected officials, customers and other agencies," said spokeswoman Vickee Adams.
The "robo-signing" furor has refocused attention on the foreclosure crisis, one of the most visible signs of the U.S. recession, just weeks before elections in which Democrats are widely predicted to suffer major losses because of voter unhappiness over President Barack Obama's economic policies.
Gibbs said the administration was determined to "get to the bottom" of the foreclosure problem.
"We want to take the just and necessary steps to ensure that the process is being followed legally," he said. "At the same time, we don't want to see broader harm done to the housing market and to the housing recovery."
Nearly 3 million homes were repossessed by banks between January 2007 and August 2010, according to real estate data company RealtyTrac Inc. Banks are expected to take over a record 1.2 million homes this year alone, it said.
REGULATORS UNDER PRESSURE
U.S. regulators face heavy pressure to prevent a repeat of the 2007-2009 financial crisis that began when the U.S. housing bubble, over-inflated by banks lending cheap money to people with poor credit histories, burst.
The government-run mortgage finance giants, Fannie Mae and Freddie Mac, which own many of the nation's mortgages, have asked 2,000 servicers to complete internal reviews. [ID:nN01104724]
Analysts say a moratorium would stop banks from quickly reselling foreclosed homes. Banks would also likely pass on the increased costs of a longer foreclosure process to new borrowers in the form of higher mortgage interest rates.
Foreclosures have sent home prices lower as banks dump their inventory. It has begun a vicious cycle where homeowners left with no equity are walking away from their properties, or have become ineligible to refinance at the lowest rates on record.
The impact of foreclosures on house prices is one reason why housing is not playing its usual role in helping the economy recover from periods of slow growth or recession. (Writing by Ross Colvin, additional reporting by Al Yoon in New York and Dan Levine in San Francisco; Editing by Tim Dobbyn)
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