Posts Tagged ‘robo-signing’

Foreclosures Decline, But Expect a Spike Thanks to Banks Settlement

Monday, March 26th, 2012

Foreclosure filings declined eight percent in February, the smallest year-over-year decrease since October 2010, as lenders began working through a backlog of seized properties, according to RealtyTrac Inc. A total of 206,900 homes received notices of default, auction or repossession last month, down two percent from January, according to the data firm, which noted that one in every 637 households received a filing.  Those numbers could rise sharply in coming months.

Banks slowed foreclosures for more than a year as attorneys general in every state investigated charges of shoddy and incomplete paperwork.  A $25 billion settlement with the five largest lenders removed some roadblocks to property seizures and gave the go-ahead for future actions, Brandon Moore, RealtyTrac’s chief executive officer, said.  “February’s numbers point to a gradually rising foreclosure tide.  That should result in more states posting annual increases in the coming months.”

“The pig is starting to move through the python,” said Daren Blomquist, RealtyTrac’s director of marketing.  The banks “have already adjusted their foreclosure practices to fit the terms of the settlement.  We expect that to continue as (the settlement) gets finalized,” Blomquist said.

The settlement clarifies the way in which foreclosures must be handled.  That is expected to let banks speed up their processing, putting many delinquent homeowners into the foreclosure process.  Cases could move forward after being on hold for months — even years — with their delinquent owners still living illegally in the properties.

“The foreclosure and mortgage settlement filed in court earlier this week will help pave the way to a properly functioning foreclosure process by providing a clear roadmap for necessary foreclosures,” Moore continued.  “That should result in more states posting annual increases in the coming months.  Not surprisingly, many of the biggest annual increases in February were in states with the more bureaucratic judicial foreclosure process, which resulted in a larger backlog of foreclosures built up over the last 18 months in those states.”

Cities with the highest foreclosure rates were Riverside-San Bernardino in California (one in 166 housing units); Atlanta (one in 244); Phoenix (one in 259); Miami (one in 264); and Chicago (one in 302).

The Department of Housing and Urban Development’s (HUD) Office of the Inspector General’s report found that several banks violated servicing standards and foreclosure procedures and engaged in extensive robo signing.  The banks agreed to follow new servicing standards and offer relief to borrowers by providing $10 billion in principal reductions, $3 billion in refinancing loans and $7 billion in alternatives to foreclosure.  Foreclosures in the 26 states with a judicial foreclosure process rose 24 percent over last year, while activity in the 24 states that follow a non-judicial foreclosure process fell by 23 percent

Default notices, the initial step in the foreclosure process increased more than 20 percent in 12 states, including Hawaii, Maryland, Connecticut, South Carolina, Indiana, Pennsylvania and Florida.  State attorneys general have filed lawsuits against major lenders in New York, California and Nevada in recent months, further slowing the pace of foreclosures in those states.

As Foreclosures Decline, Federal Government Makes Deal With 49 States

Tuesday, February 21st, 2012

In good news for beleaguered homeowners, the Obama administration announced a $26 billion mortgage settlement, which 49 out of 50 state attorneys general signed on to.  The deal won praise from such groups as the Mortgage Bankers Association, the industry trade group for lenders, and the Center for Responsible Lending, a public interest group advocating for borrowers.

Conservatives suggested that the Obama administration is overreaching, and that the agreement rewards homeowners who haven’t been paying their mortgages.  On the other side, some liberal groups say it falls far short of providing the needed level of help to troubled homeowners hurt by the housing bubble, problems they blame on Wall Street banks and investors.  They would prefer additional relief for homeowners who are underwater on their mortgages.

“It’s a big check with narrow immunity,” said Paul Miller, a former examiner for the Federal Reserve Bank of Philadelphia and currently an analyst with FBR Capital Markets in Arlington, VA.  “You get the state attorneys general off your back, but you’re not getting immunity from securitizations, which could come with their own steep cost down the road.”

