A new article in CNN this afternoon discusses Bank of America abrubtly halting foreclosure sales (but still continuing the foreclosure process for delinquent borrowers. It seems that the banks are discovering their loss mitigation departments are not following protocol when making foreclosure decisions.
Just last week, Bank of America indicated it was halting foreclosures in 23 states where those foreclosures must be approved by the courts.
Reading the article, we aren’t certain what the motivation truly was for the halt. The quote from CEO Brian Moynihan seems to contradict the headline of the CNN article that there are flaws in the process:
“We haven’t found any problems in the foreclosure process,” Bank of America President and CEO Brian Moynihan said in an appearance before the National Press Club in Washington. “What we are trying to do is clear the air, and say ‘We will go back and check our work one more time.’ ”
The review process is likely to last a few weeks, Moynihan said.
JP Morgan also stopped foreclosure proceedings for nearly 56,000 homeowners after learning that loss mitigation department members were actually approving foreclosures without even reviewing the loan files and foreclosure applications.
It seems quite ironic that the banks, who have previously complained about fraud in the foreclosure place, would likely have been able to prevent much fraud by simply doing due diligence on their foreclosure files. This is quite an insight into the foreclosure departments at major lenders. Apparently they are much more incompetent than the orderly processes would appear.
State attorneys general have stepped up pressure on banks in recent days after it was revealed that some bank employees had signed foreclosure affidavits without verifying that the documents were accurate, a process now known as “robo-signing.”
What does this ultimately mean? More, or less foreclosures? We think less, and with the way sociology works, you can expect a swing back in the other direction to very strict regulation and oversight by the lenders, making things more difficult to push through the loss mit departments, be it a short sale or a foreclosure.
Ohio’s attorney general has filed a lawsuit against Ally Financial and its subsidiary GMAC Mortgage for allegedly submitting fraudulent documents in hundreds of foreclosure cases across the state.
Sen. Christopher Dodd, D-Conn., the chairman of the Senate Banking Committee, announced Friday that he will hold a hearing to investigate allegations of improper mortgage servicing and foreclosure processing on Nov. 16, the day after the Senate returns from recess.
On Thursday, the White House said that President Obama won’t sign a bill that could have made it easier for courts to clear foreclosures. The bill would have required federal and state courts to recognize documents that were notarized in other states.
We think this is some of the likely fallout from these events:
- Less foreclosures being processed as files are more diligently checked
- An increase in the importance of a complete and factually ironclad short sale application
- Increased discussion in the arena on fraud - hopefully not extending into real estate investment
- Possibly an increase in or new government regulation
Quite an interesting set of events. What do you think this means for the short sale marketplace?
