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Foreclosure Reviews: Navigating the Upheaval

By Robert Freedman, senior editor, REALTOR® Magazine

[Editor's Note: The announcement that Bank of America and GMAC would resume some foreclosures changes the situation somewhat, but there is still a great deal of uncertainty surrounding the remaining foreclosure freezes. Also, political pressure to halt foreclosures remains significant.]

Given the daily headlines on the foreclosure freeze it’s easy to lose sight of that fact that most lenders are not putting a halt to their foreclosure processing. Earlier this week I sat down with my colleagues Jeff LIscher, NAR’s managing director of regulatory policy, and Paul Bishop, NAR’s vice president of research, to get their take on what’s happening with the foreclosure freeze. (See the video.)

Jeff’s first point was that there are thousands of lenders and only a handful are freezing their foreclosures while they review whether their past foreclosures were handled correctly.

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So far, only a few major banks are implementing a moratorium while they conduct their reviews. Bank of America is the biggest. It’s halting foreclosures in all 50 states. J.P. Morgan Chase is halting foreclosures in about half the states. Same thing with GMAC Mortgage. But Wells Fargo, another big lender, isn’t implementing a freeze.

This isn’t to say the problem isn’t big. It appears to be very big. But it’s not all-encompassing, and I think that was Jeff’s point.

Paul reinforced this point by making clear the bulk of foreclosures are concentrated in just a handful of states, with just two, California and Florida, accounting for a third of all foreclosures. And California isn’t a pure judicial foreclosure state. It’s a hybrid in its legal processes for foreclosures.

The fact that California isn’t a pure judicial foreclosure state doesn’t mean we can expect there to be fewer reviews there. Far from it. But it remimds us that this latest crimp in the housing market is as location-specific as the housing market itself. (In a judicial foreclosure state, foreclosures are processed through the courts. Here’s a chart for you to see what the procedures are in your state.)

One thing the conversation with Jeff and Paul made clear is that, if you’re working with a client that’s trying to buy a foreclosed property, your client would do well to talk to an attorney. You just want to make sure your client’s interests are protected if suddenly the bank says it’s taking the home off the market while it reviews the paperwork that was generated when the home was foreclosed upon.

Dorothy Buse, a sales associate in the Orlando area I spoke with two days ago, says she’s had about a quarter of her listings pulled off the market because of these reviews. When this happens, she says, she immediately removes the listing from the MLS. That way there’s no confusion over whether the property is available for sale or not. In about a quarter of these cases, she already has an offer on the property. In these cases, she gives buyers a choice: they can withdraw and get their earnest money deposit back, no questions asked, or they can hold on and wait for the property to come back on the market with the understanding that the timeframe is indefinite. She has no way of knowing how long the property will be off the market.

NAR has written the heads of the U.S. Treasury Department, HUD, and the Federal Housing Finance Agency, which regulates Fannie Mae and Freddie Mac, saying the foreclosure problems give extra impetus to banks to redouble their efforts on loan modifications and short sales. Focusing on these options, NAR says, “will not only minimize losses to the owners of the mortgages, but also minimize harm to homeowners facing unprecedented financial challenges and avoid reversing gains being made towards the recovery of housing markets, especially in high foreclosure areas.”

With foreclosure problems mounting, emphasizing alternatives to foreclosure certainly seems like a win-win for banks and everyone else.

Access NAR’s resources on the foreclosure issue.

Robert Freedman

Robert Freedman is manager of multimedia communications for the NATIONAL ASSOCIATION OF REALTORS®. He can be reached at rfreedman@realtors.org.

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Comments
  1. This may be just what the banks needed to consider more carefully the Short Sales and Loan Modifications for homeowners in trouble. My concern is not so much with the halt in the foreclosures but the other question about how clean the Title’s are when they are transferred. Already Title Companies are getting jumpy about insuring Titles on properties, what happens when they will no longer insure any Title because of the potential for clouds on those Titles down the road. That is an even bigger can of worms in my opinion. Any thoughts on that?

  2. I really feel for the homeowners, but how the banks cannot have some things slip through the cracks based on the sheer numbers of houses they are dealing with.

