Senator Richard Shelby, R-Ala., ranking Republican on the Senate Banking Committee, is calling on federal regulators to investigate the foreclosure problems at three major banks and report back to the committee.

"The federal banking regulators should immediately review the mortgage servicing and foreclosure activities of Ally Financial, JPMorgan Chase and Bank of America," he said in a statement.

Shelby's call for action follows in the footsteps of similar pleas made by House Speaker Nancy Pelosi, and a growing number of politicians as election day nears.

Shelby said he wants regulators to "determine exactly what occurred at these institutions" and report back to the committee "without delay."

Senate Banking Committee chairman Christopher Dodd, D-Conn., plans to hold hearings on the servicing and foreclosure practices of mortgage bankers, focusing on recent allegations of fraud and ensuing moratoriums. (Sen. Dodd is not running for re-election.)

But the committee's hearings will be held after Congress returns from the Nov. 2 elections, a committee spokesman said.

Meanwhile, Department of Justice has directed the interagency Financial Fraud Enforcement Task Force to look into the foreclosure mess.

"We are aware of the charges that have surfaced in newspapers in the last couple of days. We are looking at them, but we cannot say much more than that, though," Attorney General Eric Holder said at a press conference late Wednesday.

In related news, Ohio became the first state to sue a major servicer in the growing 'Foreclosure-gate' scandal, accusing the government-owned GMAC Mortgage of misleading the courts in hundreds of foreclosure cases by filing fraudulent affidavits.

Attorney General Richard Cordray on Wednesday announced the suit against GMAC Mortgage and its parent Ally Financial, as well as GMAC employee Jeffrey Stephan, whose deposition brought to light the practice of "robo-signing" affidavits without verifying the information or having a notary present.

Ally Financial is 56% owned by the U.S. Treasury, which had hoped to sell the company by early next year.

The lawsuit, filed in Lucas County Common Pleas Court, is seeking a permanent injunction to prevent GMAC from proceeding with any pending foreclosures in the state. The suit is also asking for civil penalties of up to $25,000 per violation as well as an unspecified amount of restitution.
Additionally, Cordray sent letters to BofA and JPMorgan asking these mega servicers to suspend foreclosure proceedings. He also requested meetings with Wells Fargo and Citigroup to discuss their foreclosure affidavit procedures.

The actions come two weeks after GMAC halted foreclosure sales and evictions in 23 states, including Ohio, to review the cases and ensure no errors were made after discovering problems with the way affidavits were executed. JPMorgan Chase and BofA have also halted foreclosures in those states — where the procedure is handled by courts — because of similar problems with documents.

GMAC spokeswoman Gina Proia would not comment on the lawsuit specifically, but said the company is "confident that we have not inappropriately foreclosed on any borrower."
She said GMAC has "strengthened" its processes related to the execution of affidavits and that it "will remedy any errors that are found."

Other attorneys general, including those in Connecticut, North Carolina, Illinois and Iowa have opened investigations into the foreclosure practices at GMAC. North Carolina’s AG expanded the investigation to 14 other lenders on Wednesday.

According to figures compiled by the state, the wave of foreclosures in Ohio has shown no signs of receding. In the first half of this year, there have been 45,930 foreclosures in Ohio, which is ahead of last year's record-breaking pace. From 1995-2009, Ohio foreclosure filings quadrupled.

California Weighs In

Meanwhile, the pressure on servicers is also heating up in states where foreclosures are handled outside of court, according to ASR's sister publication American Banker.

California State Assemblyman Ted Lieu, a Democrat from Torrance, has asked two state regulatory agencies to temporarily halt foreclosures for 60 days and launch an investigation into the practices of mortgage servicers even though California is a non-judicial foreclosure state.

Lieu sent letters Tuesday to the commissioners of the state's Department of Financial Institutions and Department of Corporations, asking that they adopt the temporary moratorium in California "so they can investigate whether the lenders in California are failing to follow the law."

Lieu authored a California law that prohibits lenders from recording notices of default on mortgages made between Jan. 1, 2003, and Dec. 31, 2007, unless the lender contacts or tries diligently to contact the borrower to determine eligibility for a loan modification. A notice of default must include a declaration of compliance with that law.

"California does have laws that also require certifications by the lender before a foreclosure can proceed," Lieu said in the letters.

In California, when a homeowner does not cure a default, a notice of sale is recorded and published, and the property is then auctioned off to the highest bidder.

Also on Tuesday, Texas Attorney General Greg Abbott sent a notice to 30 mortgage servicers ordering a freeze on foreclosures and a review of possible faulty affidavits used in that nonjudicial state.

Abbott said that if affidavits and other documents such as assignments of deeds of trust were found to be invalid it would be a violation of Texas state law.

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