Inquirer Editorial: Foreclosures are us

The latest twist in the mortgage foreclosure crisis should compel banks to get busy on a solution they've resisted - modifying more loans.

The foreclosure chaos has spread from an office cubicle in Fort Washington to 50 states. State attorneys general pledged a joint investigation into shoddy foreclosure practices at the nation's largest banks, including Bank of America and Ally Financial, parent company of GMAC.

The mess came to light at a GMAC office in Montgomery County. Jeffrey Stephan, leader of a document examination team for GMAC Mortgage, testified that he approved up to 10,000 foreclosures per month in Fort Washington. That's about one foreclosure per minute. Stephan became known as a "robo-signer," a job for which his company trained him for all of three days.

Many large banks that engaged in a similar frenzy of seizing homes have suspended foreclosures while attempting to verify their documents.

It's a complicated task because banks went wild during the housing bubble, writing easy-to-get mortgages and selling them off just as quickly into a Wall Street netherworld of bundled securities. In many cases, mortgage servicers don't know where the original loan documents ended up.

Banks already have two strikes on them. It would be folly to expect them now to initiate an orderly, fair resolution of the crisis they helped to create.

Some lawmakers want the federal government to declare a moratorium on foreclosures; President Obama has resisted that step. The danger is that a ban could add uncertainty in an already weak housing market.

Buyers will be reluctant to bid on a foreclosed home if they're not sure the sale is legitimate. And if the housing market continues to deteriorate, it will hamper an overall economic recovery.

The Obama administration has taken only baby steps to encourage balky banks to rework loans of those homeowners who have a reasonable chance of paying somewhat lower mortgages.

Since the crisis began, more than six million homes have been foreclosed, with another four million loans near default. But only about 500,000 mortgages have been modified to reduce monthly payments and allow families to stay in their homes.

Many homeowners are too far "underwater" to avoid foreclosure. And it's not fair to investors to impose an across-the-board moratorium that would postpone the inevitable in such cases.

But the administration and Congress should be doing more along the lines of a new emergency home loan program sponsored by Rep. Chaka Fattah (D., Pa.). It is providing up to $1 billion in loans nationally - $106 million in Pennsylvania - to help unemployed homeowners avoid foreclosure. Loans of up to $50,000 can be used for up to two years to pay the principal and other costs.

Given all of the industry's irresponsible actions, Washington needs to exert more pressure on banks to keep more people in their homes.