By Jeff Mason and Ross Colvin
WASHINGTON (Reuters) - The White House warned banks on Tuesday it would hold them accountable for any illegal mortgage practices, keeping pressure on financial firms after two institutions announced the resumption of home foreclosures.
GMAC Mortgage joined Bank of America, the largest U.S. mortgage servicer, which announced on Monday a partial rollback of its foreclosure moratorium.
The banks' moves, coupled with financial executives' efforts to play down the severity of the crisis and show they were fixing any problems, followed weeks of damaging accusations of shoddy paperwork that may have forced some people illegally out of their homes.
The controversy, which has drawn public outrage and sparked government probes, has threatened bank earnings and the health of the fragile housing market, battered by falling prices and foreclosures on millions of homes since the beginning of 2007.
The White House, which has performed a delicate balancing act over the crisis, signaled that President Barack Obama was not letting the big banks off the hook.
Just two weeks before congressional elections that threaten his Democrats' grip on Congress, Obama wants to avoid giving voters the impression he is caving in to financial firms whose risky lending is blamed for exacerbating the 2007-2009 meltdown that led to the deepest recession since the 1930s depression.
The administration has resisted calls for a nationwide foreclosure moratorium, wary of doing anything that could derail the nation's anemic economic recovery.
"As institutions are determining their next steps in addressing these issues, we remain committed to holding accountable any bank that has violated the law," White House spokesman Robert Gibbs said in a statement.
"In addition to strongly supporting the investigation by the state attorneys general, the administration's Federal Housing Administration and Financial Fraud Enforcement Task Force have undertaken their own regulatory and enforcement investigation into the foreclosure process," he said.
THREAT OF LAWSUITS
Ending their unilateral moratoriums on housing foreclosures will not resolve the challenges banks face from the foreclosure mess. They could still be hit with fines and lawsuits, and may be forced to repurchase faulty loans.
Speaking after Bank of America posted higher-than-expected quarterly operating profits, Chief Financial Officer Chuck Noski said it was reserving adequately for any litigation.
Chief Executive Brian Moynihan said BofA had not seen the foreclosure problems that many people were worried about, but was taking the matter seriously.
William Dudley, president of the New York Fed, said the situation in housing remains uncertain and that the Federal Reserve is closely monitoring the foreclosure issue to see if there is "any potential impact on the housing market, financial institutions and the overall economy."
He said the Fed encourages alternatives to foreclosures, such as loan modifications, but foreclosures play an important role in getting the housing market back on track.
"It is important that foreclosures that properly comply with state and federal law can ultimately take place, as this is a necessary part of the adjustment that will eventually return us to more normal conditions in the housing market," he said.
(Additional reporting by Joe Rauch in Charlotte, N.C. and Kristina Cooke in New York; Writing by Matt Spetalnick; Editing by Tim Dobbyn)
