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A Foreclosure Tightrope for Democrats

The intramural argument among Democrats also reflects the political divisions between an administration with two years to improve the economy, and members of Congress facing an angry electorate in less than a month. The White House can focus on the eventual economic benefits of foreclosures. But Senator Harry Reid, the Nevada Democrat battling to salvage re-election in the state with the nation’s highest foreclosure rate, cannot. The result is that Mr. Reid favors a moratorium, and the White House finds itself in an uncomfortable moment of agreement with his Republican opponents.

The latest foreclosure firestorm flared in mid-September when GMAC, a major mortgage lender, announced that it was suspending home seizures in 23 states in light of revelations that the company had not been taking basic steps to double-check and demonstrate its right to seize particular homes. Bank of America leapfrogged that position last week, announcing that it would stop pursuing foreclosures in all 50 states while reviewing its procedures. That prompted calls from a wide range of politicians for a national moratorium on all foreclosures, including from Mr. Reid, who released a letter to other lenders urging the rest of the industry to follow Bank of America’s example.

The industry has argued in response that problems should be addressed without halting all foreclosures, because a moratorium would damage the economy. “It must be recognized that the mortgage market, investors and the health of the economy are all interrelated,” Tim Ryan, president of the Securities Industry and Financial Markets Association, said Monday. The White House shares those concerns, and it has tried to defuse the issue by arguing that problems can be addressed without imposing a moratorium. “There are, in fact, valid foreclosures that probably should go forward,” David Axelrod, a senior White House adviser, said Sunday on CBS.

Administration officials argue in part that the problems that have emerged in recent weeks do not change the fact that lenders are seeking to foreclose on people who borrowed and then failed to repay. Most of the identified problems are best described as technicalities, not miscarriages of justice. Advocates for homeowners, however, say that the pattern of sloppiness allows and encourages more serious abuses. They point to a growing number of documented cases in which lenders mistakenly seized homes. Bank of America apologized last month for foreclosing on a home in Fort Lauderdale, Fla. The homeowner didn’t even have a mortgage. The bank had failed to notice that the previous owner had repaid the mortgage loan.

Last year the company’s contractors entered the home of a Pittsburgh woman, changed the locks, cut off the utilities and seized her pet parrot. The bank later acknowledged that the woman had not missed any mortgage payments. Other companies including Citigroup and JPMorgan Chase also have apologized for mistaken attempts to seize homes they didn’t own. Dozens of people have sued lenders charging that their homes were foreclosed even after the lender agreed to a loan modification or repayment plan. “We need to end the voluntary reliance on the industry to do the right thing with respect to homeowners,” said John Taylor, chief executive of the National Community Reinvestment Coalition. Mr. Taylor noted that foreclosures also damaged the economy.

The administration’s defense of a process that is throwing many Americans out of their homes echoes its tightrope walk in the spring of 2009, when public anger over Wall Street pay was at a boiling point. The president excoriated the industry in public interviews, and met with executives to caution against large paydays and to press for increased lending. But the administration resisted legislation to force changes in either area. President Obama told executives at the time that his administration was the bulwark between their industry and the public’s anger. Now the administration is again seeking to demonstrate its concern over industry practices without taking steps that it fears will damage the economy.

Mr. Obama last week decided not to sign a bill requiring many states to lower their standards for verifying the legitimacy of notarized documents. Mr. Axelrod said that the legislation, which drew fire from state officials after sailing through Congress, would have “made it easier to make mistakes” in foreclosures. Mr. Donovan said that the problems identified so far were serious and widespread, and that it was necessary for companies including GMAC and Bank of America to suspend foreclosures while they addressed those problems.

He said that his agency and other parts of the government, including banking regulators, were scrutinizing other mortgage companies for evidence of problems. “We are doing everything we can through a range of enforcement powers to make sure that we find where there are problems,” he said. “We’re going to act very swiftly and very strongly to protect homeowners.” But Mr. Donovan said it did not make sense to act against companies absent evidence of problems. He said such a step would hurt not just the companies, but also people waiting to buy the foreclosed homes.

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