Banks Under Scrutiny for Falsified Foreclosure Documents

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Lenders are scheduled to appear before Congress this week to review the foreclosure documentation scandal and explore foreclosure alternatives in an effort keep borrowers in their homes.

Congressional hearings will take place on Tuesday and Thursday and include leaders from Bank of America and JP Morgan Chase, among others. During the sessions, lenders are likely to face pressure from the government to push for more home loan modifications in place of evictions and foreclosure, according to Reuters. Lenders have been hesitant to modify a large number of mortgage loans, as reducing the principal balance would constitute a loss for investors.

“It just cannot be the case that foreclosure is preferable to modification – including reductions of principal – for a significant proportion of mortgages where the dead-weight costs of foreclosure, including a distressed sale discount, are so high,” Reuters quotes Federal Reserve Governor Daniel Tarullo as saying in a speech at George Washington University law school.

The foreclosure crisis erupted in September upon the discovery that thousands of foreclosure documents were pushed through the system without proper verification. Representatives at some lending firms admitted that some paperwork was signed off on fraudulently. The event forced many lenders, including Ally Financial, Bank of America and JP Morgan Chase, to halt evictions and foreclosure proceedings in more than 27 states, pending further investigation. However, the banks recently renewed their proceedings, despite public outcry and a number of lawsuits.

Bank of America and JP Morgan Chase are currently reviewing their internal procedures to avoid any future issues with foreclosure documentation.  However, both banks plan to continue foreclosure proceedings that are currently in process. Foreclosed accounts are being reviewed by Ally Financial on a case-by case basis.

For more on foreclosures and the legal repercussions, see “Understanding Foreclosures” in’s learning center.

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