Regulators are “aggressive” on pursuing securities claims and have set up a task force to do so, said Department of Housing and Urban Development Secretary Shaun Donovan.  The $26 billion deal doesn’t protect banks from claims related to faulty loans sold to government-owned Fannie Mae and Freddie Mac, he said.  “It wasn’t the servicing practices that created the bubble, nor caused its collapse,” Donovan said.  “It was the origination and securitization of these horrendous products.”

Writing on Salon, Matt Stoller says that the deal lets the banks down relatively easily.  “Rather than settling anything, this agreement is simply a continuation of the policy framework of both the Bush and the Obama administrations.  So what exactly is that framework?  It is, as Damon Silvers of the Congressional Oversight Panel which monitored the bailouts, once put it, to preserve the capital structures of the largest banks.  ‘We can either have a rational resolution to the foreclosure crisis or we can preserve the capital structure of the banks,’ said Silvers in October, 2010.  “’We can’t do both.’  Writing down debt that cannot be paid back — the approach Franklin Roosevelt took — is off the table, as it would jeopardize the equity keeping those banks afloat.  This policy framework isn’t obvious, because it isn’t admissible in polite company.  Nonetheless, it occasionally gets out.  Back in August 2010, at an ‘on background’ briefing of financial bloggers, Treasury officials admitted that the point of its housing programs were to space out foreclosures so that banks could absorb smaller shocks to their balance sheets.  This is consistent with the president’s own words a few months later.”

Very gradually, the foreclosure crisis seems to be easing. The number of homes in foreclosure declined by 130,000, or 8.4 percent last year to 830,000, according to a report from CoreLogic, an economic research firm.  That compares with 1.1 million homes foreclosed in 2010.  These are homes whose owners had fallen far behind on payments, forcing lenders to put them into the foreclosure process.  The homes remain in the foreclosure inventory until they’re sold — either at auction or in a short sale, which is when a home is sold for less than the mortgage value — or until homeowners are current again on payments

There are two reasons for the decline in the foreclosure inventory, according to Mark Fleming, CoreLogic’s chief economist.  “The pace at which properties are entering foreclosure is slowing,” he said.  “And servicers nationwide stepped up the rate at which they were able to process distressed assets.”

In the last few years, homes have entered foreclosure more slowly because lenders carefully scrutinized applicants; only low-risk borrowers are granted loans.  Along with a measured improvement in the economy, this equals fewer borrowers getting into trouble.  Even borrowers in default are avoiding foreclosure in many instance and are being held up by judicial and regulatory constraints, according to Fleming.

The practice of robo-signing, in which banks filed slapdash and sometimes improper paperwork, made lenders more cautious about getting their paperwork in order before foreclosing.  When a bank does put a home into foreclosure, they are trying to speed the process.  One way they’ve done that is by encouraging short sales.  Another is that they’ve stepped up their foreclosure prevention efforts — often with the aid of government programs such as Home Affordable Modification Program (HAMP), which the government says has helped nearly one million Americans stay in their homes.

After foreclosures are completed and the homes are back in the lenders’ hands, they sell quickly.  “This is the first time in a year that REO sales (those of bank-owned properties) have outpaced completed foreclosures,” Fleming said.  In December, there were 103 sales of bank-owned homes for every 100 homes in the foreclosure inventory.  That was a significant increase from November of 2010, when there were only 94 REO sales for every 100 homes in the foreclosure process.

As of December of 2011, Florida still topped the nation’s foreclosure inventory at 11.9 percent, followed by New Jersey with 6.4 percent and Illinois 5.4 percent.  Nevada, consistently the number one foreclosure state in the nation, has fallen to fourth place with 5.3 percent.

Home Delinquencies Fall; Foreclosures Rise

Tuesday, December 6th, 2011

Fewer borrowers currently are delinquent on their home loans, a Mortgage Bankers Association (MBA) report shows.  Curiously, new foreclosures are rising in states like California.  This is evidence that the nation still must endure significant pain before the housing crisis finally comes to an end.  According to some analysts, the nation is only halfway through the wrenching grip of the foreclosure epidemic.  That’s reflected in the housing market, where sales and prices continue to sag despite record low interest rates.  Five years after the crisis began, 7.99 percent of all mortgages were behind by at least one payment in the 3rd quarter but not yet in foreclosure.  Nevertheless, that’s down by nearly half a percentage point from the 2nd quarter and more than one percent when compared with last year.

