Fed chairman Ben Bernanke said Monday that federal bank regulators would be examining the legalities of mortgage companies in terms of foreclosure procedures.
The chairman said that they were taking intensive review at the firms’ policies, procedures, and internal controls with regards to foreclosure. In addition, they were seeking to determine systematic weaknesses which may lead to improper foreclosures.
According to AP reports, the Federal Reserve will be examining the potential effects of the foreclosures on financial institutions and the property market.
The U.S’s largest bank, Bank of America had halted foreclosure proceedings in 23 states including Connecticut, Hawaii, Kentucky, and New York. Recently, the bank explained that it had found paperwork mistakes in some documents.
Besides Bank of America Corp., Ally Financial’s GMAC Mortgage unit, JPMorgan Chase & Co., also halted foreclosures while the companies review paperwork.
The U.S. banking regulators will issue a report on foreclosure practices. The review adds additional pressure to a number of large financial institutions which suffered from accusations for their failure to review foreclosure documents properly or submission of false statements. Bernanke anticipated preliminary results of the review.
The housing market has been affected by falling prices and foreclosures since January 2007. And now its health is in more danger. In addition, the controversy has raised fears about the bank earnings.
In September and the beginning of October, housing markets were weak with decline in sales in many regions.
Although data released this month indicated that developers in the U.S. began work on more homes in the preceding month than economists’ projection, that is too far from the record of 2.3 million pace in January 2006.
Congressional Oversight Panel for the Troubled Asset Relief Program will hold its own hearing into the impact of reported foreclosure irregularities on government-led programs and the wider real estate market.
The economic recovery has been warned to face a major drag.
According to Ben Bernanke, over 20% of borrowers owed more than their homes were worth, and a further 33% had equity cushions of 10% or less.
Economics is the study of our lives,our jobs, our homes, our families and the little decisions we face every day. Thus, I am keen on reading and studying economic issues.