FedUpUSA

Archive for October 9th, 2010

Listen up people….if you borrowed money from Countrywide Financial Corporation (CFC) between the years of 2003 and 2007,  you MUST read this.  While this lawsuit is in California, the fact of the matter is Countrywide (now part of Bank of America) did not confine their fraud to merely that state.  Countrywide made home loans in every state in this country.  They are, according to this Complaint, one of the primary reasons we had the huge housing bubble.  They purposely drove up prices of homes, as you will see in the excerpts from this Complaint, specifically targeting people who COULD NOT PAY.  This means the prices of homes in your neighborhood falsely went up, increasing the cost of borrowing for EVERYONE and putting homes further and further out of reach of the average American until many had no other choice but to borrow using one of these ‘creative mortgages’ – (pick-a-pay, no-doc, low-doc, etc.), which Countrywide then underwrote and re-sold in bulk for pennies on the dollar, thereby making money off of you while you went broke.  If you’re facing foreclosure or even if you aren’t, this is something you MUST read.  Time to stand up and stop the raping of the American public.  This time, the little guy CAN beat the bank.

Karl Denninger from Market-Ticker has summarized as follows:

This is an extremely-important case folks.  The pleadings here, like the case in Kentucky, lay the table in terms of the games that were played during the “Rah-Rah” years.

I am going to provide some excerpts via screenshots, and a link to the file containing the entire conformed copy in PDF format.  Due to the PDF being protected against changes, SCRIBD will not allow me to upload it – I have asked for a copy without the protection and if I get it, will update this Ticker accordingly.

Let’s start with the “meat” of the alleged violations:

And the first “meaty” part of the complaint….

In other words, Countrywide is alleged to not only have made bad loans, but also to have intentionally inflated appraisals.

Oh, that’s rich.  So not only (it is alleged) did Countrywide bamboozle borrowers, they also bamboozled investors.

There’s the base of it all….

Of course there’s the famous “let’s hide Waldo” game once the gig is pretty much up.  After all, if we have to produce the documents, well, our goose might be cooked – and that would be bad.

So what else is presented in here?  Oh, all sorts of good stuff.  Here’s a sampling:

That sounds like a problem to me……

Ding ding ding ding ding ding! 

One of the keys to this mess is that the lenders knew full well that the borrowers could not pay “as agreed”, yet made the loans anyway.

 

You mean basically everything important about the loans, their quality, who they were going to be sold to, why and how was all bogus?  And in addition, the price to be sought from investors exceeded the income stream that could be achieved even if nobody defaulted at all?

Heh, that’s a good gig if you can get it – and if you can find a way to do it legally.

Are there some facts behind this?  Oh it appears there are…

Oh my.  2004 eh?  I seem to remember tAngelo on CNBS making multiple appearances talking about how his company was going to take market share from all these subprime lenders that collapsed, and this was going to be great for his company.  Indeed, I remember chortling at the time that I believed he was a lying SOB, and of course the so-called “Fantastic Mainstream Media” lapped it up – and helped support his stock price.

It appears that the intrepid attorneys who filed this action remember that too…. and the pages surrounding 100 in the complaint document a whole bunch of them, including statements in 10Ks and 10Qs that, it is alleged, were flatly false.

And, of course, there’s this one, which I have referred to many times over the last three and a half years:

I distinctly remember the cheesy suits and ties, not to mention the sprayed-on-looking tan.

As I have repeatedly pointed out, the entire intent of these loans was not to be a mortgage at all.  It was, I allege, more akin to an asset-stripping scheme where the borrower would be effectively forced to come back to the lender after a couple of years when the teaser expired or the inevitable reset or recast occurred and effectively hand over his accumulated “appreciation” in price through yet more fees to be paid to the “lender.”

I believe that for all intents and purposes, from the lender’s point of view, this was nothing more than renting the house, as passing of a clear title to the buyer was never part of what was contemplated by the lender – but of course the borrower wasn’t told this in advance – or at all.

There’s much more in the complaint, but this will do for a start.

