UPDATE: Senate Majority Leader Harry Reid (D-Nev.) supports Bank of America's decision to halt foreclosures across the nation, according to a release. "I thank Bank of America for doing the right thing," he said in a statement, calling on other lenders to follow the bank's lead and expand their foreclosure moratoriums.
Last week the bank, the country's biggest by assets, announced it was halting foreclosures in the 23 states where foreclosures are processed in court, saying it needed to review foreclosure documents for potential errors. Now, the bank has extended that moratorium to all 50 states as it has decided to stop sales of foreclosed properties, blocking a major step in the foreclosure process.
The decision comes as a foreclosure crisis threatens the nation's housing market and larger economy. Reports of foreclosure processors approving documents without properly reviewing them and bank agents changing locks on the doors of houses that aren't even in foreclosure -- while the residents are inside -- pile ambiguity and scandal on the foreclosure system. Delays in the process further cripple the weak housing market.
Already, foreclosure ambiguities have begun to stall sales of foreclosed properties. The New York Times describes the case of a woman who was about to move into a house when Fannie Mae declared the property's foreclosure might not have been valid, and she was told to wait. While owners of foreclosed homes may be glad to see these proceedings halted, buyers of those homes -- and the larger housing market -- are suffering.
Analyst Christopher Whalen predicts the country has slogged only a quarter of the way through the massive foreclosure process, which he said could incite a crisis that would touch every corner of the U.S. economy.
In the years leading up to the housing crash, investors hungered for risky mortgages that banks would bundle and re-package into securities. This arcane market drove banks to initiate more and riskier mortgages at break-neck speeds. Consultant Janet Tavakoli has said the massive amounts of shoddy paperwork that accompanied this process are now being exposed, wreaking havoc on the banks and on the economy.