US makes sure banks stay in line this time

The US government this week said it found no sign so far of "systemic" home foreclosure troubles that threaten US financial stability, or structural problems that could undermine investments linked to mortgages.

But housing and urban development secretary Shaun Donovan said a four-month probe of big banks' mortgage practices had discovered "significant variation" in compliance with government rules, and vowed to force changes as needed.

"We will not tolerate business as usual in the mortgage market," Donovan said, adding the government would demand that banks follow rules requiring them to try to keep borrowers in their homes.

Allegations of faulty foreclosure paperwork, and demands that banks buy back billions of dollars in mortgages sold to investors, have raised fears that banks face a new wave of difficulties similar to the 2007-2009 financial crisis.

Donovan spoke after huddling with Treasury secretary Timothy Geithner and top Justice Department official Thomas Perrelli to co-ordinate regulators' response to a foreclosure mess that some analysts say poses risks to the fragile housing market and the broader economy.

With less than two weeks to go before elections that threaten Democrats' grip on Congress, president Barack Obama's aides have come under growing pressure to show they are on top of the situation.

The White House faces a delicate balancing act. It wants to show voters it is keeping the heat on financial firms to clean up the foreclosure mess. But it has resisted calls for a nationwide moratorium on evictions, wary of doing anything that could undercut the US economic recovery.

Many mortgage industry analysts believe the foreclosure paperwork problems can be cleared up quickly, but say banks face bigger losses from investors who accuse lenders of sometimes misrepresenting home loans underpinning mortgage securities.

A group of eight investors has accused Bank of America of inappropriately pooling certain mortgages into more than $47-billion of bonds. The bank has said it would oppose the idea of being held responsible for the investors' losses.

Donovan said a separate review of the way mortgage-backed securities are designed had not so far uncovered any evidence of "systemic" problems, though he said the government would continue to look into the matter.

"We have not to date found any underlying concerns about those structural issues," Donovan told reporters at the White House.

The foreclosure documents fiasco, in which banks are accused of using "robo-signers" to sign hundreds of foreclosure documents a day, has reignited public anger with the banks.

All 50 US state attorneys- general are jointly investigating allegations that banks failed to properly review foreclosure processes, and may have submitted faulty documentation to evict delinquent borrowers.