Incidentally, the banks tried to get this removed to Federal Court and kill it, and were rebuffed, so it appears that it’s headed to trial.  Plaintiff’s Bar 1, Banksters 0 thus far – I will be providing updates on this case as I become aware of them.

To contact the attorneys involved (if you believe you might have an issue related to this) view the PDF – contact information is found right on the top, including email addresses – use them.

Link to PDF

Some top Federal Reserve officials have come up with a really bizarre proposal for stimulating the U.S. economy.  As unbelievable as it sounds, what they actually propose to do is to purposely raise the rate of inflation so that Americans will stop saving so much money and will start spending wildly again.  The idea behind it is that if inflation rises a couple of percentage points, but consumers are only earning half a percent (or less) on their savings accounts, then there will be an incentive for consumers to spend that money as the value of it deteriorates sitting in the bank.  Yes, that is how bizarre things have gotten.  It is not as if U.S. consumers are even saving that much money.  Several decades ago, Americans typically saved between 8 and 12 percent of their incomes, but over this past decade the personal saving rate got down near zero a number of times as Americans were living far beyond their means.  Once the recession hit, Americans very wisely started saving more money, and so now the personal saving rate has been hovering around the 5 to 7 percent range.  This is well below historical levels, but the folks at the Fed apparently are eager for Americans to pull that money out and start spending it again.

In an article entitled ”Fed Officials Mull Inflation as a Fix“, Wall Street Journal columnist Sudeep Reddy described this bizarre new economic approach that some over at the Federal Reserve are now advocating….   

“But as the U.S. economy struggles and flirts with the prospect of deflation, some central bank officials are publicly broaching a controversial idea: lifting inflation above the Fed’s informal target.”

Does increasing inflation as a way to stimulate the economy sound like a good idea to any of you?

These are supposed to be some of the brightest economic minds that our nation has produced.

Unfortunately, it is becoming increasingly apparent that the folks running the Federal Reserve do not have a clue about sound economic policy.

Anyone who lived through the “stagflation” days of the 1970s should know that inflation does not spur economic growth.

But now some of the most prominent Fed officials are publicly proposing that we should purposely generate more inflation so that “real interest rates” (interest rates with inflation factored in) will go down.

For example, during a recent interview the president of the Federal Reserve Bank of Chicago, Charles Evans, made the following statement….

“It seems to me if we could somehow get lower real interest rates so that the amount of excess savings that is taking place relative to investment needs is lowered, that would be one channel for stimulating the economy.”

If you truly grasp what Evans is proposing here, your jaw should be dropping.

He is basically coming right out and saying, “Hey, let’s go out and crank up the inflation rate so that American consumers will start recklessly spending their money again.”

So are Americans really saving too much money?

Of course not.

Just take a look at the chart below.

Americans are actually still saving far, far less than they used to.  As you can see from the chart, in the 1960s and 1970s Americans would usually save somewhere between 8 to 12 percent of their incomes.

Today, we are still well below that level.  But we have made some progress from the reckless days of five to ten years ago when Americans were living far, far, far beyond their means and basically saving next to nothing….

So now some top Fed officials want to undo all that.  They apparently want Americans to grab their credit cards and to run out to the stores and spend wildly like they did a few years ago.

But spending recklessly is not going to repair our economy.  In order to have a healthy, balanced economy you need to have a healthy personal saving rate.  Encouraging Americans to spend every last nickel they have may boost economic figures in the short-term, but it will make our long-term problems even worse.

But it is not just Federal Reserve officials that are advocating this kind of nonsense.  Just a few months ago, IMF chief economist Olivier Blanchard suggested that it might be a good thing if western nations doubled their inflation targets from two percent to four percent. 

It seems like almost everyone is in an inflationary mood these days.

The Federal Reserve keep dropping hints that it is ready to print lots more money and unleash another huge round of quantitative easing.

Just this past week, the Bank of Japan shocked world financial markets by cutting interest rates even closer to zero and by setting up a 5 trillion yen quantitative easing fund.

