Banking Crisis: Money-Spinning Scam for the Financial Giants

Foreclosure Activity Up Across Most U.S. Metro Areas

October 27, 2010

AP – The foreclosure crisis intensified across a majority of large U.S. metropolitan areas this summer, with Chicago and Seattle — cities outside of the states that have shouldered the worst of the housing downturn — seeing a sharp increase in foreclosure warnings.

California, Nevada, Florida and Arizona remain the nation's foreclosure hotbeds, accounting for 19 of the top 20 metropolitan areas with the highest foreclosure rates between July and September, foreclosure listing firm RealtyTrac Inc. said Thursday.

Those states saw housing values surge during the housing boom years. When the boom ended, values collapsed and foreclosures soared.

But the latest data show that many of the metro areas in those states saw a decline in the number of households receiving foreclosure-related filings, while many cities in other states saw a spike in foreclosure activity.

"The epidemic is spreading from the states at the ground zero of the foreclosure problems out into areas that hadn't been previously affected," said Rick Sharga, a senior vice president at RealtyTrac.

The trend is the latest sign that the nation's foreclosure crisis is worsening as homeowners facing high unemployment, slow job growth and uncertainty about home prices continue to fall behind on their mortgage payments.

In all, 133 out of 206 metropolitan areas with at least 200,000 residents posted an annual increase in foreclosure activity in the three months ended Sept. 30, RealtyTrac said.

The firm tracks notices for defaults, scheduled home auctions and home repossessions — warnings that can lead up to a home eventually being lost to foreclosure.

Eleven out of the nation's 20 largest metropolitan areas saw foreclosure activity increase in the third quarter compared to the same period last year.

The Seattle-Tacoma-Bellevue metro area registered the sharpest annual increase — 71 percent. One in every 129 households received a foreclosure filing.

The Chicago-Naperville-Joliet metropolitan area posted the second-highest annual jump, a 35 percent increase. One in every 84 households received a foreclosure notice.

Among the other metro areas where foreclosure activity jumped by a large margin this summer were Houston-Sugar Land-Baytown, up 26 percent; Detroit-Warren-Livonia, at nearly 23 percent; and, Atlanta-Sandy Springs-Marietta, up 20 percent.

Economic woes, such as unemployment or reduced income, continue to be the main catalysts for foreclosures this year. The U.S. unemployment rate hit 9.6 percent last month.

In the Seattle metro area, unemployment stood slightly lower at 8.5 percent in August and has been edging lower. It was 8.7 percent in August last year.

Still, many troubled homeowners have been unable to hang on. As a result, there's been no letup in the inventory of foreclosed homes on the market this year, says John Bauer, an agent with ZipRealty in Seattle who represents lenders selling foreclosed properties.

"It has been on an upward trend curve ever since 2008," Bauer said. "And not just the third quarter of this year, but the last 12 months, it's been on a steady ascension."

Chicago also had the third-highest number of homes repossessed by lenders during the quarter — 12,568 — behind the Phoenix metro area's 14,317 and the Miami metro area's 12,963, RealtyTrac said.

Banks have seized more than 816,000 homes through the first nine months of the year and are on pace to seize more than a million.

A controversy stemming from allegations that banks evicted people without reading foreclosure documents wasn't a factor in the July-September quarter, Sharga said.

Lenders such as Bank of America and Ally Financial's GMAC Mortgage initially halted foreclosure activity but have since resumed processing foreclosures.

Preliminary data from this month shows almost no change in foreclosure activity versus September, Sharga said.

"We're not seeing what we might have anticipated in terms of a falloff," he said.

The Las Vegas-Paradise, Nev., metropolitan area topped the list of metropolitan areas with the highest foreclosure rates in July-September with one in every 25 homes receiving a foreclosure warning — more than five times the national average. But foreclosure filings declined 20 percent from the same quarter last year.

"It's not out of the woods yet, it's just less bad than it was a year ago," Sharga said.

Rounding out the rest of the top 10 metros with the highest foreclosure rate were Cape Coral-Fort Myers, Fla.; Modesto, Calif.; Stockton, Calif.; Merced, Calif.; Riverside-San Bernardino-Ontario, Calif.; Miami-Fort Lauderdale-Pompano Beach, Fla.; Phoenix-Mesa-Scottsdale, Ariz.; Bakersfield, Calif.; and Vallejo-Fairfield, Calif.

FDIC Head Sounds Alarm on Foreclosure Litigation

October 25, 2010

Reuters - Litigation arising from foreclosure paperwork problems could be "very damaging" to the housing market, a top U.S. banking regulator said Monday.

Federal Deposit Insurance Corp Chairman Sheila Bair said she did not believe legislation would be needed to address concerns over whether the paperwork was properly done so long as investigations show the issue was mostly "procedural."

State and federal officials are investigating allegations that for years banks have not reviewed foreclosure documents properly or have submitted false statements to evict delinquent borrowers.

"I fear that the litigation generated by this issue could ultimately be very damaging to our housing markets if it ends up unduly prolonging those foreclosures that are necessary and justified," Bair told a housing conference in Arlington, Virginia.

"The regrettable truth is that many of the properties currently in the foreclosure process are either vacant or occupied by borrowers who simply cannot make even a significantly reduced payment and have been in arrears for an extended time."

Bair argued it is important to move foreclosures quickly because until they have been cleared out of the system, the housing market will continue to struggle.

She said the volume of foreclosures requires a "global solution" that involves all interested parties. Those parties often include servicers, borrowers, lenders, second-lien holders and investors in securities backed by troubled mortgages. Foreclosures and modifications can be held up when the interested parties do not reach agreement on how to handle a delinquent mortgage.

Bair said one part of a global solution could be extending legal protection, providing a "safe harbor," to foreclosure proceedings if the property is vacant or if the servicer offered a meaningful payment reduction, such as 25 percent, and the borrowers could still not perform on the loan.

Missed Warning Signs

The state attorneys general are investigating the use of "robo-signers" — people who sign hundreds of affidavits a day — by banks and companies that collect monthly mortgage payments. It is alleged they did not properly review the documents they were signing.

Bank of America, JPMorgan and Ally Financial's GMAC Mortgage are among the servicers whose practices have come under fire.

Bair said regulators and market participants missed clues about poor mortgage servicing. She said they should have questioned how mortgage servicers were able to keep up profits without sacrificing quality, even as servicing fees were declining significantly.

"In retrospect, there were warning signs that servicing standards were eroding," Bair said.

She also said the robo-signing controversy underscores how expensive and time-consuming the foreclosure process is, meaning modifications should be actively pursued before foreclosure proceedings.

"We know from experience that reducing the monthly payment through modification raises the chance that the borrower will make good on the loan," she said.

Covered Bond Support

Bair expressed qualified support for legislation intended to create a more robust covered bonds market. Potential issuers of these bonds, including banks like Bank of America, argue that a legislative framework could boost the market and provide a safer method for banks to raise funds to lend to consumers for mortgages and other loans.

Covered bonds are debt securities backed by cash flows from loans but they remain on the issuer's balance sheet and thus are seen as safer than non-guaranteed mortgage securities.

Bair made clear that her support for such legislation depends on losses being covered by investors and not, ultimately, her agency's deposit insurance fund, which guarantees deposits and meets costs associated with the FDIC seizing a failed bank.

"This would result in decreased market discipline from investors who know that their risks are essentially back-stopped by the FDIC," she said.