HUD’s Donovan: National Foreclosure Moratorium Risks ‘Going Too Far’

http://blogs.wsj.com/developments/2010/10/12/huds-donovan-national-foreclosure-moratorium-risks-going-too-far/?blog_id=36&post_id=16087

By Nick Timiraos
The Obama administration’s top housing official on Monday said that a national foreclosure moratorium to correct flawed legal filings risked exacerbating the mortgage crisis.
“Asking every single servicer in the country, in every single state, to stop their processes—which basically sweeps all servicers into the bucket of irresponsible servicers that clearly made mistakes—has a number of consequences,” said Shaun Donovan, the Secretary of the U.S. Department of Housing and Urban Development, in an interview.
Mr. Donovan said that servicers which have improperly signed off on affidavits “need to suffer consequences for their irresponsible actions” and correct their processes immediately. But in cases “where we have not found problems with particular servicers…we do have some risk of going too far,” he said.
One potential drawback of a national moratorium, he said, would be that servicers would focus more energy on reviewing technical procedures at the end of the foreclosure process at the expense of implementing loan modifications and other efforts that could prevent foreclosures from happening in the first place.
Mortgage servicers, including units of major banks such as Bank of America Corp., have suspended thousands of foreclosure proceedings across the country as a result of submitting fraudulent court documents.
The banks have argued that the problems are technical and stem from efforts to quickly process growing volumes of foreclosures. They say there’s no evidence that borrowers have been turned out of their homes without defaulting on a mortgage. But consumer advocates and state and federal lawmakers say the banks inability to follow legal procedures may be masking larger flaws in the foreclosure process.
Banking regulators and other federal agencies are in the process of conducting reviews of how mortgage servicers conduct foreclosures.

The most important thing federal officials can do, Mr. Donovan said, is to “move as quickly and comprehensively as possible” to correct errors and to give the market confidence that “the foreclosure process is working the right way.”