In fact, nations all over the world have become increasingly eager to devalue their national currencies in an attempt to gain an edge in international trade.

So after years of relatively low inflation, it looks like our leaders are almost eager to tangle with the inflation tiger once again.

But it might not be so easy to tame the next time.

Once a really bad inflation spiral gets going it is really hard to stop.

But in the end, it is not going to be Barack Obama or the U.S. Congress that is going to decide if we pursue these inflationary policies or not. 

Ultimately, these decisions are in the hands of the unelected, unaccountable Federal Reserve.

If you don’t like it, too bad.  When was the last time a U.S. president or the U.S. Congress really stood up to the Federal Reserve?  It just doesn’t seem to happen.

The Federal Reserve is going to do what the Federal Reserve wants to do, and the rest of us are going to have to live with it.

Of course we could all try to elect candidates who would demand more accountability from the Federal Reserve this fall, but unfortunately those kind of candidates are few and far between.

The sad reality is that at this point, the Federal Reserve is pretty much completely and totally out of control.  The U.S. dollar has already lost over 95 percent of its value since 1913, and now the Federal Reserve is giving every indication that inflation is going to get even worse in the years to come.

But flooding the system with more paper money is not going to solve anything.  Instead, it is just going to make it even harder for average American families to buy milk and bread and to put gas in the car.

Inflation is a hidden tax on every single dollar that we already own.  It is a destroyer of wealth and a wrecker of currencies. 

But now some of the top officials at the Fed see inflation as a key tool in creating “economic growth”. 

With such a clueless collection of idiots running our economy (and the Federal Reserve does run our economy) do any of you actually believe that there is hope for the U.S. economic system in the long run?

The Economic Collapse

Except me, of course….

I’m referring to the “why”.

There’s an old-school journalism standard – it’s called the “Five Ws”:

• Who?
• What?
• Where?
• When?
• Why?

Some add a sixth, an “H” – “How?”

We know the answers to five of the six “W”s on Foreclosuregate:

• Who: Major financial institutions, including all of the “big banks” and investment banks, both in the United States and overseas.
• What: First, they failed to perfect their security interests as required by law, and they included bad loans in securitization pools on purpose, both of which are violations of either fiduciary duty, old-fashion fraud, or both.  Now they’re filing bad paperwork with courts across the land, constituting perjury, fraud upon the courts, counterfeiting and more.
• Where: Everywhere.  There are now 40 State Attorneys General that are looking into coordinated action on the second part of this scandal, as it is resulting in people being evicted from their homes under questionable pretense.
• When: The first part took place from 2003 to 2008, roughly.  The second is happening now.
• WHY:  The question nobody is asking – or answering.

I’ll take this one, because it’s simple, it’s obvious, and it’s documented.  I also talked about it in some detail at the end of 2007, where I wrapped up the year and put out my 08 forecast.  I said at the time:

Lets say that you have 1,000 mortgages that youve written to all sorts of people. Their actual risk if defaulting on their mortgages is reasonably low, especially when you look at all 1,000 of them as a pool, instead of each individual mortgage. Lets say for the sake of argument that the actual risk premium that is, the reasonable cost of the money compared to a risk free investment such as US Treasury bonds, is 200 basis points that is, a 2% higher interest rate fairly compensates for the risk you wont pay.

Ok.

So I have a pool of mortgages that was made when the 10 year Treasury bond was yielding 5%, and the fair return on that pool is 7%. All is good.

Or is it?

Well, no. See, everyone who touches that pool wants a piece of the action. If Im an investment bank I cant possibly do this work for free, so I want 25 basis points of that 200 for my profit in putting all these together and managing them.

Then there is the company that services the loans. They take the payments from each homeowner and make sure that theyre correctly accounted for. This requires staff, phones, computers, etc. They too want to be paid lets call that another 25 basis points.

So now we have 150 basis points left of margin over the 10 year Treasury rate. If we sold slices of this debt off, at best we could allow a coupon that reflected that 150 basis points.

Unfortunately greed got into the equation.