The percentage of American mortgages that were somewhere in the foreclosure process at the end of the 3rd quarter was 4.43 percent, a slight increase over last year.  The rate of homes in foreclosure was highest in the East and Midwest that route residential repossessions through the courts, with Florida at more than 14 percent and New Jersey at eight percent.

Rather surprisingly, new foreclosures rose to 1.08 percent of all loans from 0.96 percent in the prior three months, according to the MBA. The rate had been declining since the 3rd quarter of 2010, when regulators began investigating robo-signing.  Some of the nation’s largest banks temporarily halted foreclosures while they addressed claims of flaws in their court documents.  The moratoriums clogged the entire foreclosure pipeline as banks investigated their procedures, said Patrick Newport, an economist at IHS Global Insight.  “Banks are starting to speed up the process now that they’ve cleaned up their paperwork,” Newport said.  “We’re seeing the backlog begin to move.”

Unfortunately, the improvement may be short lived.  For the 4th quarter, the pace probably will slow to 2.3 percent, according to the median estimate among 86 economists surveyed by Bloomberg.  The pace likely will slow to two percent in the first three months of 2012, according to the estimates.  “While the delinquency picture changed for the better in the 3rd quarter, the foreclosure data indicated that we are not out of the woods yet and that the issues continue to vary by geography,” Michael Fratantoni, the Mortgage Bankers Association’s vice president of research and economics, said.

“That’s really just reflecting the modest improvement we’ve seen in the economy broadly and the job market in particular,” Fratantoni said. “Job growth is not what we want it to be, but it’s been good enough to keep the unemployment rate at least level and that’s been beneficial here with fewer people falling behind.”

“While foreclosure activity in September and the 3rd quarter continued to register well below levels from a year ago, there is evidence that this temporary downward trend is about to change direction, with foreclosure activity slowly beginning to ramp back up,” said James Saccacio, chief executive officer of RealtyTrac.  “Third quarter foreclosure activity increased marginally from the previous quarter, breaking a trend of three consecutive quarterly decreases that started in the fourth quarter of 2010,” according to Saccacio.  “This marginal increase in overall foreclosure activity was fueled by a 14 percent jump in new default notices, indicating that lenders are cautiously throwing more wood into the foreclosure fireplace after spending months trying to clear the chimney of sloppily filed foreclosures.”

Foreclosure were filed on 214,855 U.S. properties in September, a six percent decrease from August and a 38 percent decrease when compared with September of 2010.  September marked the 12th consecutive month where foreclosure activity decreased on a year-over-year basis.

A report issued by the Center for Responsible Lending found that 6.4 percent of mortgages created between 2004 and 2008 ended in foreclosure.  Another 8.3 percent of mortgages are at “immediate, serious risk.”  According to Fratantoni, “Given the pace of foreclosure sales — about one million foreclosure sales a year — it’s a three- or four-year process to get it back to a more typical level of foreclosed properties.”

The refinance share of mortgage activity fell to 77.3 percent of total applications from 78.6 percent the previous week.  The adjustable-rate mortgage (ARM) share of activity increased to 6.1 percent from 5.8 percent of all applications.  In October, 50.6 percent of refinancing applications opted for fixed-rate 30-year loans, 28.8 percent opted for 15-year fixed loans and six percent went with ARMs.  In terms of applications for home purchase mortgages, 85.5 percent were for fixed-rate 30-year loans, 6.9 percent for 15-year fixed loans and 5.9 percent for ARMs, the lowest share of that vehicle for purchases since January.

