* 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 (Reuters) - 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. [ID:nN19106691]
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 financial system."
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)