The banks figured out that they could structure these 1,000 mortgages into different tranches with different characteristics. If you take all the money coming in and look at this as one big pool, that gives everyone only one thing to buy. But if we take that pool and split it up into a bunch of different levels of risk, we can now offer slices that have different levels of return.

For instance, we could draft some documents that say that if the total amount of money due isnt paid (by everyone) that the first risk of people not paying would fall on a certain class of the buyers. These buyers would get a much higher coupon payment, but theyd take much higher risk, because no matter which Joe doesnt pay their mortgage, these people would eat it preferentially, while those above them with a lower grade of risk would keep getting their payments.

This is the essence of the Mortgage-backed security, or MBS.

But remember no matter how you slice this whole deal up only 200 basis points of profit is in there over treasuries to make. You can change who eats the losses and how much the various fingers in the pie get to siphon off, but you cant change the total amount of profit available.

OR CAN YOU?

Wall Street figured out that YOU CAN IF YOU ARE WILLING TO CHEAT.

All you have to do is find someone who will run your deal through a computer program and grade the quality of its debt. If you can find someone who will claim that the total risk of the deal is lower than it actually is, you make out like a bandit, because instead of 200 basis points of actual profit you suddenly find another 50 or 100!

The problem is that the real risk DID NOT CHANGE.

See the problem?  I hate to drag up a nearly-three-year old posting on this, but it’s right there under your nose, and it was always going to lead to something like what we’ve had happen in the second instance.

ALL YOU HAVE TO DO IS BE WILLING TO CHEAT.

And the more-complicated and obfuscated the better, because that obfuscation reduces the risk you will get caught – at least in the short term.

Unfortunately nothing fixes a Ponzi Scheme beyond the short term.

This is what you, and investors, were sold as the premise underlying the paper that was written going out the next 30 years – the proffered term of the loans.  Investors were sold this by the banks, homebuyers were sold it by mortgage brokers and Realtors, and books were published by so-called “experts” that all devolved, in the end, to the making of this claim:

That of course was never going to happen, and it didn’t.

But all bankers have a copy of Excel on their desktop.  They also have calculators, and most of them have an HP12c, which makes this simple too: 1.10 <ENTER> 29 y^x = 15.8631.  Multiply that by the starting value of the house, and there’s your number.

Basic mathematics folks.

So what we have here are two answers to “Why?”

1. The deals were un-economic unless someone cheated.  That is, there’s only so much risk-adjusted “spread” in a particular lending transaction.  The common law of business balance says that nobody ever works for free, and as a consequence the more hands that touch a deal the more that profit is dissipated among those hands.  In a competitive market where multiple entities compete for business this means that the true yield available to at least some of the investors would always have to understate the risk of default, and therefore someone was always going to get screwed.  On balance there’s nothing unlawful about that, so long as you properly and fairly disclose everything about the deal – there’s nothing that stops you from buying a thing that is disadvantageous to you.  We take this risk every day when we, for example, buy a pack of cigarettes.  The “pleasure” (such as it were) from smoking may come with a horrific cost (lung cancer); it was only when the Tobacco Companies tried to conceal this risk that they were held responsible.

2. As the pyramid grew higher, the number of good borrowers was exhausted.  To keep the charade going it was necessary to fund loans to “patsies” – the infamous “fog-a-mirror” lending.  That would have been ok too, except that the lenders actively concealed the fact that the loans they were stuffing into the securities did not meet the standards under which they sold those resulting MBS to investors. 

So between #1 and #2, we have two things that would not be illegal if they were properly and fully disclosed, but if they were fairly and fully disclosed there would have been no money in securitizing these loans, as nobody would have bought them.

To sell them, they had to cheat.  And when the “caught” part of the cheating became apparent as housing prices started to collapse, they attempted to cheat again to cover up the earlier cheating, which is what you’re seeing now.

I wish I could tell you there’s a simple way out of this.  There isn’t.  Someone is going to get hosed; the question is “who”? 

