Bank of America freezes foreclosure sales nationwide

With mounting calls for a national moratorium, Bank of America said Friday that it would halt the sale of foreclosed homes indefinitely in all 50 states as the nation's largest lender widened its investigation into how it seized homes from troubled borrowers.

The freeze, which takes effect Saturday, came after lawmakers, consumer groups and civil rights organizations called for a moratorium on bank seizures. State attorneys general across the country have also called on lenders to prove they are complying with state laws as they process record numbers of repossessions.

Maryland's attorney general, Douglas F. Gansler, along with Gov. Martin O'Malley and Rep. Elijah E. Cummings, sent letters to seven of Maryland's largest mortgage servicers this week, urging them to stop foreclosing in Maryland until they could be certain their procedures were not violating state law.

Raquel Guillory, a spokeswoman for Gansler, said Bank of America called Friday to say it would stop foreclosing in Maryland.

"Of course that came as welcome news," she said. "It looks like we're moving in a positive direction, and hopefully the other companies will follow suit."

Bank of America could not say how many homes would be affected. Nationwide, it had 420,000 properties in some stage of foreclosure through the first half of the year, according to Irvine, Calif.-based RealtyTrac.

In Maryland, lenders, including Bank of America, were trying to foreclose on more than 40,000 homes during the spring, the most recent figures from the Mortgage Bankers Association. In the same period, Marylanders living in an additional 100,000 homes were at least one month behind on their mortgage payments but were not yet in the foreclosure process.

The freeze comes as disclosures of alleged irregularities, including mishandling of records in the foreclosure process, have raised concerns that lenders have been evicting homeowners using flawed procedures.

Bank of America's announcement is likely to increase pressure on other big banks to declare similar national moratoriums, analysts said.

"It is going to give politicians more ammunition to say, 'If Bank of America can do it, don't tell us you can't,'" said Guy Cecala, publisher of Inside Mortgage Finance.

PNC Financial Services said Friday that it was reviewing its foreclosure practices, and Litton Loan Servicing, a mortgage servicer owned by Goldman Sachs Group, said it had suspended foreclosure proceedings in certain cases while it completed a review.

Before Friday, three major banks — Bank of America, Ally Financial Inc. and JPMorgan Chase — had said they were suspending foreclosures in the 23 states that process repossessions through the courts.

Growing furor over the admission by banks that they have been pushing thousands of homes through the foreclosure process without following correct procedures comes as nearly 1 in 10 people are out of work in the country. Many of these out-of-work borrowers have struggled to make payments on their mortgages, and complaints about how banks process mortgage modifications are widespread.

The push to ensure that lenders are not foreclosing on homeowners inappropriately has ripple effects on more than just industry players and borrowers. Many homes on the market are foreclosures, in Maryland and nationwide.

Bank-owned properties represented nearly one-third of homes sold in Baltimore from January through August and between 10 percent and 20 percent in the suburbs, according to the Greater Baltimore Board of Realtors.

A foreclosure slowdown could help the market, some analysts argue, especially if it results in servicers offering loan modifications to more borrowers so they can stay put.

"It could have a positive impact if it helps reduce the amount of inventory that's coming onto the market," said Joseph T. "Jody" Landers III, executive vice president of the Greater Baltimore Board of Realtors. "The more distressed properties that are out there, the more depressed the prices. The more depressed the prices, the more people are underwater."

But some analysts contend that foreclosure delays merely drag out the pain and make it harder for the housing market to rebound. "There's a whole bunch of people who, through no fault of their own, are now in God-knows-how-long limbo," said Guillory, with the Maryland attorney general's office.

David McIlvaine Sr., an Ellicott City real estate agent whose business is predominantly bank-owned properties, said a buyer working with one of the agents in his office was about to sign a contract for a foreclosure but pulled out Friday.

"The buyer decided not to move forward with it for fear that this would happen — that things would get frozen," he said. "They just wanted to move on."

Consumer advocacy groups said the move by Bank of America suggests that the problems mortgage servicers were facing with processing foreclosures were more widespread than initially thought.

"There is a serious problem with the reckless and careless way in which the banks and servicers are processing foreclosures and taking people's homes," said Kevin Stein, associate director of the California Reinvestment Coalition.

But economists said a move to halt foreclosures could hinder the housing market's recovery, essentially delaying the inevitable, because many borrowers simply cannot afford to pay their mortgages.

"It is highly likely that mistakes are being made when you have that volume of paperwork going through the system," said Richard Bove, a banking analyst with Rochdale Securities. "I am sure there are a lot of people that are being treated unfairly, but I think the vast majority of them can't pay their mortgage; and if they can't pay their mortgage, they are going to lose the house anyway."

Bove estimated that the moratorium could cost Bank of America about $400 million a quarter.

Banks have been repossessing homes at a faster clip as they push homes through a process that had been delayed by several state and national moratoriums last year and by the Obama administration's program to help troubled borrowers. Another moratorium would serve only to push the pain into the future, economists said.

In an open letter to Congress, two financial industry groups, the Mortgage Bankers Association and the Financial Services Roundtable, said that a national foreclosure moratorium could be detrimental to the economy.

"Calls for a blanket national moratorium on all foreclosures are a bad idea and would cause significant harm to communities at risk, the unstable housing market and the fragile economy," the letter said.

While it will halt seizing and selling foreclosed homes, Bank of America said it would continue foreclosure proceeding against homeowners who are late on their payments. If a borrower is delinquent, the bank will still issue a notice of default, the bank said.

Tribune Newspapers reporters Tiffany Hsu, E. Scott Reckard and Walter Hamilton contributed to this article. Baltimore Sun reporter Jamie Smith Hopkins also contributed.

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