Obama Vetoes Foreclosure Bill

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President Obama will not sign a foreclosure bill that would have made it easier for banks to process foreclosures on homes, the White House announced on Thursday.

The legislation, passed by the House in April and the Senate in September, would have allowed federal and state courts to recognize documents that were notarized in other states, including those that contain electronic signatures. The proposal would have cleared up court congestion and expedited the process of selling foreclosed homes, which would, in turn, have helped the housing market recover more quickly.

Banks are expected to take over a record 1.2 million homes this year, up from about 1 million last year, according to RealtyTrac, a firm that monitors the foreclosure market.

The President, however, is opposed to the bill, believing that it indirectly promotes foreclosure fraud through robo-signing , a practice that has emerged from the requirement that lending company analysts sign off on the paperwork that enables banks and mortgage lenders to repossess a foreclosed property. Many analysts sign thousands of documents a day, which gives them little or no time to properly review the documentation. The term “robo-signing” refers to lenders’ propensity to sign on the dotted line without reading what is written above it.

“Notarizations are important for a large range of documents, including financial documents,” Dan Pfeiffer, the White House communications director, said in a White House blog post explaining the President’s decision."We believe it is necessary to have further deliberations about the intended and unintended impact of this bill on consumer protections, including those for mortgages, before this bill can be finalized."

Obama’s refusal to sign the bill is technically considered a pocket veto, as Congress is out of session until after the Nov. 2 midterm elections and therefore cannot override his decision with a two-thirds vote from the House and Senate. Obama has used the pocket veto one-time before, but only because it was duplicative of other legislation.

Proponents of the bill were quick to admonish the President’s veto.

“There is absolutely no connection whatsoever between the [bill] and the recent foreclosure documentation problems,” Rep. Robert Aderholt (R-Ala.), who sponsored the legislation in the House, said in a statement. “The bill expressly requires lawful notarizations, and in no way validates improper notarizations.”

Other lawmakers, however, agree that the bill indirectly contributes to the already flawed foreclosure signing process.

"Although I believe the bill was originally well intentioned, I now believe this issue requires more careful review and discussion before the law is changed," Rep. John Conyers Jr. (D-Mich.) said in a statement. “There is substantial concern that this legislation may exacerbate the problems we are seeing with improprieties in the foreclosure documents being processed by mortgage lenders.”

In an effort to crack down on faulty foreclosure signings earlier this month, several lawmakers, including  Rep. Edolphus Towns (D-N.Y.), who heads the House Committee on Oversight and Government Reform, called on lenders to voluntarily suspend foreclosures until they completed internal investigations.  

Just Wednesday, Attorney General Eric Holder said that the Financial Fraud Enforcement Task Force, created to examine financial fraud, will be investigating the growing reports of foreclosure fraud.

The increased attention has prompted GMAC (the mortgage unit for Ally Financial), JPMorgan Chase (Stock Quote: JPM) and Bank of America (Stock Quote: BAC) to announce plans to freeze foreclosures in the 23 U.S. states where they must be approved by the courts. Another lender, PNC Financial Services Group (Stock Quote:), has also suspended sales of foreclosed homes for 30 days.

Foreclosures continue in the remaining 27 states, including California and Texas, where they will not need to be reviewed by the courts.

Think that the bank may have processed your foreclosure documents improperly? Read this MainStreet article that looks at what your options for challenging the bank may be.

—For the best rates on loans, bank accounts and credit cards, enter your ZIP code at BankingMyWay.com.

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