Right now, if we let the banksters get away with this, the answer will be you.  You will be the one who is hosed when your pension fund and annuity collapse.  You will be the one who is hosed when you try to sell your home five years from now and find you can’t get a title insurance policy, as the chain of title has been hopelessly corrupted.  And you will be the one who is hosed as The Fed and The Federal Government try to throw more deficit spending and “Quantitative Easing” into the economy in a desperate attempt to fill in what is in fact a black hole in the center of these institutions’ balance sheets, resulting in insane devaluation of the dollar and commodity price ramps that double (or more) the cost of your food and fuel.

The only fair resolution is for the institutions that did the cheating to eat the consequences.  That means unwinding all the “Bogus Assignee for Intervening Assets” games, all the notes that were not actually conveyed, and all the loans that were intentionally stuffed into securities with full knowledge, or willful blindness, that they did not meet the underwriting criteria put forward in the offering circulars or pooling and servicing agreements.

This will inevitably drop those loans back on the “Big Banks.”  They will then have to eat whatever loss is embedded in those loans.  In many cases the losses will be 50% of the face value of the loan or more.  It is also the only reasonable way to get both borrowers and lenders in the same room to negotiate whatever is in the best interest of both parties.

The banks will not be able to sustain these losses.  But Dodd-Frank, the new “Financial Reform” law, has a solution to this – the new Resolution Authority.  A cramdown of debt-to-equity can be performed.  It will wipe out shareholders and some classes of bondholders but it is the only fair resolution on a financial basis.

We also must look to criminal law where there is a referable charge for those people – including those all the way up the line to the executive suites – who knew of these events and did nothing to stop them, instead choosing to pocket phantom profits that in fact never existed.

We cannot allow this to go further folks.  It is entirely unreasonable to expect the American People to fund another bailout to the tune of over a trillion dollars.  It is equally unreasonable to expect the American People to sit still while the bailout we did fund went not to clean up the mess, but to try to paper it over and lie about what had happened and what was to come.  And if we don’t get on the ass of the politicians, prosecutors and judges now you can bet the banksters will try to find some way through the legislature to make this all retroactively legal by bribing them with campaign “contributions”, as they have many times in the past.

The fact is that we are incapable of absorbing this on a continuing basis as a nation.  We are currently running deficits of more than 10% of our GDP every year, and have for the last three years, solely to cover up this fraud, as the “stuck” and intentionally mismarked paper is causing catastrophic damage to the normal lending and clearing functions in our economy, in addition to holding prices ridiculously high for both housing and commercial real estate.

The time is now folks.  There’s an election on and candidates are trying to dance around the periphery of this issue without answer the final “W” – WHY – and acting on that.

We, as citizens, must hold their feet to the fire.

Oh…my Cordray, it’s not just Ohio, my friend.  You just happen to be one of the few AGs willing to stand up and do something, even if it means angering the people with the money.  That’s the problem when politicians are charged with defending the ‘little guy’ – they’re still beholden to those rich, powerful people to give them campaign money.  Well, it’s time for choosing America.  The attorneys general of all 50 states are going to have to make a choice here.  Do they side with those they swore an oath to protect or do they side with those who donate large sums of money to their election campaigns?  Well, I’ve got a tip for you guys:  rich bankers don’t vote.  They only speak with their wallets.  Poor people hoping to have their voice heard DO vote.  So, best remember that in November.

Ohio AG Richard Cordray: “What we’re seeing is a systematic fraud on the courts of Ohio”

Late yesterday, I had the opportunity to speak with Richard Cordray, Ohio’s Attorney General, who became the first to sue a mortgage lender over incidents of foreclosure fraud. The lawsuit against GMAC Mortgage and its parent company Ally Financial seeks damages for individual violations of fraudulent documentation of up to $25,000 per incident, additional restitution for homeowners, and an immediate injunction on all foreclosure activities by GMAC/Ally in the state. In addition, Cordray sent letters requesting meetings with other top lenders in the state, seeking information on their foreclosure activities. A lightly edited transcript of our conversation follows.

Q: So have you heard anything from these other lenders with whom you sought meetings, any news to report there?

