Bankrupting the Common People

Banks Seize 288,345 Homes in Q3, But Challenges Await

October 14, 2010

AP – Lenders seized more U.S. homes this summer than in any three-month stretch since the housing market began to bust in 2006. But many of the foreclosures may be challenged in court later because of allegations that banks evicted people without reading the documents.

A total of 288,345 properties were lost to foreclosure in the July-September quarter, according to data released Thursday by RealtyTrac Inc., a foreclosure listing service. That's up from nearly 270,000 in the second quarter, the previous high point in the firm's records dating back to 2005.

Banks have seized more than 816,000 homes through the first nine months of the year and had been on pace to seize 1.2 million by the end of 2010. But fewer are expected now that several major lenders have suspended foreclosures and sales of repossessed homes until they can sort out the foreclosure-documents mess.

On Wednesday, officials in 50 states and the District of Columbia launched a joint investigation into the matter.

Rick Sharga, a senior vice president at RealtyTrac, noted that legal challenges are likely. But he doubts many will be successful in overturning foreclosures. He said he expects foreclosures to resume and predicts about 1 million homes will be taken back this year.

"The bottom line is not that those properties won't be repossessed," Sharga said. "They simply won't be repossessed as quickly. We're simply delaying the inevitable."

Experts say if lenders resume foreclosures in a couple of months or so, the delay will amount to a temporary lull followed by a spike in home repossessions early next year.

But if the crisis drags on for months and more lenders stop seizing homes, the foreclosure delays could last well into next year. That could have a severe effect on home sales and prices.

A freeze in foreclosure sales between now and December by a majority of lenders could amount to removing 30 percent of all home sales for that period, Sharga suggests.

"You would virtually guarantee that tens of thousands of properties would miss going to market in time for the spring, which is the peak buying season for real estate," Sharga said.

Nearly 600,000 bank-owned homes are not yet on the market, according to RealtyTrac.

The states most affected by the foreclosure freeze accounted for 40 percent of all foreclosure activity in the third quarter and 36 percent of homes taken back by lenders, the firm estimates. Sales of homes by lenders made up 18 percent of all U.S. home sales in September, the firm said.

Other experts say delays from the foreclosure documents problem won't end up having a huge impact on home sales or housing values.

Foreclosed homes that would have been sold by lenders now will be sold seven or eight months from now, and prices will start going declining about 3 percent to 4 percent nationally, on average, when those sales take place, said Andres Carbacho-Burgos, an economist at Moody's Economy.com.

That's good news if you're a homeowner looking to sell in the near term, because there won't be as much competition from deeply discounted foreclosed properties, Carbacho-Burgos said.

"But if you were looking to sell further down the line, that's not so good news," he said.

Economic woes, such as unemployment or reduced income, continue to be the main catalysts for foreclosures this year.

While bank repossessions rose in the third quarter, new defaults continued to decline.

Some 269,647 properties received default notices, the first step in the foreclosure process, down 1 percent from the second quarter and down 21 percent from the same period last year, according to RealtyTrac, which tracks notices for defaults, scheduled home auctions and home repossessions.

In all, 930,437 homeowners received a foreclosure-related warning between July and September, up nearly 4 percent from the second quarter but down 1 percent from the same period last year, RealtyTrac said. The latest tally translates to one in 139 U.S. homes.

Wall Street Blames Homeowners in Foreclosure Fiasco

October 14, 2010

Reuters - Wall Street's reaction to the allegations that some banks cut corners while foreclosing on 3 million homes since 2007: Pay your mortgage in the first place.

The building furor over whether the largest U.S. mortgage lenders used so-called robo-signers and incomplete paperwork to force delinquent borrowers from their homes has mushroomed into a probe by the attorneys general in all 50 states, with U.S. Congressional hearings not far behind.

Those on Wall Street, however, are largely unsympathetic, insisting that possible errors in the foreclosure process are beside the point, that the process begins only when a borrower starts missing mortgage payments.

"If you didn't pay your mortgage, you shouldn't be in your house. Period. People are getting upset about something that's just procedural." said Walter Todd, portfolio manager at Greenwood Capital Associates.

Some said the issue is one of personal responsibility for one's own debts.

"Everyone's responsible for following the law. If we all don't have to pay our mortgage, should we just stop paying taxes, too?" said Anton Schutz, president of Mendon Capital Advisers. "Your mortgage didn't get to a robo-signer by accident, it's because you're not paying."

Robo-signers is the term for bank employees who signed hundreds of foreclosure documents daily without reviewing them.

The lack of review is why officials investigating the issue say that some homeowners may actually have been unfairly evicted from their homes.

Lawmakers in California, in a letter to federal authorities last week, said reports from thousands of homeowners in their congressional districts show an "apparent pattern" of practices that led to foreclosures that could have been avoided.

Thousands of people reported that despite efforts to seek loan modifications or other relief many financial institutions "routinely fail to respond in a timely manner, misplace requested documents, and send mixed signals" about what is required to avoid foreclosures, the lawmakers said.

WHO'S TO BLAME?

Homeowners and consumer advocates also disagree with Wall Street's characterization of who is to blame.

"We think this is the smoking gun that illustrates widespread problems in the process," said Kathleen Day, spokeswoman for the Center for Responsible Lending, a Durham, North Carolina-based consumer advocate. "No one's saying that foreclosures should stop forever, but lenders need to be abiding by the law."

The executives for the largest lenders and others on Wall Street have downplayed the worries over foreclosures as nothing more than a technical speed-bump in a process that's still accomplishing its main objective of removing delinquent borrowers from their homes.

"We're not evicting people who deserve to stay in their house," Jamie Dimon, JPMorgan Chase chief executive, said on a conference call with analysts on the company's third-quarter earnings on Wednesday.

JPMorgan, the second-largest U.S. bank by assets, said it is reviewing 115,000 foreclosure cases, after suspending foreclosure sales in 23 states last week, and expects the review to be completed in a few weeks.

Dimon said he ultimately expects the review will have little impact on pending foreclosures sales, though JPMorgan's chief financial officer said during the call the bank amended some of its processes.

On Friday, the chief executive of Bank of America Corp, the largest U.S. bank by assets, described the process as clearing the air around the bank's foreclosures, and the lender stood by its work.

"We'll go back and check over our homework one more time," CEO Brian Moynihan said after a speech at the National Press Club in Washington on Friday.

BofA has temporarily suspended foreclosures and sales of foreclosed properties in all 50 U.S. states, pending a similar review.

Finance executives conceded that while mistakes are being made in the foreclosure process, borrowers are often delinquent for years before being removed from their homes.

In announcing its nationwide foreclosure halt, Bank of America disclosed the average borrower missed payments for 18 months before their home was repossessed.

JPMorgan, in its third-quarter earnings presentation [see next post], disclosed that the average delinquency at foreclosure was 448 days, with as many as 40 percent of foreclosed homes vacant at the time of the seizure.

In New York and Florida, the bank disclosed, foreclosures can take as long as two years.