From cnbc.com:
Sources on both sides of the 50-state attorney’s general investigation into so-called “robo-signing” foreclosure practices are nearing a settlement. As Bank of America, JP Morgan Chase, and Iowa Attorney General Tom Miller square off today before the Senate Banking Committee, the framework of a deal is taking shape.
While sources say there is no universal solution to shoddy foreclosure practices at some of the nation’s largest mortgage banks/servicers, the three largest, BofA, JPM, and Wells Fargo, may be agreeing to the same solution.
First, banks would pay into a fund used to compensate borrowers who have claims after their home has been sold in foreclosure. The borrowers would have to prove they were wronged in the process, and the attorney’s general would allocate the funds. In other words, the AGs would be the administrators. The amount of said fund is still undetermined, and likely still in negotiation. Each bank could settle on its own amount, or there could be a joint agreement.
Secondly, the banks would do away with the dual track of modifications and foreclosures. That means that only after all options of modification are exhausted can a bank begin foreclosure proceedings. Many borrowers currently complain that they are in the midst of the modification process when they get a notice of foreclosure sale. The drawback to eliminating the dual track is even greater extended timelines to foreclosure for borrowers. As it is, borrowers on average can be in their homes for a year and a half without making mortgage payments before eviction.
Finally, there would be some kind of agreement to third party mediation for review of all the cases in the first part of the agreement where borrowers are seeking compensation from the AG fund.
There has also been talk of principal write down as part of settlements, perhaps with some banks and not others. “It’s been on the table,” says one source.
Several thoughts on this:
1) The Lost in Space picture is perfect for this blog entry. Danger Will Robinson!
2) It sounds like it’s a good deal for home borrowers in distress… they can get free rent for longer. But when the clock stops ticking, there may be better resolution… no excuses, you’re out.
3) It sounds like the robo-signing problem was more of an issue than the banks originally made it out to be. Otherwise they wouldn’t be agreeing to this.
4) And we still have the MERS challenge stuff less than definitively resolved…
All this bs really sounds like an excuse for the banks to let homeowners off the hook.They are creating all this hype so the news does not focus on the real issues.Our economy has turned into a joke.
I believe the Irvine Housing Blog refers to this as the “amend-extend-pretend” fantasy. This is just another way to stall the shadow inventory from hitting the market, in the hopes that bleeding it out slowly will keep prices elevated.
Considering I’m mulling over the question of buying (i.e. deciding whether to accept a seller’s counteroffer within the next 24 hours), the fact that they’re going to attempt to continue to stall the inventory is probably positive for me.
It sounds sensible to me. I doubt many borrowers will have legitimate claims after foreclosure, but there is nothing wrong with doing right by those that do. And I’m not aware of any mandate that says that the time required to evict a non-paying borrower has to be as long as it does. It seems to be more a choice by the lenders, either a direct choice by not pursuing foreclosures in a timely matter, or an indirect one by choosing not to have enough staff to deal with the problem. Which is what started the whole robo-signing problem in the first place.
Brad,
Thanks for participating in your own personal crunchtime!
The shadow inventory conspiracy is overblown by paranoid bloggers looking for sensational headlines. Effective Demand has been following the defaulters for months/years, and he finds little evidence to support a conspiracy to withhold properties from the market.
http://effectivedemand.blogspot.com/2010/08/california-shadow-inventory-report-q2.html
The servicers might get behind from time to time, but they aren’t going to double their staffing to solve the backlog which in their mind will liquidate eventually.
I think it depends on the definition of “shadow inventory”. If you are just calling it bank owned properties not currently on the market, then there definitely is no significant shadow inventory (and those that aren’t on the market probably have good reasons to not be-just foreclosed, unresolved legal issues, tenant or former owner occupied, or needing major repairs). Once a bank actually forecloses, they tend to put them back on the market quite quickly.
But if you include every homeowner that hasn’t made a payment for 90+ days but hasn’t been foreclosed upon yet, the number is huge. Whether this is incompetence, the banks simply being overwhelmed, short sales or loan mods in progress, some sort of intentional strategy to delay foreclosure to limit supply to keep prices higher than they would be otherwise, or a little bit of all of the above, is hard to tell.
Dual tracking never made any sense to me. Either say “no” to modification really fast and go to foreclosure or wait. Doing both at the same time is just left and right hands not talking to each other. Embarrassing mistakes are inevitable.
Jim,
I do agree with Geotpf above that at least the link from Effective Demand that you provided only proves that banks aren’t holding onto foreclosed properties for an extended period of time. Once it is foreclosed, they must write down the value, and at that point they have incentive to sell quickly.
The bigger issue, IMHO, is the large backlog of delinquent-but-not-foreclosed inventory out there. Simply by looking at deliquency numbers, there’s a lot of properties out there that fit this category. I find it difficult to believe that many of them will actually finish a successful loan modification (at least those who are underwater), and thus it’s only a matter of time before they’re foreclosed.
As for our situation, we just accepted the counter (yay!) but there are three offers total, so we’re crossing our fingers and waiting. Given that there are three offers (and huge activity in the 10 days since there was a large price drop), I’m confident that the property seems to be well-priced at the moment. But priced right “now” means little if these delinquencies become foreclosures and these foreclosures become inventory.
Ok. I get it. The penalty to be paid by the banks for this mass fraud is PAYING INTO A FUND.
I guess that answers the question of for whom the AGs work for.
George,
How has this reached the level of “mass fraud”?
There have been a few isolated reports of improper foreclosures. While those should be avoided, a fund to properly (i.e. well above value of the loss) to compensate those who lose a home incorrectly makes sense.
But the vast, VAST, majority of these foreclosures are people who are delinquent. It’s hard to call someone who isn’t paying for their house getting foreclosed a mass fraud.
I predict the net result is fewer modifications and faster foreclosures, contrary to what we might expect.