Richard Cordray: Just yesterday we transmitted the letters, and I’m on the road today. I wouldn’t expect to hear within 12 hours. But we hope to hear from them shortly.

Q: How big can this get? I calculated out that if this were standard practice in the mortgage lending industry going back to 2005, with the 450,000 foreclosures in your state, the cost to the industry overall would be over $11 billion dollars.

Cordray: I’m not making the assumption that all the foreclosures filed in Ohio are using false affidavits. We do know through depositions about certain robo-signers. It may be that way for every foreclosure. It may not be. That will come out during discovery. But I think we’re on strong legal grounds to treat each separate case of false affidavits as a separate incident.

Q: What are the main goals for this lawsuit with GMAC?

Cordray: So, what we’re trying to achieve: first of all, GMAC has said they will put forth an unspecified pause while they sort out procedural infirmity. It wasn’t clear what pause meant. Does it apply only to foreclosure evictions, or does it apply to pending cases in the system? How long will this pause last? So our preliminary injunction would put those questions under the supervision of the court, to stop any foreclosures from GMAC until the court satisfies itself. Then as you mentioned, we seek damages for false affidavits, and other provisions as part of case, which will be sorted out in due course. The consumer restitution, we left that unspecified, and it will be refined by discovery.

Q: Do you know of any GMAC/Ally foreclosure operations that are ongoing, despite their claim that they have stopped those processes?

Cordray: We don’t know. They have pledged their willingness to have a pause. Does that mean filing no new foreclosures, or just about ones in the pipeline, or ones where they’ve already filed papers? It’s just very vague. So it should be put under the supervision of the court.

Q: But you haven’t heard any specific complaints from constituents with GMAC mortgages being foreclosed?

Cordray: We may well have those complaints. But the big picture is, what we’re seeing is very disturbing. GMAC has committed a systematic fraud on the courts of Ohio. You put that together, it should be put in a court’s hands. We shouldn’t rely on the same folks who have defrauded courts. Doesn’t seem right to me.

Q: Knowing what you know about this issue, as a citizen and not the Attorney General would you join the call of many to have a nationwide moratorium until this gets worked out?

Cordray: I don’t want to jump the gun. I don’t want to start leaping to wild conclusions. There is an indication that this was an industry wide practice. But it might not be. We will see where it goes. We’ll get to those conclusions, through the discovery process.

Q: How long do you expect all of this to play out, both with the lawsuit and the meetings with the other servicers?

Cordray: Our letter to Bank of America and JPMorgan, where there are already indications of the same processes, asked for a response within 3 days of transmitting letters. We were not quite as pointed with Citi and Well, because they have not yet admitted the same problems. We suspect that everybody was doing similar things. And we’re looking to hear back quickly. As for the court filing, we are moving as quickly as we can on a preliminary injunction.

Q: What are you hearing from other AGs across the country about this? What has there reaction been?

Cordray: Among the AGs, there’s a lot of concern with what people are seeing and hearing. Nobody’s very comfortable with the notion that people are committing fraud upon the court on a deliberate and systematic basis. This is not just about sloppy paperwork.

Q: I’m sure you heard about the President’s veto yesterday of a bill that may have made it harder for individuals to challenge foreclosure documents. It’s a moot point now, but do you think it would have had an impact on your case?

Cordray: We’re not clear that it would’ve had an impact on the case. We understood that the bill was about out -of-state affidavits. If that’s all, it wouldn’t have had the slightest impact. I don’t imagine the Congress would have said to a court, accept fraudulent evidence in your case. It is a little harder to enforce sanctions on an out-of-state signer, however. But if it did nothing more than put out-of-state signers on the same footing, that would not implicate any of this.

So we can add Ohio’s Attorney General to Mr. Cooper from North Carolina, who we profiled here yesterday.  Ohio’s neighbor to the north still hasn’t made a peep.  Yoo hoo?  Mr. Cox?

