The financial system faces “serious” problems from “poorly handled, if not illegal” foreclosure processing that has created headaches for state and federal governments, according to the 17 lawmakers.
The senators called for a “robust and comprehensive solution” that would protect homeowners and investors. They urged the council to respond “promptly” and indicate whether it needs additional tools or legislative changes.
“The FSOC should determine whether there is a need for some independent referee, whether it is a bankruptcy court or other institution, in finally addressing these foreclosure processing and loan modification issues,” the senators wrote. They said that bankruptcy courts are increasingly involved in “creatively and proactively” addressing foreclosure issues.
Geithner and the council, which includes the heads of the Federal Reserve, the Securities and Exchange Commission and other regulatory agencies, also should lead and coordinate efforts among state and federal authorities, the senators said. They said homeowners should be “quickly and fairly” evaluated for loan modifications to prevent foreclosures.
Claims of wrongdoing by banks and loan servicers triggered a 50-state investigation last year into whether hundreds of thousands of foreclosures were properly documented as the housing market collapsed. The probe came after JPMorgan Chase & Co. and Ally Financial Inc. said they would stop repossessions in 23 states where courts supervise home seizures and Bank of America Corp. froze U.S. foreclosures.