* Mortgage servicer performance varies significantly
* Government to press lenders to correct problems
* Some state courts tighten foreclosure process
* BlackRock says selling of bank stocks "overdone"
(Adds state court actions, byline)
By Jeff Mason and Patricia Zengerle
WASHINGTON, Oct 20 The Obama administration
said it found no sign so far of "systemic" home foreclosure
troubles that threaten U.S. financial stability, or structural
problems that could undermine investments linked to mortgages.
But Housing and Urban Development Secretary Shaun Donovan
said a four-month probe of big banks' mortgage practices had
discovered "significant variation" in compliance with
government rules, and vowed to force changes as needed.
"We will not tolerate business as usual in the mortgage
market," Donovan told reporters on Wednesday, saying the
government would demand banks follow rules requiring them to
try to keep borrowers in their homes.
Allegations of faulty foreclosure paperwork, and demands
that banks buy back billions of dollars in mortgages sold to
investors, have raised fears that banks face a new wave of
difficulties similar to the 2007-2009 financial crisis.
Take a Look-U.S. foreclosures under fire [ID:nN11106777]
Reuters Insider interview with HUD secretary:
Breakingviews-Mortgage mess headlines anew[ID:nN19136285]
Donovan spoke after huddling with Treasury Secretary
Timothy Geithner and top Justice Department official Thomas
Perrelli to coordinate regulators' response to a foreclosure
mess that some analysts say poses risks to the fragile housing
market and the broader economy.
With less than two weeks to go before elections that
threaten Democrats' grip on Congress, President Barack Obama's
aides have come under growing pressure to show they are on top
of the situation.
The White House faces a delicate balancing act. It wants to
show voters it is keeping the heat on financial firms to clean
up the foreclosure mess. But it has resisted calls for a
nationwide moratorium on evictions, wary of doing anything that
could undercut the U.S. economic recovery.
Many mortgage industry analysts believe the foreclosure
paperwork problems can be cleared up quickly but say banks face
bigger losses from investors who accuse lenders of sometimes
misrepresenting home loans underpinning mortgage securities.
A group of eight investors has accused Bank of America
(BAC.N) of inappropriately pooling certain mortgages into more
than $47 billion of bonds. The bank has said it will fight
being held responsible for the investors' losses.
Donovan said a separate review of the way mortgage-backed
securities are designed has not so far uncovered any evidence
of "systemic" problems, though he said the government would
continue to look into the matter through the end of the year.
"We have not -- and we are continuing our review -- we have
not to date found any underlying concerns about those
structural issues," Donovan told reporters at the White House.
The foreclosure documents 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.
All 50 U.S. state attorneys general are jointly
investigating allegations that banks failed to properly review
foreclosure processes and may have submitted faulty
documentation to evict delinquent borrowers.
New York courts became the first in the United States to
require lawyers handling foreclosures to take steps to ensure
the procedure is done properly, the state's top judge Jonathan
Lippman said, calling it a national crisis." [ID:nN20205938]
Maryland's Court of Appeals on Tuesday also approved its
own measure to improve the integrity of foreclosures, including
the appointments of special examiners to screen paperwork.
The government probe of the top five mortgage servicers,
that began in May, found significant differences of performance
among mortgage servicers, but uncovered no evidence of a
system-wide paperwork problem.
"We have not found any evidence at this point of systemic
issues in the underlying legal or other documents that have
been reviewed," Donovan said.
Treasury Assistant Secretary Michael Barr said this meant
there was no threat to the "safety and soundness of the
Donovan said some servicers have followed the rules and
others have not. He said the government would press banks to
clear up problems and make affected homeowners "whole."
Donovan did not identify the firms examined but the top
five mortgage servicers by market share are: Bank of America,
Wells Fargo (WFC.N), JPMorgan Chase (JPM.N), Citigroup (C.N)
and Ally Financial's GMAC Mortgage. [ID:nN07171051]
Wells Fargo insisted on Wednesday that its practices were
in order. "We are confident that our practices, procedures and
documentation for both foreclosures and mortgage
securitizations are sound and accurate," Chief Executive John
Stumpf said as the bank reported higher quarterly earnings.
Larry Fink, chief executive of BlackRock Inc (BLK.N), the
world's largest asset manager, said banks may have to buy back
bad loans that they packaged into mortgages, but the impact on
banks will not be as significant as some investors fear.
Fink said selling in bank stocks this week is "overdone."
But Oppenheimer & Co downgraded Bank of America to
"perform" from "outperform," saying the involvement of the New
York Federal Reserve in the accusations over its mortgage
securities dulled the broker's enthusiasm for the stock.
Oppenheimer said this was likely the opening round in a
series of legal battles which could take years to resolve.
(Additional reporting by Ross Colvin and Corbett Daly in
Washington; Al Yoon, Jonathan Stempel and Elinor Comlay in New
York; Writing by Matt Spetalnick; Editing by Tim Dobbyn)