    Personally, I think the banks may need to slow down and make sure they are dotting all the i’s and crossing all the t’s. They also need to look at alternatives to foreclosure such as beefing up the short sale department to facilitate these faster and their may be fewer foreclosures and the loan modification folks.

    For example if a home owners’ interest rate boosted to 12% from 8% with an adjustable and they were doing just find at 8%, why not modify and keep them at 8%. They loose no money they just don’t make as much, the homeowner stays in their home and there is no short sale or foreclosure.

    And they need to keep in mind when working the short sales that real esate investors that are making an offer are providing a valuable service. Yes we may want to buy for less than what the average home buyer might be willing to pay. But we will wait out the 2, 3, 4 . . . 6 months or more until the bank can come up with an answer while the average home buyer cannot do this.

    Just my 2 cents.

  3. Ron Schwartz

    Although your comments are timely, they do not address the fact that FANNIE MAE came out in Otober announcing that they were instituing a “Call to Action” with their servcing banks. That is, if a bank is servicing a loan owned by Fannie Mae the bank better have a complete file and a good reason why they are not pursuing foreclosure or collection of the deliquent mortgage debt. If they do not have a satisifcactory answer, then Fannie Mae, using its own guidelines, is going to start fineing the servicing bank for not securing their interest as the mortgage holder. Additionally, Fannie Mae anounced that they have increased the number of years before a borrower could obtain a new Fannie Mae backed home loan from 5 to 7 years should the borrower choose foreclosure over a short sale or Deed in Lieu. As an additional incenticve should the borrower choose a short sale or a Deed in Lieu then the waiting period to obtain a new Fannie Mae back home loan would be shortened to 2 years rather than 7 years if they choose the foreclosure option.

    Wells Fargo, Citi and Chase, three of the four largest banks, and now it appears Bank of America is also falling into line, having taken the Fannie Mae edict to heart and are bringing borrowers to a “Call to Action”. If a borrwer is not making the mortgage payments these banks are now quickly notifying the borrower that they can or cannot qualify for a loan modification. If they do not qualify for a loan modification the banks are giving the borrower the following options: 1.) short sale; 2.) a Deed in Lieu or 3.) foreclosure. With the major banks now pushing borrowers toward a short sale or Deed in Lieu (which also becomes a bank REO), I believe that this move will have a negative affect on the value of homes during the remainder of 2010 through 2012 or longer, especially in California where the real estate market is one of the five hardest hit states in the nation.

    It is the old story of supply and demand. When the supply exceeds the demand, which is where we are headed with an influx or Short Sales and REO’s, the value of homes will continue to decline.

    One might argue that with interest rates the lowest in decades that new home buyers should be lining up to purchase these great home buys. In reality what is happening is that the bank mortgage guidelines for a borrower to qualiy for a home loan change from one day to the next, making it very difficult if not impossibloe for a home buyer to qualify for a new mortgage. This plus a weak economy and the uncertainty in the job market is adding more fuel to the fire that is burning in California. The summer of 2010 homes sales has continued to decline from the same peiod in 2009, which was not what anyone would call a banner year. Although this change in direction by Fannie Mae and the major banks will initially have a negative affect on the real estate market I believe that this hard line is what is necessary to shorten the healing time period needed to solve the real estate market and the economyicchallenges that are looming ahead of us all. Reality is sometimes a bitter pill and one this is one pill that needs to be swaloowed now before it is too late to save the majority of home owners from this debacle.

  4. Sandy Ufer

    I am a dot the “i” and cross the “t” person, but probably most foreclosed or pre-foreclsoure properties, are extremely delinquent, like 12-18 months in arrears. The halt is just another piece of the “entitlement” mentality for many folks that should not have been given mortgages in the first place. It is also very difficult for people to qualify for loans that are so low in rates, due to the extreme qualifications, lack of jobs, low pay, etc. The ones that get FHA koans now could be on next years foreclosure line. So many homes went to foreclsoure, when banks rejected market value short sales and refused the tremendous majority of loan modifications. …….Just my sad thoughts….

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