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Foreclosures Working Against Banks: Analysts

Bank analysts weigh in on the foreclosure issue as state officials and consumer groups call for a national moratorium on foreclosures.



) -- 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.



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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


. 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 "

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Bank of America

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said last week that it was halting foreclosures in all 50 states.

JPMorgan Chase

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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?"

Keeping a borrower in his home also reduces the expenses related to property management and other real estate expenses incurred by a bank if it were to foreclose, he says.

"If we are right in our assumption that banks are generally using the foreclosure process in a fair manner, where does the call for a national moratorium on foreclosures go from here? Our guess (and is simple that, a guess) is that it doesn't go far," the note says.

"Perhaps that banks put foreclosures on hold for a few weeks in order to perform an internal review of their foreclosure documentation processes to ensure the 'I's are dotted and the 'T's are crossed. Once that review is done, we suspect foreclosures will continue. If this is accurate, then the cost to the banks may not be meaningful," Mutascio writes.

Rochdale Securities analyst Dick Bove said in a note Monday that a moratorium would place "housing values at risk, increase the costs of the banks involved in the foreclosures; and reduce the value of the home of the 'guy who lives next door.'"

A national moratorium could hurt investor groups, including pension funds and insurance companies and make new loans more expensive.

Tim Ryan, the president and CEO of the Securities Industry and Financial Markets Association (SIFMA) said in a statement Monday that a national foreclosure moratorium would be "catastrophic" as the mortgage market, investors and the economy are all "inter-related."

"Investors in the housing market -- including American workers with pension funds, 401(k) plans, and mutual funds -- would unjustly suffer losses in their savings from these actions," the statement said. Further, "increased uncertainty in the securitization market would further constrain consumer credit and spending, dampening our already unhealthy economic situation. "

Ryan continued: "If mistakes have been made in relation to foreclosure processing, SIFMA firmly believes such mistakes should be corrected. It is imperative, however, that care be taken in addressing these issues to ensure that no unnecessary damage is done to an already weak housing market and, in turn, that there is no further negative impact on the economy."

Citi said in a statement to


that pending the outcome of the AG's investigation, it is no longer "referring new matters to this firm." Citi provides "strong training" for its employees and for its employees and periodically reviews document- handling procedures within the company's foreclosure group.

"At this point, we have no reason to believe our employees haven't been following our procedures, so we do not believe a suspension is necessary," Citi said.

An outside attorney for Stern told


that no charges or allegations have been made as of yet.

--Written by Laurie Kulikowski in New York.

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Laurie Kulikowski


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