August Foreclosures Rise 33 Percent Over July

Tuesday, October 11th, 2011

Default notices sent to delinquent U.S. homeowners soared 33 percent in August when compared with July, evidence that lenders are accelerating the foreclosure process after almost one year of delays, according to RealtyTrac, Inc.  First-time default notices were filed on 78,880 homes, the highest number in nine months.  Total foreclosure filings, which also include auction and home-seizure notices, rose seven percent from a four-year low in July to 228,098.  One in 570 homes received a notice during August.  “The industry appears to be hitting the reset button and the logjam may finally be breaking up,” Rick Sharga, RealtyTrac senior vice president, said.  Foreclosure filings in 2011 have been “artificially low.”

“This is really the first time we’ve seen a significant increase in the number of new foreclosure actions,” Sharga said. “It’s still possible this is a blip, but I think it’s much more likely we’re seeing the beginning of a trend here.”  Foreclosure activity started declining last year after problems surfaced with the way many lenders were handling foreclosure paperwork, such as shoddy mortgage paperwork comprising several shortcuts known as robo-signing.

Additional factors have also stalled the pace of new foreclosures.  In some cases, the process has been held delayed by courts in states where judges are involved in the foreclosure process, a possible settlement of government investigations into mortgage-lending practices, and lenders’ reluctance to take back properties because of slowing home sales.  A rise in foreclosures also means a potentially faster turnaround for the U.S. housing market.  Experts say that revival won’t occur as long as the glut of potential foreclosures remains on the market. 

Foreclosures depress home values and create uncertainty among potential homebuyers who worry that prices may further decline as more foreclosures hit the market.  There are approximately 3.7 million more homes in some phase of foreclosure at present than there would be in a normal housing market, according to Citi analyst Josh Levin.  “This bloated foreclosure pipeline now presents the greatest obstacle to a housing market recovery,” he said.

Although negotiations between some banks and state attorneys general regarding foreclosure practices are still unresolved, several restarted foreclosure actions after an April settlement with federal regulators.  JPMorgan Chase & Co., as of the end of June, had resumed foreclosure actions in nearly all of the 43 states where it had suspended its efforts.  So-called “shadow inventory,” or the looming foreclosures that are still expected to hit the market, is a major threat for a housing sector that already has a glut of unsold homes.  In spite of everything, default notices had fallen 18 percent when compared with August of 2010 and down 44 percent from the peak reached in April 2009 during the tail end of the recession.

Writing for The Consumerist website, Chris Morran says that “Last year, several of the country’s largest mortgage servicers — Bank of America, GMAC/Ally, JPMorgan Chase, among others — were forced to hit the pause button on foreclosure procedures after it was revealed that many foreclosure documents were being rubber stamped by untrained, ill-informed ‘robo-signers.’  This delay caused a bottleneck of foreclosure-worthy properties waiting to be reviewed.  But now it looks like those homes are starting to trickle out into what could be a flood in early 2012.  According to Bank of America, “We are on an ongoing path to return foreclosures to normal levels. Strong gains like that from July to August demonstrate our progress – primarily in judicial states — clearing more volume to advance to foreclosure once we pass the numerous quality controls we have in place and exhaust all options with homeowners.  Our progress each month builds upon foreclosure levels lower than the market realities would dictate.”

A more optimistic view of the dismal report was offered by Gregory Tsujimoto, who performs market research for John Burns Real Estate Consulting in Irvine, CA, and views the data as reflecting more of a stall in an improving market than a new downtrend.  Despite the sharp increase in monthly figures, Tsujimoto attaches more weight to an 18 percent decline in default notices on a yearly basis.  Tsujimoto believes that the uptick in default notices is “a leading indicator for future foreclosures, which is not coming at a great time when measures of consumer confidence have declined.”  But, he says that we must address the backlog of distressed inventory and “vacant homes in the marketplace before we get true improvement.”  The other key, he says, is “creating jobs to spur demand.”

Among the states with the highest foreclosure rates, California led in new foreclosures with an increase of 55 percent over July, according to RealtyTrac.  Cities in inland California posted big jumps, with Riverside and San Bernardino counties soaring 68 percent, Bakersfield 44 percent and Modesto 57 percent.  “Scratch beneath the surface and there’s not a lot to cheer about this month.  Home sales were up from a year earlier but remained far below average,” DataQuick President John Walsh said.  “Many would-be buyers can’t find financing, and others who want to make a move now are stuck because they owe more than their homes are worth.”

