Foreclosure Crisis: SEC Pushes Bank Disclosure

Expect more on the foreclosure mess when the large banks file their third quarter 10-Q reports.
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NEW YORK (

TheStreet

) -- Although most publicly-traded banks have announced their third-quarter earnings results, fourth-quarter filings with the

Securities and Exchange Commission

are likely to raise eyebrows with further details on the impact of the foreclosure mess.

In a recent letter to chief financial officers of "certain public companies," the SEC reminded bankers that quarterly "10-Q" filings must include disclosures of "potential risks and costs associated with mortgage and foreclosure-related activities or exposures."

Among the items listed for "clear and transparent disclosure" by the SEC were "potentially higher repurchase requests as a result of any foreclosure review process," litigation risks from problems with securitization or foreclosure processes, problems with property titles, mortgage servicing, and the loss of value as banks' efforts to dispose of nonperforming assets slow down.

Since we're already one month into the fourth quarter, it's quite possible that additional foreclosure problems and risks will be disclosed in the third-quarter 10-Q filings.

On October 18, Bank of America said it had begun resubmitting 102,000 foreclosure actions in 23 states after reviewing its foreclosure affidavits and would "continue to delay foreclosure sales in the remaining 27 states" until a state-by-state review was complete. CEO Brian Moynihan said during the company's third-quarter conference call that the teams reviewing Bank of America's foreclosure filings had "not found information which was inaccurate" regarding borrower delinquencies, according to a transcript.

Last week,

Wells Fargo

(WFC) - Get Report

said it had "designed an appropriate process for the generation of foreclosure affidavits," but also said it had "identified instances" where the final step in preparing foreclosure affidavits "did not strictly adhere to the required procedures" and would submit supplemental affidavits for about 55,000 foreclosures in 23 judicial foreclosure states.

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Written by Philip van Doorn in Jupiter, Fla.

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Philip W. van Doorn is a member of TheStreet's banking and finance team, commenting on industry and regulatory trends. He previously served as the senior analyst for TheStreet.com Ratings, responsible for assigning financial strength ratings to banks and savings and loan institutions. Mr. van Doorn previously served as a loan operations officer at Riverside National Bank in Fort Pierce, Fla., and as a credit analyst at the Federal Home Loan Bank of New York, where he monitored banks in New York, New Jersey and Puerto Rico. Mr. van Doorn has additional experience in the mutual fund and computer software industries. He holds a bachelor of science in business administration from Long Island University.