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Foreclosures Working Against Banks: Analysts

NEW YORK ( TheStreet) -- Just as the subprime mortgage troubles expanded into a total housing market downfall, the latest scandal in the home loan industry is expanding into a nationwide political firing line aimed - once again -- toward the banks due to problems with foreclosure filings.

Analysts have been weighing in on the foreclosure issue as state officials and consumer groups are calling for a national moratorium on foreclosures.

Stifel Nicolaus analyst Chris Mutascio said while the call for a nationwide foreclosure moratorium is "growing in seemingly every political circle in recent days," it is undecided if the banks should take full blame, according to a note to clients on Tuesday.

"Is this just political rhetoric from politicians once again blaming the banks for all the ills upon us or are there some merits to it? We are not sure we really know the answer to that question yet, but let's keep one thing in mind during the debate. If there is any way a bank can keep a borrower in his/her home, it behooves the bank to do so from an economic perspective, in our view," the Stifel note said.

Separately, Citigroup (C - Get Report) is no longer using one Florida law firm to do its foreclosure work because it is under investigation by the sunshine state's attorney general over court filings it has submitted on foreclosures.

Florida Attorney General Bill McCollum is investigating the Law Offices of David J. Stern PA, according to Bloomberg. The AG said in August that it is looking into whether Stern and two other firms filed improper documentation with Florida court system in order to facilitate quicker proceedings, the article states.

Citigroup continues to foreclose on homes as other large banks have temporarily suspended foreclosures. Banks have been accused of a process known as " robosigning."

Bank of America (BAC - Get Report) said last week that it was halting foreclosures in all 50 states. JPMorgan Chase (JPM - Get Report), PNC (PNC - Get Report) and Ally Financial's GMAC Mortgage have also halted foreclosures in select states.

Banks that are able to keep borrowers in their homes reduces their costs on several levels, Mutascio writes. Clearly, it would eliminate a potential loan loss "as the loan would be written down to fair value once it is transferred to other real estate owned," the note says.

"Banks are currently getting criticized by some for doing too many loan restructurings/modifications in an attempt to 'hide' troubled loans," Mutascio writes. "It is somewhat ironic to hear a chorus of people saying the banks are hiding bad loans by not foreclosing while another chorus says we need a national moratorium on foreclosures. Which one is it?"

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