WASHINGTON — President Barack Obama has rejected a bill that the White House fears could worsen the mounting problems caused by flawed or misleading documents used by banks in home foreclosures.
White House press secretary Robert Gibbs said Thursday that Obama is sending a newly passed bill back to Congress to be fixed because the current version has "unintended consequences on consumer protections." The bill would loosen the process for providing a notary's seal to documents and allow them to be done electronically.
Obama will not sign a bill that would allow foreclosure and other documents to be accepted among multiple states. Consumer advocates and state officials had argued the legislation would make it difficult for homeowners to challenge foreclosure documents prepared in other states.
The White House said Thursday it is sending the bill back to Congress for revisions, and that the administration would work with lawmakers on it.
O. Max Gardner, a consumer lawyer in Shelby, N.C., said the bill would have made the problems with foreclosure documents worse. That's because mortgage companies would have been able to mass-produce documents and affix a digital version of a notary's seal rather than one on paper.
"They could process more foreclosure cases with improper and invalid documents and make it more difficult for consumers to try to fight," he said.
Obama used a rare "pocket veto" — a tactic for killing a bill that can be used only when Congress is not in session. It essentially takes effect when the president fails to sign a bill within 10 days. Obama has yet to issue a traditional veto during his presidency; he has used a pocket veto once before, in December 2009, to address what amounted to a technicality on a defense spending bill.
A furor has been growing as mounting evidence has surfaced that mortgage lenders have been evicting homeowners using flawed court papers. State and federal officials have been ramping up pressure on the mortgage industry over concerns about potential legal violations.
Also Thursday, Senate Majority Leader Harry Reid, D-Nev., urged five large mortgage lenders to suspend foreclosures in Nevada until they have set up systems to make sure homeowners aren't "improperly directed into foreclosure proceedings." Nevada is not among the states where banks have suspended foreclosures.
Attorney General Eric Holder said Wednesday that the government is looking into the issue. Earlier in the week, House Speaker Nancy Pelosi and dozens of Democratic lawmakers urged bank regulators and the Justice Department to probe whether mortgage companies violated any laws in handling foreclosures and borrowers' requests for loan assistance.
Ohio Secretary of State Jennifer Brunner, along with liberal groups, had urged Obama to reject the measure after allegations surfaced of widespread flaws in the documents used in the foreclosure process. Those included not having a notary public in the room to certify that a signature is valid.
Three banks have halted some foreclosures in 23 states after evidence surfaced that their employees or outside lawyers signed documents without reading them or filed inaccurate paperwork.
In some states, lenders can foreclose quickly on delinquent mortgage borrowers. By contrast, the 23 states use a lengthy court process. They require documents to verify information on the mortgage, including who owns it.
Those states are:
Connecticut, Delaware, Florida, Hawaii, Illinois, Indiana, Iowa, Kansas, Kentucky, Louisiana, Maine, Nebraska, New Jersey, New Mexico, New York, North Dakota, Ohio, Oklahoma, Pennsylvania, South Carolina, South Dakota, Vermont and Wisconsin.