WASHINGTON (CNNMoney.com) -- President Obama won't sign a bill that could have made it easier for courts to clear foreclosures, the White House said Thursday.
The bill would have required federal and state courts to recognize documents that were notarized in other states.
Both congressional chambers approved the legislation by voice votes, a move used for noncontroversial bills. The House passed it in April, and the Senate passed it Sept. 27.
However, housing advocates and attorneys warned that the bill might have made it more difficult to challenge the quality of foreclosure records at a time when reports of improperly foreclosed homes are increasing.
"We have heard from officials around the country about the concern that they have about the possible unintended consequences of this legislation -- certainly in light of what we are seeing in the mortgage processing," White House spokesman Robert Gibbs said.
"So out of an abundance of caution and to ensure that those unintended effects don't harm consumers, the president will send the bill back and believes that Congress did not intend for those unintended consequences to be in the legislation," Gibbs said.
Pressure has been building on U.S. banks to halt more foreclosures amid widespread allegations that loan servicers failed to verify legal documents in what could be hundreds of thousands of cases.
Lawmakers have asked the Justice Department, the Federal Reserve, and the Comptroller of the Currency to investigate bank foreclosure processes and the Texas attorney general halted foreclosures processed by 30 loan servicers in that state.
Ally Financial, JPMorgan Chase (JPM, Fortune 500) and Bank of America (BAC, Fortune 500) all announced plans last week to freeze foreclosures in the 23 U.S. states where they must be approved by the courts.
Foreclosures continue in the remaining 27 states, including California and Texas, where they are not subject to judicial review. Two other major financial institutions, Wells Fargo (WFC, Fortune 500) and Citigroup (C, Fortune 500), have yet to halt any foreclosures.
The bill aimed to clear up congestion in the courts by forcing courts to recognize notaries from other states, even if the records included electronic signatures.
Republicans immediately pushed back on the move, saying there was "absolutely no connection whatsoever" between the bill and recent foreclosure documentation problems, said Rep. Robert Aderholt, R-Ala., who sponsored the bill in the House.
Senate Majority Leader Harry Reid released a statement calling for his home state of Nevada, where he is in a tough re-election fight, to halt foreclosures. But he did not mention the pocket veto.
One Democratic lawmaker, Rep. John Conyers Jr., of Michigan, applauded the president's move, despite a lack of concern about the bill when the House passed the measure in April.
"Although I believe the bill was originally well intentioned, I now believe this issue requires more careful review and discussion before the law is changed," Conyers said in a statement.
The president's move sends the legislation back to Congress, Gibbs said.
Gibbs called the president's action a "pocket veto," which is typically how a president rejects legislation when Congress is out of session.
But there was some question as to whether the move was an official pocket veto, since the Senate is technically still in session. Gibbs said he was told by White House attorneys that "the president certainly has the constitutional power to do that, and that is what he's exercising."
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