PHOENIX -- Several of the nation's biggest banks are in the hot seat over their foreclosure practices.
As Javier Soto explains, Bank of America, Ally Financial (formerly GMAC) and JP Morgan Chase are suspending foreclosure proceedings in 23 states. Arizona is not among them because it's a non-judicial state, which means foreclosure proceedings do not go through the courts.
The concern is that these banks, among others, were simply rubber-stamping foreclosure paperwork, approving foreclosures without even evaluating or verifying information in the documents.
Several homeowners complained; others filed suit over wrongful foreclosures.
"The money flew fast, the paperwork didn't," said Kathleen Engle of Suffolk University Law School. "All that mattered was the bottom line."
"The fallout could be significant if the court system takes a hard line and views this as systematic of broader problems in the mortgage services industry and delays the foreclosure process significantly," said Mark Zandi of Moody's Analytics. "It means that house prices are going to be weaker for longer and so will our economy."
The document problems could cause thousands of homeowners to contest foreclosures that are in the works or have been completed. If the problems turn up at other lenders, a foreclosure crisis that's already likely to drag on for several more years could persist even longer. Analysts caution that most homeowners facing foreclosure are still likely to lose their homes.
All three of the banks that are halting foreclosure proceedings were on the receiving ends of TARP funds. The banks are overseen by several regulators. It's not yet clear what repercussions they might face.
Here in Arizona, Neighborhood Housing Services of Phoenix (NHS Phoenix) and Chicanos Por La Causa (CPLC) are hosting Homeowner Fair events to help those struggling with their mortgage payments in October. For more information, visit www.nhsphoenix.org.