National Foreclosure Update

Banks Mired in Bad Loans & Paperwork Woes Credited For Slowing Pace of Foreclosures

For the month of July, 2011 new foreclosures (number of first notice of default) dropped to less than 60,000 (7% less than June, 2011). The July, 2011 number of 60,000 new foreclosures is 39% fewer new foreclosures than in July, 2010. Reasons for the sharp decline in new foreclosures include regulatory red tape involving the paperwork underlying many mortgages as well as National Banks wanting to spread out the “pain” of posting non-performing loans as financial losses. Furthermore, banks are not eager to flood the market with the many thousands of foreclosed homes due to the fact that home values and market prices would drop further still… and prices dropping even more would mean a higher number of properties becoming “upside down” with more money owed against them than their fair market value which could result in foreclosures breeding even more foreclosures.

Foreclosures, Robo-Signing & Title Questions

In some States foreclosures have bee slowed by Bank practices being called into question. Recently the practice of “Robo-Signing” large batches of foreclosure documents without formal review has led to legal challenges for banks in the form of costly legal battles with disgruntled home-owners. Others have called sketchy paper-trails into question and raised legal arguments over the bank’s rights to even collect mortgage payments. This financial home-mortgage quagmire has left many homes (and home-owners) in something of a legal limbo. In some cases this takes the form of properties where multiple foreclosure auction dates have come and gone or where the bank is having its own internal struggles and has not even declared a non-paying mortgage as in default.

Banks Cooking The Books: “Extend & Pretend”

Postponing foreclosure auction dates also benefits banks because it allows the bank to improve the appearance of its financial health so as to dodge scrutiny from regulators and appear more financially stable to investors. Accounting practices do not require banks to record the financial loss of a non-performing loan until after the foreclosure…. So, banks’ slowing down foreclosures allows them to spread out the negative impact on their bottom line. “Extend & Pretend” is a slang term used in the banking industry to describe the banking tactic of refusing to acknowledge that a mortgage is behind on payments and then extend the date which the loan would fall into default. By extending the default date and pretending that the loan is being paid as agreed banks can avoid facing the current reality of upside-down mortgages not being paid.

Loan Modifications Fail To Offer Real Hope

MSNBC article ” Foreclosures slow to trickle as lenders shift strategy ” quotes Real Estate Attorney Shari Olefson and sums up the fate of the majority of Loan Mods: “We worked through the modifications, and we’ve seen that really doesn’t help.” The majority of loan modifications have simply led to home owners making additional payments to the bank only to end up behind on their mortgage again.

Pay-Option Mortgages

The Article cited in the previous paragraph goes on to state that 200 billion dollars worth of Pay-Option Mortgages are scheduled to start resetting to higher payments in the coming year. These mortgages allowed home owners to have a temporarily lower house payment while at the end of every month they end up owing more money instead of less money. Interest-only financing allowed many people to squeeze into a house that they would otherwise not have been able to easily afford. With currently defaulted mortgages along with new defaults looming on the horizon many industry insiders believe that we have 3-4 years of foreclosure inventory waiting in the wings. It should be stated that these are national trends and some local areas may be less affected or more affected due to local factors such as jobs, local economy and neighborhood home values.