The decision to move ahead is an important one since RealtyTrac has long maintained that property values won’t rise until a large number of distressed properties are purchased.  “We don’t know yet if this is a beginning of a trend, but there is a good chance we might see a return to more realistic foreclosure numbers,” Sharga concluded.

Foreclosures Appear to Be Stabilizing

Monday, August 29th, 2011

Foreclosure filings fell a dramatic 35 percent in July to the lowest level in nearly four years as lenders and state and federal agencies ramped up their efforts to keep delinquent borrowers in their homes, according to RealtyTrac Inc.  A total of 212,764 properties received default, auction or repossession notices, the lowest number in 44 months.  Filings declined on a year- over-year basis for the 10th consecutive month, and were down four percent when compared with June.  One in every 611 households across the country received a notice.  “The downward trend in foreclosure activity has now taken on a life of its own,” RealtyTrac Chief Executive Officer James J. Saccacio said.  “Unfortunately, the fall-off in foreclosures is not based on a robust recovery in the housing market but on short-term interventions and delays that will extend the current housing market woes into 2012 and beyond.  It appears that processing delays, combined with the smorgasbord of national and state-level foreclosure prevention efforts, may be allowing more distressed homeowners to stave off foreclosure.” 

Nevada leads the nation with the highest foreclosure rate of any state, one filing for every 115 homes.  California, with one foreclosure for every 239 homes came in second, while Arizona, with one in every 273 homes, was third.  Las Vegas continued to record the nation’s highest foreclosure rate, with one in every 99 homes getting a foreclosure filing in July. 

Foreclosure auctions, the final step in the agonizing foreclosure process were also scheduled on five percent fewer properties in July.  The month’s auction total hit a three-year low and was nearly half (46 percent) below the March, 2010, peak.  An estimated four million vacant homes not yet accounted for by lenders constitute an immense inventory of residential properties, approximately 2.2-million of which are in default and have not yet been formally foreclosed known as the “shadow inventory” weigh down the marketplace. 

The Obama administration is proactively seeking ways to dispose of foreclosed homes that are under government control.  The goal is to “bring stability and liquidity” to the housing market, Edward J. DeMarco, acting director of the Federal Housing Finance Agency (FHFA), said.  The FHFA regulates Fannie Mae and Freddie Mac, which guarantee approximately 90 percent of American mortgages.  President Obama has proposed a program to encourage the rental of foreclosed homes owned by the Federal Housing Administration, Fannie Mae, and Freddie Mac.  Banks could adopt similar programs and offer homes at steep discounts to get residential real estate off their books.  Financial institutions typically get lucrative write-offs from these and so might prefer to rent some properties.  Other federal attempts to prop up the housing market have not been successful to date.  The Making Home Affordable Program operation was launched in March of 2009 with the main component the Home Affordable Modification Program.  This was created to cut mortgage payments for families who couldn’t afford them, but wanted to keep their houses.  A Congressional Oversight Panel report said the programs had failed and fell far short of its goal to modify mortgages for three million to four million homes.  The new Obama plan to rent foreclosed homes has the potential to positively impact home prices.

Writing on MSNBC, John W. Schoen says that “A sharp slowdown in the pace of home foreclosures may help ease the financial burden on bankers by helping them unload a glut of repossessed homes more slowly and delay booking losses from the sale of distressed properties.  But it will do little to help millions of Americans families at risk of being tossed from their homes in the next few years.  The slowdown follows a wave of legal challenges by homeowners that has all but shut down the machinery of bank repossession in some states.  Some homeowners are disputing the widespread practice of ‘robo-signing’, in which lenders process batches of foreclosure fillings with little or no formal review.  Other homeowners have successfully halted repossessions by questioning shoddy paperwork or broken paper trails that don’t establish clear title to a property.  The slowdown has left millions of American households in legal limbo, prolonged the housing market’s four-year recession and delayed hopes for a broader economic recovery.” 

