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By Caren Bohan and Scot J. Paltrow Caren Bohan And Scot J. Paltrow Thu Oct 7,
4:26 pm ET
WASHINGTON (Reuters) President Barack Obama killed proposed legislation on
Thursday that struck at the heart of growing political rage over how banks have
moved to evict struggling borrowers from their homes.
The bill, which would have made it more difficult for homeowners to challenge
foreclosures, came under the spotlight this week as the furor grew over
disclosures that some of the biggest U.S. mortgage processors filed false
affidavits in thousands of foreclosure cases.
Obama sent the bill back to the House of Representatives for further discussion
on how it would affect the foreclosure crisis, one of the most visible signs of
the deep economic problems gripping the country.
The chorus of calls from political leaders for a suspension of foreclosures
grew on Thursday, with Senate Majority Leader Harry Reid and Representative Ed
Towns, the Democratic chairman of the House Committee on Oversight and
Government Reform, adding their voices.
The bill, the Interstate Recognition of Notarizations Act, cruised through the
Senate last week with no public debate and could have shielded bank and
mortgage processors from liability for foreclosure documents that were prepared
improperly.
"We believe it is necessary to have further deliberations about the intended
and unintended impact of this bill on consumer protections, including those for
mortgages, before this bill can be finalized," the White House communications
director, Dan Pfeiffer, said in a blog posting.
In a development first reported by Reuters, the bill would have required courts
to accept all out-of-state notarizations, including those stamped en masse by
computers in a practice that critics say has been improperly used to expedite
foreclosure orders.
Senate Majority Leader Harry Reid, who is fighting a tough bid for reelection
in Nevada, where foreclosure rates have been the highest in the nation, on
Thursday called for the largest mortgage servicers to suspend foreclosures in
Nevada.
And Towns, a New York Democrat, called for top mortgage lenders and banks to
voluntarily halt all foreclosures in the country and asked New York Attorney
General Andrew Cuomo to investigate allegations of fraud and other possible
criminal activity.
"Losing a home can be one of the most traumatic experiences faced by an
American family. Anyone forced to go through this process should be treated
fairly. Sadly, it appears this may not have been the case for some borrowers,"
Towns said in a statement.
So far, Ally Financial Inc's GMAC Mortgage, JPMorgan Chase & Co and Bank of
America have all announced that they are suspending some of their foreclosures
to review whether they have been conducting them properly.
Wells Fargo has said that it is "confident" in its foreclosure paperwork, and
Citigroup has also not announced plans to halt foreclosures despite increased
pressure from state attorneys general and lawmakers in Washington.
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.
False notarizations figured in disclosures that GMAC, JPMorgan and other big
mortgage processors filed false affidavits in thousands of cases, part of the
wave of foreclosures that erupted in the wake of the financial and economic
crisis.
The U.S. Justice Department said Wednesday it was probing reports the nation's
top mortgage lenders improperly evicted struggling borrowers as growing numbers
of lawmakers on both sides of the aisle demanded investigations.
The debate over foreclosure procedures comes just weeks before the November
congressional elections with Obama's fellow Democrats braced for potentially
big losses from voters frustrated by the slow economic recovery and punishingly
high unemployment rates.
But while many householders may cheer efforts to get tough with banks, some
experts say any blanket halt to foreclosures could risk further hobbling the
economy as banks wonder whether they will ever claw back losses and the housing
market grapples with by a mounting inventory of homes still likely to face
foreclosure in future.
Billionaire investor Wilbur Ross said on Thursday the foreclosure debacle could
slow the lending process, seen as key to pumping life back into the U.S.
economy.
"I think it's more of a clogging of the system and introducing another note of
uncertainty," Ross said at a Reuters summit on restructuring in New York.
MYSTERIOUS BILL
Obama's decision not to sign the bill capped a week which saw the legislation,
passed by the House in April, suddenly pushed through the Senate Judiciary
Committee and approved by the full Senate on September 27, the day before the
Senate recessed for the midterm election campaign.
Passage of the bill caught homeowners' advocates, including lawyers and some
state officials, by surprise with some saying the timing seemed peculiar.
The bill had received almost no public attention but stirred controversy once
the Senate's rapid passage of bill became public.
Congressional staffers said many lawmakers and White House officials initially
didn't realize that the bill, which nominally deals only with notarizations,
could have big impact on foreclosure cases.
(Additional reporting by Ross Colvin; writing by Andrew Quinn; editing by
Leslie Adler)