US Fed launches new foreclosure inquiry, could chill market

25 October 2010 20:35  [Source: ICIS news]

WASHINGTON (ICIS)--The US central bank chief said on Monday that he has launched an investigation of loan foreclosure processes by major US mortgage lenders, a step that industry officials worry could chill a long-awaited housing sector recovery.

Ben Bernanke, chairman of the Federal Reserve Board, said that he and other top officials at the central bank “have been concerned about reported irregularities in foreclosure practices at a number of large financial institutions”.

He said that federal banking agencies are working on “an in-depth review of practices at the largest mortgage servicing operations” and whether “systematic weaknesses are leading to improper foreclosures”.

“We take violations of proper procedures seriously,” Bernanke told a meeting of federal banking regulators in Arlington, Virginia.

In addition, the Fed chairman said his staff and other banking agency personnel “are evaluating the potential effects of these problems on the real estate market”.

The housing industry, especially new home construction, is a crucial downstream consuming sector for the nation’s chemical and resins manufacturers.

Earlier this month, several major mortgage banks announced a moratorium on home foreclosures after reports revealed that perhaps tens of thousands of home seizures and evictions were executed without proper documentation, procedures or regulatory approval.

US housing sector officials expressed worry that the new federal inquiry into the foreclosure issue - which came on top of multiple state-level investigations - could cause indefinite delay for what may be the beginning of a housing industry recovery.

Earlier on Monday, the National Association of Realtors (NAR) reported a strong 10% jump in US sales of existing homes in September, a second month of improvement following the 7.6% gain in August.

But NAR chief economist Lawrence Yun warned that hopes for a housing sector recovery could be discouraged “depending on the duration and impact of a foreclosure moratorium”.

If foreclosures are halted indefinitely, the housing market could essentially freeze up, officials said, with banks reluctant to issue further mortgages or make development loans to housing contractors.

Bernanke said that the Fed expects to have a preliminary report by next month on the foreclosure crisis and its impact on the real estate market.

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