US banks fight back in 'foreclosure-gate'

Two top US banks are moving on the offensive as they struggle to put the foreclosures quagmire behind them, but the scandal continues to menace the financial sector.

A young boy demonstrates against the eviction of families from foreclosed homes outside the offices of JPMorgan Chase in Chicago, Illinois. Foreclosures have evolved into a massive industry since the start of the economic crunch as Americans facing massive debts were forced to evacuate their homes, unable to pay their mortgages.

Bank of America, the country's largest bank by assets, said late Monday it was lifting freezes on more than 100,000 foreclosure cases in 23 states, insisting it had not found any flaws in their processing.

Bank of America, which had announced a nationwide moratorium on foreclosures to review its paperwork on October 8, nevertheless said the freeze will stay in place for now in the remaining 27 states.

The bank also said that it anticipates no more than 30,000 foreclosure sales will be delayed as a result of the review.

"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," Bank of America boss Brian Moynihan said in a teleconference on Tuesday.

Another major lender, Ally Financial, formerly known as GMAC, also said it will gradually resume mortgage-default processes as it clears them case by case.

Brian Moynihan, Chief Executive Officer of Bank of America. The country's largest bank by assets has said recently it is lifting freezes on more than 100,000 foreclosure cases in 23 states, insisting it had not found any flaws in their processing.

"In the review to date, we have not found any evidence of inappropriate foreclosures," said Ally spokeswoman Gina Proia.

But it still remains to be seen if the courts in the states where the processes will be restarted will approve the cases as attorneys general in all 50 states announced last week they will probe mortgage-loan practices.

And with the November mid-term elections two weeks away, politicians are unlikely to make life any easier for the banks in what is being called "foreclosure-gate".

President Barack Obama's administration on Tuesday vowed to hold banks accountable if malpractice is revealed.

"As institutions are determining their next steps in addressing these issues, we remain committed to holding accountable any bank that has violated the law," White House spokesman Robert Gibbs said.

A sign is seen in front of a foreclosed home in Miami, Florida. Two top US banks are moving on the offensive as they struggle to put the foreclosures quagmire behind them, but the scandal continues to menace the financial sector.

The scandal spiraled into a major crisis in recent weeks after Bank of America, Ally's GMAC Mortgage unit, JPMorgan Chase and Goldman Sachs halted foreclosures to review paperwork after evidence surfaced that some documents were signed without a proper vetting, a practice called "robo-signing."

Foreclosures have evolved into a massive industry since the start of the economic crunch as Americans facing massive debts were forced to evacuate their homes, unable to pay their mortgages.

The number of mortgage defaults has soared from an annual average of one percent before 2008 to 10 percent today, according to RealtyTrac, a leading foreclosure-tracking firm.

Other than dealing a fresh blow to financial institutions' already damaged reputations from the Wall Street crisis, the foreclosures bungle could cost banks massive sums in losses and lawsuits.

Richard Bove, a leading financial analyst at Rochdale Securities, estimated that under the best-case scenario, banks losses will top 80 billion dollars, mostly from lawsuits, over the next three to five years.

A homeowner (L) becomes emotional during a mortgage restructuring event in Los Angeles. The number of mortgage defaults in the US has soared from an annual average of one percent before 2008 to 10 percent today, according to a leading foreclosure-tracking firm.

"The real problem is the threat of lawsuits related to mortgage-backed securities. They may prove to be far more costly," Bove wrote in a client note.

The foreclosures crisis could also deal a stinging blow to the struggling US housing market, which was at the roots of the 2008 sub-prime mortgage crisis that sparked the country's worst recession since the Great Depression.

"If not quickly resolved, this could scare away buyers of bank-owned properties. If lenders didn’t foreclose properly, buyers could find themselves without clean title and in a legal black hole," warned Ed Yardeni of Yardeni Research.

The deepening crisis has already taken a heavy toll on banks on Wall Street.

Last week, both Bank of America and Wells Fargo shares shed a staggering 9.1 percent, Citigroup lost 5.7 percent and JPMorgan shed 5.5 percent despite its strong quarterly earnings.