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Reid Calls for Foreclosure Moratorium in Nevada

This afternoon, Sen. Harry Reid (D-Nev.), the majority leader, released the text of a letter he sent to mortgage servicers in Nevada, asking them to stop foreclosing on homes until the legal fiasco around botched foreclosure documents is cleared up. Here is the full text:

I write to request that your mortgage-servicing division suspend foreclosures on Nevada home owners until systems are in place to ensure Nevadans are not being improperly directed into foreclosure proceedings. I also renew my request that your firm meaningfully participate in the Nevada Housing Division’s Hardest Hit Fund (HHF) program by matching in kind any mortgage-principal reductions provided by our state agency.

Recent reports that some mortgage servicers have made misrepresentations in foreclosure-related court documents revealed they are cutting corners in their efforts to process the large volume of delinquent home owners. Some servicers have rightfully suspended foreclosures in those states that have judicial-foreclosure proceedings until they complete a review of their processes to ensure affidavits and other court documents meet the appropriate standards.

While Nevada is not among those states, suspending foreclosures on Nevadans is also justified because the reports of shoddy and defective affidavit preparation suggest that servicers might not be reviewing a home owner’s loan documents with the requisite care. To be sure, a closer review of these documents could lead a servicer to initiate a foreclosure in many cases. But I’m concerned about those cases where carefully analyzing a home owner’s income and debt would lead to the conclusion that a modification is the best solution. These are the cases where adjusting the terms or reducing principal of the mortgage would result in the net present value of the loan being greater to the lender than it would recover through foreclosure.

It is only fair to Nevada home owners, consequently, that you also suspend foreclosures in our state until you complete a review of your processes that ensures a home owner’s loan documents are being adequately analyzed to properly determine the best, individualized loss-mitigation solution. It is my belief and hope that once such a system is in place, more Nevadans will avoid foreclosure and remain in their homes. This is the goal of the Obama Administration’s various Making Home Affordable programs, and should be the goal of a servicer acting as a fiduciary to investors.

Additionally, since months have now passed since I last made the request, and the Treasury Department has now approved Nevada’s and the other HHF states’ foreclosure-prevention programs, I ask again that you consider matching the dollars contributed by the Nevada Housing Division through these programs. The Housing Division has designed both a principal-reduction and a second-mortgage-reduction plan that will only be successful with your commitment to do so. Indeed, many of Nevada’s local community banks have made this pledge. The similarities between the various state HHF plans should streamline your participation and provide the scale necessary to significantly reduce foreclosures in all of the hardest-hit states, quickening a recovery in these struggling housing markets.

I appreciate your consideration of these requests, and I look forward to your response.

Sincerely,

Harry Reid

U.S. Senator, Nevada

Three of the biggest mortgage servicers — Ally Financial, J.P. Morgan Chase and Bank of America — have halted foreclosure-related evictions and in some cases other proceedings in the 23 states that require a judge to OK a foreclosure.

Nevada is the state worst-hit by the unemployment and foreclosure crises. There, nearly 70 percent of homeowners are underwater or nearly underwater on their homes.

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