The foreclosure fiasco expanded this week, with major U.S. mortgage lenders imposing a moratorium on home seizures and 49 state attorneys general launching investigations into widespread paperwork flaws that could potentially invalidate millions of foreclosures. Bank of America, the nation’s largest bank, temporarily halted foreclosures nationwide while GMAC Mortgage, the fourth-largest mortgage lender, expanded its own moratorium from 23 to 50 states. Others imposed more limited freezes. The lenders are now reviewing paperwork to determine whether they hold clear title to properties they seek to repossess. President Obama resisted calls to freeze all foreclosures, arguing that such a move would paralyze an already anemic housing market.
Since the economic downturn began in 2007, lenders have sought to repossess 6.5 million U.S. residences, in many cases hiring loan-servicing firms to handle the voluminous paperwork. Former employees and homeowners allege that some loan servicers employed “robo-signers” who signed off on thousands of foreclosure petitions without verifying the information in them. The resulting confusion—and instances of fraud—could sow havoc among investors who bought securities based on mortgages.
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