There is a strong rumor that attorneys general in 40 states may be deciding to join together to investigate the foreclosures mess.  Here’s to hoping Attorney General of Michigan Mike Cox is one of those 40.  If not, I’ll do my level best to be sure he leaves that office in January with his head hanging in shame.

Bloomberg published this today about the rumor:

Attorneys General in 40 States Said to Join on Foreclosures

Attorneys general in about 40 states may announce by next week a joint investigation into potentially faulty foreclosures at the largest banks and mortgage firms, according to a person with direct knowledge of the matter.

State attorneys general led by Iowa’s Tom Miller are in talks that may lead to the announcement of a coordinated probe as soon as Oct. 12, said the person, who asked not to be named because an agreement wasn’t completed. The number of states may change because several are deciding whether to join, the person said. New Mexico Attorney General Gary King said yesterday in a statement that his office will join a multi-state effort.

Lawyers representing the banks expect a widening investigation, according to Patrick McManemin, a partner at Patton Boggs LLP, a Washington-based law firm that represents banks, loan servicers and financial institutions. Bank of America Corp., the biggest U.S. lender, yesterday extended a freeze on foreclosures to all 50 states.

“We are aware of or involved in a large number of investigations that lead us to believe there are in the neighborhood of 40 state attorneys general who have initiated investigations or expressed an interest,” McManemin said in a telephone interview.

Justice Department

Officials in at least seven states have already announced probes into claims that employees at home lenders and loan servicers signed court documents without ensuring the information was accurate. On Oct. 7, Miller said in a statement that he was working with state officials, banking regulators and the U.S. Justice Department to launch a coordinated review. Attorneys general in Ohio and Connecticut have said some of the practices may amount to fraud.

The Senate Banking Committee plans to hold a hearing Nov. 16 to investigate mortgage servicing and foreclosure practices, according to its website.

“American families should not have to worry about losing their homes to sloppy bureaucratic mismanagement or fraud,” the panel’s chairman, Connecticut Democrat Christopher Dodd, said in a statement. “Regulators at the federal, state and local levels have a responsibility to uphold the law and protect consumers from unfair foreclosure.”

Frozen Foreclosures

Bank of America, JPMorgan Chase & Co. and Ally Financial Inc. already froze foreclosures in 23 states where courts supervise home seizures, amid allegations that employees used unverified or false data to speed the process. Litton Loan Servicing LP, a mortgage-servicing business owned by Goldman Sachs Group Inc., said yesterday it’s halting some foreclosures to review how they’re handled.

Senate Majority Leader Harry Reid, a Democrat from Nevada, called on other banks and mortgage firms to follow Bank of America’s lead and “review their practices to ensure that they are not unfairly targeting homeowners in Nevada and across the nation,” according to a statement yesterday.

“There are reasons for these procedures and those are to make sure the banks own the homes they are foreclosing on,” Robert Lawless, a professor at the University of Illinois College of Law in Champaign, said in a telephone interview. “At the same time I don’t think it is going to be a tidal wave of relief for homeowners. My bet is that there will be a delay.”

Vickee Adams, a spokeswoman for San Francisco-based Wells Fargo & Co., and Mark Rodgers, a spokesman for New York-based Citigroup Inc., said the companies were still processing foreclosures. Thomas Kelly, a spokesman for New York-based JPMorgan, and Gina Proia, spokeswoman for Detroit-based Ally, declined to comment.

Homes Taken

Lenders took possession of a record 95,364 homes in August and issued foreclosure filings to 338,836 homeowners, or one of every 381 U.S. households, according to RealtyTrac Inc., an Irvine, California-based data vendor.

“If you have a national moratorium on foreclosures, that’s a problem,” Paul Miller, an analyst for FBR Capital Markets Corp. in Arlington, Virginia, said in a phone interview. “The longer you drag out foreclosures the longer it takes to get through” the housing slump, he said.

To contact the reporters on this story: Dakin Campbell in San Francisco at dcampbell27@bloomberg.net; Prashant Gopal in New York at Pgopal2@bloomberg.net

A shot at redemption, AG Cox.  Don’t waste it.