2:51 PM
Tue Oct 19, 2010 5:30pm EDT
(Removes fourth paragraph reference to timing of moratoriums due to GMAC's decision in September)
By Al Yoon and Jeff Mason
NEW YORK/WASHINGTON (Reuters) - Big banks took a hit on Tuesday as investors threatened to seek redress over questionable mortgage bonds and the White House warned it would hold lenders accountable for any illegal foreclosure practices.
Shares of big mortgage servicers fell as the market digested moves by a group of investors that could force Bank of America to repurchase billions of dollars of loans.
With pressure mounting for a tougher response by the Obama administration just two weeks before congressional elections, U.S. regulators probing the foreclosure crisis planned to meet on Wednesday amid concerns it could undermine the fragile housing market and the broader economy.
Bank of America and GMAC Mortgage, two of the largest mortgage servicers, faced criticism they were acting too fast in announcing the lifting of foreclosure freezes they imposed in response to accusations of shoddy paperwork.
The foreclosure fiasco has drawn attention to mortgage-related problems at banks, including a trend toward these so-called "putbacks" by holders of mortgage securities.
Bank stocks had recovered some ground Monday after heavy losses last week on fears the foreclosure problems could curb bank earnings.
The putback threat, where investors accuse lenders of misrepresenting the loans that underpin securities, appeared to unnerve investors once more.
"This is more octane for the sell-off," said Todd Schoenberger, managing director with LandColt Trading in Wilmington, Delaware.
INVESTOR ACCUSATIONS
A group of large investors has accused Bank of America of mishandling mortgages packaged into bonds, but the bank said it would fight being held responsible for the investors' losses.
The investors said the bank sold them $16.5 billion in bonds backed by mortgages that should never have been put in their bonds in the first place. The Federal Reserve Bank of New York is in the group, a person familiar with the matter said. Bloomberg reported that the group also includes asset managers Pimco and BlackRock Inc.
Dan Frahm, spokesman for Bank of America Home Loans told Reuters, "We believe we've complied with our obligations."
Shares of Bank of America, the largest U.S. mortgage servicer, closed down 4.4 percent. Wells Fargo shares lost 1.3 percent, JP Morgan Chase ended 1.4 percent lower and Citigroup lost 2.6 percent.
The foreclosure fiasco, in which banks are accused of using "robo-signers" to sign hundreds of foreclosure documents a day, has reignited public anger with banks, blamed for helping cause the recent financial crisis and recession.
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