“The process has more or less ground to a halt in a lot of states that do foreclosures through the court system,” said Rick Sharga, a senior vice president at RealtyTrac.

Foreclosure Crisis Requires Creative Thinking

Monday, October 25th, 2010

As of the end of September 2010 seven million mortgages were 30+ days late on payments. As I caught up on my New York Times reading over the weekend, I was struck by how consuming an issue this foreclosure legal mess has become.  It is on the front page, on the Op-Ed page and on the inside.  Well summarized in newspapers and well noted in the blogosphere.

This issue has progressed beyond the economic or financial and has become a political issue.  The fact that one of the most populist presidencies in recent memory has publicly stated their views on the mess (no need to halt foreclosures in a blanket fashion – which is sensible) and has been publicly opposed by all 50 states’ attorneys general is remarkable.  The group of state AGs includes people of all political stripes.  They have made it a political issue.  We read about it in the papers.  We hear confirmation of it in the market from our partners in the foreclosure industry.  In contrast to their thinking a few months back, banks today are desperately seeking a way to avoid foreclosure and a way to retain some homeowner dignity so they don’t turn around and make life miserable for banks.

This particular issue of robo-signing of foreclosure papers is one of those watershed events that historians refer to.  It changes the urgency of the debate.  The seemingly technical problem resonates with people in a way that other types of mortgage fraud do not and is evidence of the anti-foreclosure pushback out there.  This issue does not go away.

Yet no one wants a blanket “amnesty” on mortgages via a nationwide reduction in mortgage principal balance and a lowering of rates, as that rewards bad behavior, and the number reach to the many trillions.  We can’t reward bad behavior by accepting arguments to give all borrowers an amnesty with lower rates, principal forgiveness or both.  Some yes, all no.  But something must be done.  Punish, if you will, poor financial judgment on behalf of the lenders, the borrowers and the markets, but let us avoid bringing down the economy simply to “let the market clear”.  The market solution, a foreclosure, is often a dysfunctional outcome, especially today, when so many foreclosures are expected to occur.

The numbers are staggering.  As of the end of September 2010, according to Lender Processing Services, seven million mortgages were 30+ days late on payments, over two million had foreclosures that had commenced, and over four million were in default pre-foreclosure, with over two million of those 90+ days late.  Foreclose on a small number of homes, and the market and society can absorb the hit but when foreclosures become the norm in places, then the market seizes up and society cannot absorb the resulting economic and family displacement.

Think back to late 2008.  The expectation in the market was that housing would get worse but that the Fed would lower borrowing rates, that some combination of foreclosures and delaying recognition of lender losses would fix the problem.  What happened?  The lowering of rates and pumping in of liquidity has given rise to excess liquidity in parts of the housing market where it is not needed (note exceptionally low mortgage rates for those who qualify), and a complete rationing of credit where it is desperately needed (note how hard it is to actually get one of those mortgages).  Existing foreclosure and pre-foreclosure programs have not worked.  A number of us explicitly stated that serious, scalable and fair foreclosure alternatives had to be adopted that could solve the problem of people with job insecurity in homes with negative equity.  The solutions we saw in the marketplace gave us a sense that would prove insufficient and were poorly implemented.  We were right.  That annoys me.

This should be — and is — a time for some creative thinking.  This is the issue of today.  It is more immediate than deficits, trade and even the securities markets.  This hits us directly through an asset that is typically our largest “investment”.  Smart solutions, and there are a few out there, will strengthen the American Dream.  Conventional answers will not.  As concerned citizens, we should not accept intellectual inertia on this issue.

S. Jafer Hasnain is a Managing Partner of Lifeline Assets, a Chicago-based real-estate private equity firm which he co-founded in 2008.  Mr. Hasnain was previously a portfolio manager and analyst at AllianceBernstein for 14 years, with stints at Merrill Lynch, Citibank and Goldman Sachs prior to that.