Oct. 19, 2010 -- As the nation's largest bank inched toward a possible remedy in the foreclosure epidemic, some analysts doubted that the federal government would step in -- yet again -- to bail out financial institutions blamed for a sea of corrupt paperwork that caused people to lose their homes.
Bank of America said it will effectively lift its foreclosure freeze Monday when it begins resubmitting foreclosure documents to courts in 23 states. The bank said the new documents will be used in 102,000 foreclosure actions in which judgment is pending in those states.
"If they can support the documentation, that sure sounds like turning a corner to me," said Lawrence White, an economics professor at New York University's Stern School of Business. "If they can support that, at least for them, that sounds like the way out of a tunnel."
In recent weeks, major lenders such as JPMorgan Chase, Ally Financial's GMAC Mortgage unit and Bank of America have conceded that paperwork supporting an unknown number of foreclosures contain errors ranging from wrong dates to forged or inconsistent signatures.
In some instances, banks allegedly used "robo-signers" to approve hundreds of documents a day without first verifying the information in them.
U.S. regulators, meanwhile, said they were moving ahead with their investigation into whether shoddy practices by the banks caused some people to be kicked out of their homes.
Bank of America had halted foreclosures in all 50 states after evidence emerged that employees didn't read the documents they had filed during the process. The bank said on Monday that it plans to resume foreclosures next week in 23 states that require a judge's approval to restart the foreclosure process. The company says it will continuing delaying about 30,000 foreclosures in 27 states that don't require a judge's approval.
, discussed the foreclosure issue in introductory remarks and while answering questions from analysts on a conference call Tuesday to discuss the bank's earnings with investors: "It's going to take us three to five weeks to get through and actually get all of this taken care of. The teams reviewing the data have not found information which was inaccurate which would affect the plain facts of the foreclosure," Brian Moynihan, BofA's CEO, said Tuesday.
"Of the foreclosure sales that took place in the second quarter, 33 percent of those properties were vacant, 80 percent had not made a payment for a year. The delinquency averaged 1.5 years for those customers and reflected the very tough times that these consumers are going through, 50 percent were unemployed or lost their income."
John Walsh, acting director of the Office of the Comptroller of the Currency, which oversees large national banks, said interagency teams were looking into whether any homeowners had been harmed by faulty, and possibly illegal, foreclosure procedures. A separate investigation is being conducted by the attorneys general of all 50 states.
"We will look at the process, we will look at the validity of what was done and then ultimately we will look at harm to homeowners," Walsh told reporters after a speech at the American Bankers Association's annual meeting in Boston. The interagency teams include the Federal Reserve and the Federal Deposit Insurance Corp.
Concern over the foreclosure crisis has even spurred talk of a government bailout similar to the $700 billion Wall Street bailout under the Troubled Asset Relief Program.
Concern over the foreclosure crisis has even spurred talk of a government bailout similar to the controversial, $700 billion Wall Street bailout under the Troubled Asset Relief Program.
CNBC's John Carney, in a blog, predicted that the federal government and congress would again come to the rescue.
"All the screwed up paperwork ... will be forgiven by a legislative act," he wrote.
"The lame duck session of Congress will pass a bill that essentially papers over the misdeeds of the banks that originated mortgage securities," Carney wrote. "Every member of Congress and every Senator who has been voted out of office will cast a vote for the bill. And the President will sign it. ... Congress may try to create some cost for banks in exchange for the forgiveness, perhaps requiring more mortgage modifications."
But Barry Ritholtz, a noted financial commentator and author of "Bailout Nation," said such a scenario was unlikely, given the strong feelings against the TARP bailout.
"There's just no appetite for it," he said. "You have bad actors across the board. Who do you want to rescue? There are almost no sympathetic players. You have the deadbeat homeowners, which everybody seems to think that this is about keeping the deadbeats in the house. The people who are being foreclosed upon -- with robo-signers and everything else -- the vast majority are going to be gone anyway, whether it's a week or a month or maybe another three months.
"What it really tells us is that the banks are wildly under-regulated," he said. "It's like the Keystone cops. I can't imagine that there's any bailout coming for this. There are just no good players anywhere."
White also said he thought the idea of a bailout was too unpopular.
"The way I sense the political landscape, that's the last thing I can imagine the Congress wanting to do," he said of a bailout. "You have voter anger at a lot of people -- at government, at banks, at reckless borrowers who don't pay their bills. I can't imagine the outcome of all that unhappiness and anger ending up being a free pass for the banks."
With reporting by the Associated Press.