CORRECTED - WRAPUP 3-Investors, W.House press banks on mortgages
(Removes fourth paragraph reference to timing of moratoriums due to GMAC's decision in September)
* Shares of biggest mortgage servicers slide
* Investors could put billions in mortgages back to BofA
* White House says will hold lenders accountable
* Regulators to meet Wednesday on foreclosure issues (Adds Bank of America response, Ohio and Illinois officials)
NEW YORK/WASHINGTON, Oct 19 (Reuters) - Big banks took a hit on Tuesday as investors threatened to seek redress over questionable mortgage bonds and the White House warned it would hold lenders accountable for any illegal foreclosure practices.
Shares of big mortgage servicers fell as the market digested moves by a group of investors that could force Bank of America (BAC.N) to repurchase billions of dollars of loans.
With pressure mounting for a tougher response by the Obama administration just two weeks before congressional elections, U.S. regulators probing the foreclosure crisis planned to meet on Wednesday amid concerns it could undermine the fragile housing market and the broader economy.
Bank of America and GMAC Mortgage, two of the largest mortgage servicers, faced criticism they were acting too fast in announcing the lifting of foreclosure freezes they imposed in response to accusations of shoddy paperwork.
Take a Look-U.S. foreclosures under fire [ID:nN11106777]
Factbox-Foreclosure problems snowball [ID:nN06278011]
Breakingviews-Mortgage mess headlines anew[ID:nN19136285]
Graphic-BofA buyback issue link.reuters.com/vym29p
The foreclosure fiasco has drawn attention to mortgage-related problems at banks, including a trend toward these so-called "putbacks" by holders of mortgage securities.
Bank stocks had recovered some ground Monday after heavy losses last week on fears the foreclosure problems could curb bank earnings.
The putback threat, where investors accuse lenders of misrepresenting the loans that underpin securities, appeared to unnerve investors once more.
"This is more octane for the sell-off," said Todd Schoenberger, managing director with LandColt Trading in Wilmington, Delaware.
A group of large investors has accused Bank of America of mishandling mortgages packaged into bonds, but the bank said it would fight being held responsible for the investors' losses.
The investors said the bank sold them $16.5 billion in bonds backed by mortgages that should never have been put in their bonds in the first place. The Federal Reserve Bank of New York is in the group, a person familiar with the matter said. Bloomberg reported that the group also includes asset managers Pimco and BlackRock Inc (BLK.N).
Dan Frahm, spokesman for Bank of America Home Loans told Reuters, "We believe we've complied with our obligations."
Shares of Bank of America, the largest U.S. mortgage servicer, closed down 4.4 percent. Wells Fargo (WFC.N) shares lost 1.3 percent, JP Morgan Chase (JPM.N) ended 1.4 percent lower and Citigroup (C.N) lost 2.6 percent.
The foreclosure fiasco, in which banks are accused of using "robo-signers" to sign hundreds of foreclosure documents a day, has reignited public anger with banks, blamed for helping cause the recent financial crisis and recession.
The decision by Bank of America and GMAC Mortgage to resume foreclosures, coupled with their efforts to play down the severity of their problems, appeared aimed at sending a message that the crisis was easing.
The White House, which has performed a delicate balancing act over the crisis, signaled that President Barack Obama was not letting the big banks off the hook.
Obama's spokesman Robert Gibbs reminded banks that they faced federal fines and possible legal action from homeowners if investigators find irregularities in their practices.
With an eye to Nov. 2 midterm elections that threaten his Democrats' grip on Congress, Obama wants to avoid giving voters the impression he is caving in to financial firms whose risky lending is blamed for exacerbating the 2007-2009 meltdown that led to the deepest recession since the 1930s depression.
But the administration has resisted calls for a nationwide foreclosure moratorium, wary of doing anything that could derail the nation's anemic economic recovery.
"As institutions are determining their next steps in addressing these issues, we remain committed to holding accountable any bank that has violated the law," Gibbs said.
All 50 U.S. states have started a joint investigation of the mortgage industry, focusing on allegations that for years banks have not reviewed documents properly or have submitted false statements to evict delinquent borrowers.
Ohio Attorney General Richard Cordray said he was "deeply concerned" about Bank of America's move to resume foreclosures, and that attorneys general will want to be very careful in reviewing their revised processes.
The sheriff for Cook County, Illinois, which includes the city of Chicago, said on Tuesday he will not enforce foreclosure evictions for Bank of America, JPMorgan and GMAC Mortgage until they prove those foreclosures were handled "properly and legally." [ID:nN19144725] (Additional reporting by Joe Rauch in Charlotte, N.C., Elinor Comlay and Kristina Cooke in New York, Nick Carey in Chicago; Writing by Matt Spetalnick; Editing by Tim Dobbyn)
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