CHARLOTTE, N.C./WASHINGTON (Reuters) – A quick settlement of the 50-state probe of the mortgage foreclosure crisis would be the best solution for all involved, the chief executive of Bank of America said on Tuesday.
The call for a settlement by Bank of America CEO Brian Moynihan was followed by a report from CNBC that the Iowa attorney general, who is leading the 50-state probe, was getting close to a settlement with Bank of America, the largest mortgage servicer, JPMorgan Chase and Wells Fargo .
Under the proposed settlement, the banks would pay into a fund for foreclosed borrowers, CNBC reported.
The settlement, which was not expected for at least a month, would also include banks doing away with simultaneous modification and foreclosure proceedings with individual borrowers, CNBC said.
Banks are accused of having used "robo-signers" to sign hundreds of foreclosure documents a day without proper legal review. Allegations that banks' use of shoddy paperwork resulted in struggling borrowers being illegally evicted from their homes reignited public anger with banks that received billions of dollars in taxpayer aid during the financial crisis.
"It is in everyone's best interest to get this settled and behind us," said Moynihan, speaking at the Bank of America Merrill Lynch Financial Services conference in New York.
U.S. bank regulators are also investigating bank foreclosure practices.
News of a move toward a possible settlement came as major U.S. banks on Tuesday sought to assure lawmakers they have a handle on mortgage servicing problems amid renewed pressure to find ways to keep borrowers in their homes.
Top officials from Bank of America and JPMorgan Chase testified before the Senate Banking Committee in the first appearances on Capitol Hill by major lenders since the furor over sloppy foreclosure paperwork erupted in September.
Iowa Attorney General Tom Miller in prepared testimony to the committee said the mortgage servicing system is incapable of handling foreclosures and is hindering efforts to modify loans and keep borrowers in their homes.
"The current mortgage servicing system was not designed for any of the tasks it is being asked to perform, and it certainly is not equipped to perform such tasks at anywhere near the scope and scale of the foreclosure crisis," he said.
Banks have been eager to downplay the impact of the paperwork mess, saying evictions through foreclosure have been "materially accurate payday loans guaranteed no fax."
A top Bank of America executive acknowledged problems in the bank's foreclosure practices in testimony prepared for the Senate hearing and said the bank is working to replace previously filed affidavits in as many as 102,000 pending foreclosure cases.
"Thus far, we have confirmed the basis for our foreclosure decisions has been accurate. At the same time, however, we have not found a perfect process," said BofA home loans chief Barbara Desoer.
Senate Banking Committee Chairman Christopher Dodd said at the hearing that he is concerned mortgage servicing problems go beyond the recent questions about whether paperwork is being properly handled.
"We need to have more robust loan modifications, including loan modifications that result in real principal forgiveness that will finally help put an end to our housing crisis," Dodd said.
He said foreclosures should proceed quickly when there is no other option, particularly when home has been abandoned.
"There is no reason in the world to slow down the process on these homes," he said.
WATCHDOG WARNS ON FORECLOSURE IMPACT
Also on Tuesday the Congressional Oversight Panel, the overseer of the government's Wall Street bailout, warned that widespread problems in how U.S. lenders documented foreclosures could spark a wave of legal challenges resulting in massive losses to banks and new troubles for the housing market.
The panel in a report laid out a range of possibilities. In the best-case scenario concerns about the paperwork mess are "overblown" and banks would be able to proceed with foreclosures as soon as invalid court documents were replaced with proper paperwork, it said.
The paperwork kerfuffle has added fuel to the debate whether banks are doing enough to modify loans and avoid foreclosures.
On Tuesday a group of 18 Democratic senators, led by Robert Menendez, planned to send a letter to Treasury Secretary Timothy Geithner urging him to improve government loan modification programs such as the Home Affordable Modification Program.
(Additional reporting by Corbett Daly in Washington; Editing by Leslie Adler)
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