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California Democratic Delegation Calls for Inquiry Into Foreclosure Practices

Capps' office says possible law violations by financial institutions are having an effect locally

House Speaker Nancy Pelosi and the California Democratic congressional delegation are calling for an investigation of financial institutions involved in delinquent mortgages and foreclosure procedures.

The barrage of constituent complaints about unwarranted foreclosures and institutions “being uncooperative at best or misleading and acting in bad faith at worst” have caused the group to demand investigations into potential law violations, according to a letter sent to Attorney General Eric Holder, Federal Reserve Chairman Ben Bernanke and Acting Comptroller of the Currency John Walsh.

Among the reported problems locally have been issues with foreclosure filings, forged or mistaken documents, and “robo-signers” who sign evictions without verifying them, according to a statement released by the office of Rep. Lois Capps, D-Santa Barbara.

The Los Angeles Times reported that California Attorney General Jerry Brown is talking with JPMorgan Chase, Ally Financial Inc. and Bank of America Corp. to consider putting a hold on foreclosures pending further investigation into their procedures. All three banks suspended foreclosures in 23 other states.

Of the Tri-Counties, Santa Barbara has the largest share of mortgages underwater, at 28 percent, according to the UCSB Economic Forecast Project. There were 319 foreclosures in the last quarter of 2009, with 171 of those in Santa Maria.

President Barack Obama is expected to veto a foreclosure documents bill that passed both the U.S. House and U.S. Senate by refusing to sign it. The bill is designed to lessen liability for banks and other institutions by changing the criteria for some foreclosure documents.

Expiration of TARP

On the Oct. 3 expiration of the Troubled Asset Relief Program, a congressional oversight panel concluded that TARP wasn’t effective enough in supporting home values, economic growth and retirement savings.

TARP, created in October 2008 as part of the Emergency Economic Stabilization Act — or bailout, as it’s commonly known — was extended to focus on the aforementioned issues. The Department of the Treasury’s two-year retrospective report on TARP estimates the total price tag at $50 billion.

The congressional oversight panel pointed out the 7.1 million homeowner foreclosure notices and 28 percent decrease in home values since TARP’s inception, stating that the “Treasury did not add any additional funding to any programs intended to address the specific economic weaknesses” that were the reason behind extending the program.

The issue of “moral hazard” also comes up as funding was offered on “relatively generous terms” without making institutions “enter liquidation or receivership, remove failed managers or wipe out existing shareholders,” the report states.

Efficiencies of particular mortgage-related programs have been questioned for months, as the special inspector general for TARP’s July report emphasized “disappointing results” of the Home Affordable Modification Program, both in its resource efficiency and success rate in preventing foreclosures. HAMP works to modify mortgages — mostly by reducing interest rates — for delinquent payers, but the report stated that only 50 percent to 66 percent of people in the trial program completed it.

Noozhawk staff writer Giana Magnoli can be reached at .(JavaScript must be enabled to view this email address). Follow Noozhawk on Twitter: @noozhawk or @NoozhawkNews.

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