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New Jersey orders mortgage lenders to defend foreclosure processes

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Some of the nation's largest mortgage lenders must go before the New Jersey state Supreme Court to defend their foreclosure processes. Garden State Chief Justice Stuart Rabner ordered Bank of America's (BAC) Home Loan Servicing unit; Ally Financial (GJM); JPMorgan Chase's (JPM) home finance unit; Citibank's (C) Citi Residential Lending; Wells Fargo (WFC); and One West Bank (the former IndyMac) to "show cause why the processing of uncontested residential mortgage foreclosure actions they have filed should not be suspended." He said a judge must rely on the accuracy of documents submitted during a foreclosure and called this step "critical to the integrity of the judicial process." The Supreme Court's action Monday follows a series of recommendations from Legal Services of New Jersey. The investigation by the advocacy group was in response to the robo-signing scandal first uncovered in late September that alleged employees signed foreclosure affidavits en masse without properly reviewing documentation. A joint investigation from federal regulators and all 50 state attorneys general ensued. The banks are set to appear in state Superior Court in Trenton Jan. 19. New Jersey is the first to call the banks to testify before the highest court in the state. Iowa Attorney General Tom Miller, who has taken the lead in the AG's investigation, told distressed homeowners last week that he supports criminal prosecutions against bank executives found guilty in connection with the faulty foreclosure affidavits. Rabner also ordered 24 other lenders and mortgage servicers to issue reports demonstrating no irregularities with their foreclosure document preparation and filing. Each of the financial institutions filed more than 200 foreclosure actions in the state this year. One analyst expects the court action to at least result in longer timelines and higher loss severities. "Bottom line is that these actions will result in longer liquidation time lines with higher CDRs and loss severities being realized in the second half of 2011," according to Scott Buchta, head of investment strategy at Braver Stern Securities. "Most people that we have talked to expect liquidation time lines to extend an additional three to six months. In the near-term severities may drop slightly as short sales will make up a higher percentage of all distressed sales." The Associated Press was the first to report the court's action Monday afternoon and said spokesmen for the most of the banks declined to comment. A Wells Fargo spokesman told the AP the bank intends to comply with the order. Write to Jason Philyaw.

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