WASHINGTON (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, which could undermine efforts to persuade skeptical voters that it rescued the economy from a complete meltdown.
“There are a series of unintended consequences to a broader moratorium,” Gibbs told reporters.
A moratorium would help people on the brink of losing their homes, but industry experts warn it would create a backlog of homes that would later come to the market, depressing prices and further hobbling the economy.
Senate Majority Leader Harry Reid, who faces a tough fight in Nevada in the November 2 congressional elections, has joined some other Democratic lawmakers in pushing for the largest mortgage lenders to suspend foreclosures in all 50 states.
The calls follow allegations some banks used shoddy paperwork to kick struggling borrowers out of their homes.
Bank of America Corp, the largest U.S. mortgage servicer, has temporarily halted evictions nationwide. Other lenders have announced more limited suspensions or left their existing foreclosure policies in place.
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.”
Banks are expected to take over a record 1.2 million homes this year, up from about 1 million last year, according to real estate data company RealtyTrac Inc.
Foreclosures made up nearly one in four U.S. homes sold in the second quarter, it said.
More than two-thirds of U.S. state attorneys general plan as soon as Wednesday to launch a joint probe into the foreclosure allegations, a source familiar with the effort told Reuters.
The planned state investigations stem from allegations that banks and companies that collect monthly mortgage payments have used “robo-signers” — people who signed thousands of affidavits without properly reviewing them.
Gibbs said the White House supported the investigation.
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.
Regulators and mortgage servicers are hoping to resolve quickly questions about whether lenders and mortgage servicers have proper foreclosure paperwork and procedures in place.
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.
Bank of America Chief Executive Brian Moynihan has said that its review should take weeks, not months.
The foreclosure crisis has been one of the most visible signs of the U.S. recession.
President Barack Obama’s Democrats are widely predicted to suffer major losses in the November 2 elections as angry voters punish them for the perceived failure of Obama’s efforts to stimulate the economy and bring down unemployment.
Delaying the foreclosure process could be politically popular with voters struggling to make ends meet, but analysts warn it would hamper efforts to return the economy to full health after the worst downturn since the 1930s.
A U.S.-wide foreclosure moratorium could penalize pension funds, insurance companies and other investors and make new loans more expensive, an investor group and industry experts warned on Monday.
“The foreclosure delay ... supports the expectation that the housing recovery will be a slow one,” said Standard and Poor’s credit analyst Erkan Erturk, in a note.
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 across the nation have snowballed since 2007, sending home prices lower as banks dump 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 Albert Yoon; Editing by Tim Dobbyn