The government is looking into allegations that mortgage lenders in the foreclosure crisis have been evicting homeowners using flawed court papers, Attorney General Eric Holder said Wednesday.
President Barack Obama's financial fraud enforcement task force has a mortgage component to it, Holder noted during a news conference.
In a letter Tuesday, House Speaker Nancy Pelosi and dozens of Democratic lawmakers urged bank regulators and the Justice Department to probe whether mortgage companies violated any laws in handling foreclosures and borrowers' requests for loan assistance.
Ohio Sues Ally Financial
In Ohio, state Attorney General Richard Cordray is suing Ally Financial and its GMAC Mortgage division, alleging fraud that could involve hundreds of foreclosures in the state.
It could be the first in a wave of suits by state attorneys general over what appear to be widespread problems in documents used by the nation's largest mortgage lenders.
"It certainly seems likely that other states will follow," said Diane Thompson, counsel at the National Consumer Law Center.
The lawsuit by the Ohio attorney general claims the company's employees signed and filed false affidavits to mislead courts. Cordray called the alleged fraud the "tip of an iceberg of industrywide abuse of the foreclosure process."
A spokeswoman for Ally, Gina Proia, said in an e-mail that there was "nothing fraudulent or deceitful" about the company's practices.
"If procedural mistakes were made in the completion of certain legal documents, GMAC Mortgage reacted proactively to the situation," Proia said. The company, she added, also believes its right to foreclose on borrowers who are in default is not in dispute.
Foreclosures Halted in 23 States
In addition to Ally, JPMorgan Chase (JPM) and Bank of America (BAC) have halted foreclosures in 23 states after evidence surfaced that their employees or outside lawyers signed documents without reading them or filed inaccurate paperwork. State and federal officials have been increasing pressure on the industry over concerns about potential legal violations.
In Ohio, Cordray is asking for civil penalties of up to $25,000 for every violation of the state's consumer laws and for the company to pay back any financial losses to the homeowner. He also wants the court to halt any Ally foreclosure or sale of property now pending in Ohio.
Cordray sent letters Wednesday to four major mortgage lenders and servicers in Ohio - JPMorgan, Bank of America, Wells Fargo (WFC) and Citigroup (C) - to find out more about their foreclosure processes.
Also Wednesday, North Carolina's attorney general said he began investigating the state's 15 largest mortgage lenders in late September amid questions about Ally's policies. Attorney General Roy Cooper has asked each of the lenders to stop foreclosure proceedings during the review. He wants the companies to show that their procedures comply with the law.
U.S. Reps. John Conyers and Carolyn Cheeks Kilpatrick, both Michigan Democrats, said Wednesday that foreclosures should be halted in all 50 states.
Officials in Maryland, Delaware, Texas, North Carolina, Connecticut, California and Massachusetts have already asked lenders to halt foreclosure proceedings while they review lenders' practices.