The Obama administration is warning that the foreclosure mess of recent weeks could push down home prices, delay the recovery of the housing market and affect the broader economy.
At a hearing of the House oversight panel for the Troubled Assets Relief Program, Phyllis Caldwell, chief of the homeownership preservation office at the Treasury Department, warned of "downward pressure on overall housing prices both in the short and long run" thanks to the foreclosure fiasco, reports the New York Times.
The news that major lenders cut corners on paperwork in seeking to speed struggling borrowers out of their homes has triggered a slew of lawsuits as well as state and federal probes. The mortgage bottleneck has also created basic confusion about the legal status of foreclosed homes, a factor likely to discourage potential buyers, Caldwell said.
Some lawmakers warned of broader repercussions. "If investors lose confidence in the ability of banks to document their ownership of mortgages, the financial industry could suffer staggering losses," said Sen. Ted Kaufman (D-Del.). "The possibility is especially alarming coming so soon after taxpayers spent billions of dollars to bail out these very same institutions."
Big lenders like Bank of America, GMAC and JP Morgan Chase suspended some foreclosures after the missteps emerged last month, but some have now resumed them, saying they found no evidence of systemic problems.
Some witnesses before the House panel were skeptical. "To get the market working again, buyers need assurances that the foreclosures are legal and not vulnerable to challenge," Julia Gordon of the Center for Responsible Lending told lawmakers. "Having banks claim to fix thousands of mortgages within a couple of weeks without more information is unlikely to restore public confidence."
The administration's efforts to mitigate foreclosures have come under widespread criticism lately. A report released this week by the inspector general for the bailout found that 1.7 million homeowners had lost their homes since 2009, and that 5.5 million homes had been the subject of foreclosure filings.
(Photo: AP/David Zalubowski)