Treasury Dept. Calls for Stress Tests

| Jan 5, 2011 | Foreclosure |

Millions of homeowners facing foreclosure have had their proceedings delayed after a Congressional group said that banks and financial institutions have used inaccurate documents in home foreclosure cases.

A 125-page report by the Congressional Oversight Panel, which was empanelled in 2008 by Congress to study the foreclosure crisis, revealed numerous errors in documents provided by lenders to the courts as they seek to foreclose on homes across the U.S. In many cases the panel said financial institutions resorted to “robo-signing,” where bank employees simply signed mortgage documents. The study recommended that banks undergo stress tests to determine if they can pay for any losses should they be required to repurchase the loans.

More than $7 trillion in mortgages have been bundled and securitized, and if the banks are forced to repurchase the loans it could result is massive losses, and, officials fear, put the U.S. financial system at risk again.

Despite the fears, attorney generals in every state in the U.S. have begun their own investigations into the foreclosure practices of lending institutions, probes that could result in lawsuits that could stop the home foreclosure processes for lenders in various states.

In the meantime, the panel wants to assess the financial security of the banks and lending institutions to see if they can absorb even minimal losses should the courts stop their foreclosures. Officials also warned the lenders that their alleged actions in failing to provide the proper paperwork in seeking foreclosure would not be tolerated and they could be liable. In some cases, the lenders inability to provide the proper documentation in foreclosure cases has forced them to give up their liens, and claims, on homes.

Related Resource: CNN’s “Foreclosure Mess Prompts Call for Stress Tests”