The U.S. Justice Department said on Wednesday it was probing reports the nation's top mortgage lenders improperly evicted struggling borrowers from their homes as part of the devastating wave of foreclosures unleashed by the financial crisis.

Amid mounting political outrage over the U.S. mortgage mess, key members of U.S. congressional banking committees joined calls for probes into the foreclosure activities of banks accused of tossing homeowners out without proper review.

At least three banks have already halted eviction proceedings, and various lawmakers have called for an industry-wide moratorium on home repossessions until the problems are fixed. Attorney General Eric Holder said the Justice Department would look into media reports that loan servicers improperly have used robo-signers to push through thousands of foreclosure orders.

Holder's move, and the rising chorus of fury among lawmakers, comes ahead of November congressional elections and takes aim at one of the most visible signs of the U.S. economic crisis as hundreds of thousands of families have lost their homes as unemployment surged.

The moves on foreclosures risk further slowing the U.S. economic recovery, leaving banks unsure whether they will ever claw back losses and the housing market overshadowed by a mounting inventory of homes still likely to face foreclosure in future.

U.S. House of Representatives Speaker Nancy Pelosi and fellow Democrats wrote to Holder earlier this week asking the Justice Department to look into banks' actions after receiving reports from thousands of homeowners about their foreclosure woes.

On Wednesday, the lead Republican on the Senate Banking Committee, Senator Richard Shelby, called on federal regulators to review the foreclosure practices of JPMorgan Chase and Co, Bank of America Corp and Ally Financial Inc, formerly known as GMAC, and said a congressional investigation should also be started.

Two senior Democratic members of the House Financial Services Committee also said it was time to examine whether the banks broke the law based on their participation in the law that governed the Troubled Asset Relief Program, the $700 billion bailout of financial firm.

The American people helped out these companies and the least they deserve is a guarantee of due process and fairness, Representatives Luis Gutierrez and Dennis Moore said.

Banks are expected to take over a record 1.2 million homes this year, up from about 1 million last year, according to real estate data company RealtyTrac Inc.

Federal and state officials have pushed to suspend foreclosures after reports that banks signed large numbers of foreclosure affidavits without conducting proper reviews.

Banks and loan servicers, companies that collect monthly mortgage payments, reportedly have used robo-signers -- middle-ranking executives who signed thousands of affidavits a month claiming they were knowledgeable of the cases.

Separately on Wednesday, Wells Fargo & Co agreed to pay eight states $24 million after allegations of deceptive marketing practices at its home loan unit. The firm said it would also alter its foreclosure prevention practices that could benefit struggling homeowners by more than $700 million.

Wells Fargo Home Mortgage's chief financial officer, Franklin Codel, told Reuters that his unit did not cut corners to speed the foreclosure process. He said he was confident that the paperwork is being properly produced.

STATES TAKE ACTION

The issue on improper handling of foreclosures came to the fore last month when Ally Financial said officials had signed thousands of affidavits without having personal knowledge of borrowers' situations.

Ally suspended evictions and post-foreclosure proceedings in 23 states last month, followed by similar moves by JPMorgan Chase & Co and Bank of America.

The foreclosure issue and the battered state of the U.S. housing market have weighed on the Obama administration ahead of the November congressional elections in which the Democrats already face the possibility of big losses.

Any broader push to solve the foreclosure crisis, such as the wholesale forgiveness of principal debt of struggling homeowners, is unlikely to find support among lawmakers because of the cost and the potential for political backlash from any move seen as rewarding reckless behavior by banks or borrowers.

The focus on bank procedures has thrown a new twist into the saga.

North Carolina Attorney General Roy Cooper on Wednesday became the latest state official to ask lenders to suspend home repossessions as he probes foreclosure practices.

Democratic Senator Robert Menendez earlier this week raised the idea of a national foreclosure moratorium.

Ally Financial and its GMAC Mortgage unit also were targeted by Ohio's attorney general, Richard Cordray, on Wednesday, who announced a lawsuit alleging fraud and violations of Ohio's consumer law.

Cordray also said he has sought meetings with Citibank, Bank of America, JPMorgan Chase and Wells Fargo to try to ascertain whether their foreclosure processes include any of the mass signing of official papers that are the subject of the suit against GMAC Mortgage.

Gina Proia, a spokeswoman for Ally Financial, said there was nothing fraudulent or deceitful about GMAC Mortgage's practices. She said the company will vigorously defend itself, and expects to be fully vindicated by the Ohio courts.

GMAC Mortgage said in a statement it believes there was nothing fraudulent or deceitful about its foreclosure practices. If procedural mistakes were made in the completion of certain legal documents, GMAC Mortgage reacted proactively to the issue and immediately undertook steps to remedy the situation.

(Writing by Corbett B. Daly and Andrew Quinn; Editing by Leslie Adler)

Nancy Pelosi