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Bank of America and other large institutions like JPMorgan Chase and GMAC Mortgage themselves have faced criticism that foreclosures have been pursued without the proper paperwork or with signatures by so-called robo-signers. But on Wall Street, the worry is that the investor effort to get the banks to buy back defaulted mortgages could actually be a longer and more expensive fight for the industry.
At the same time, Bank of America faces pressure to slow the foreclosure process, even as large investors — including the government in the case of the Federal Reserve and Freddie Mac — push for the foreclosures to proceed.
In Thursday’s letter, written by Wachtell, Lipton, Rosen & Katz, one of New York’s top law firms, Bank of America’s lawyers note that Freddie Mac has stated publicly that it is committed to help troubled mortgage holders keep their homes.
“Your demands to hasten foreclosures and to reduce loan modifications are patently inconsistent with that stated aim,†the letter said.
The investors also argue that Bank of America is keeping the mortgages on its books to collect fees, rather than proceed with foreclosures. But Barbara J. Desoer, president of Bank of America Home Loans, said that charge was false.
“We have no financial incentive to keep mortgages on the books longer,†she said. “Isn’t it better to modify the loan and keep people in their homes rather than foreclosing?â€
Ms. Desoer said the underlying reason for the surge in foreclosures was the broader economic downturn, taking issue with critics who claim many of these loans should never have been made in the first place. “The economy declined, unemployment went up and house prices declined,†she said. “That’s not a reason for a loan to be put back.â€
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