We already know some banks halted foreclosure sales nationwide in October when it was discovered that servicers took short cuts, so-called "robo-signing" in the foreclosure sale process in judicial foreclosure states - about half the country.
Now it appears they may have done the same thing in a different part of the process, the Notice of Default, which takes place in the other half - i.e. the non-judicial states - this happens before the foreclosure sale.
(Judicial foreclosures are those that are processed through the courts whereas non-judicial are processed without court intervention.)
A Notice of Default is the notice sent out in non-judicial foreclosure states that alerts the borrower that the official foreclosure process has begun. It is also filed with the county recorders office and allows the notice of foreclosure sale to be published. What's so important is that this is the process in California, Nevada and Arizona (AZ is both judicial and non-judicial), which have three of the top four foreclosure rates.
Last week an article from American Banker titled, "New Point of Foreclosure Contention: Default Notice" circulated widely among the folks who follow the mortgage mess. It talked about how several lawsuits are now being filed contending that the Notice of Default process was flawed and the foreclosure therefore invalid.
As this article was circulating, a source pointed me to the fact that Notices of Default had dropped off dramatically since October, especially in California. In fact, Foreclosure Radar shows it quite clearly. Foreclosure Radar's Sean O'Toole wasn't ready to say the banks had cut off Notices of Defaults but did say, "given the issues raised, we certainly wouldn't be surprised to see a slow down of foreclosure activity in non-judicial states."
So we contacted Bank of America (NYSE: bac), and spokesman Dan Frahm said:
"As part of our voluntary, comprehensive review of the modification and foreclosure process we launched in October of 2010, we did conduct a review of the Notice of Default process. As a result, we stopped the NOD process in the non judicial states while we completed that review and, later, implemented and tested the resulting process improvements. We announced in December our foreclosure restart - starting with vacant and non-owner occupied properties - and ramp up of that volume continues, as does the related NODs."
They then said they had "improved" the process, and we would see volume increase soon, if not already. "Based on the American Banker story you referenced and the notion this is the potential next issue, I feel good knowing we addressed NOD as part of our rigorous voluntary review and testing process," added Frahm.
JP Morgan Chase (NYSE: jpm) is still getting back to us. Wells Fargo (NYSE: wfc) tells us they did not stop NOD's.
What does it mean going forward?
"This prolonged curtailment in NOD volume will lead to fewer foreclosure completions in 2011 than forecast," notes mortgage consultant Mark Hanson. "After four months of total uncertainty over the entire foreclosure process nationwide, it will have consequences on the mortgage, housing, and related sectors."
Hanson says distressed loan pipelines are "poised to get out of control beginning in Q1"
UPDATE: JPM tells CNBC, "We stopped notices of default in some states (not all)."
"Bank of America and Fidelity National Financial have reached an agreement confirming that Fidelity will provide title insurance on the sale of foreclosed properties," said B of A spokesman Dan Frahm.
Under the agreement, Fidelity will defend the new homeowner in court if a foreclosed owner challenges the title. B of A will cover the costs and, if necessary, any damages awarded to the previous owner.
"Bank of America and Fidelity National are taking this step to facilitate the continued availability of title insurance that is vital to the marketability of foreclosed properties," Frahm said.
The giant bank is seeking similar agreements with other title insurers.
American Land Title Association chief executive Kurt Pfotenhauer welcomed the B of A/Fidelity agreement.
“Title insurers are looking to lenders to provide appropriate indemnities," he said. ALTA also has approached the GSE regulator about title indemnifications.
"We will continue to work with federal and state regulators, Fannie Mae, Freddie Mac and lenders to bring certainty to the marketplace," Pfotenhauer said.
One in every 29 Nevada homes received a foreclosure filing during the third quarter. Looking at total numbers of foreclosures, neighboring California was worst, with 191,016, followed by Florida, Arizona, Illinois and Michigan. Combined, the five states accounted for half of all foreclosures last quarter. Of course, once the moratorium ends, we can expect a new tidal wave of foreclosures. John McGeough, a broker, said that the current foreclosure freeze may give distressed homeowners extra time to do a short sale and avoid having their homes repossessed by the banks. "Foreclosure should be the last resort."
Copyright Loss Mitigation Institute LLC 2010.
All Rights Reserved.
The 30-year, fixed-rate mortgage hit its lowest point in more than 50 years. The Freddie Mac Primary Mortgage Market Survey reported the average rate for a 30-year, fixed-rate mortgage at 4.19% with an average 0.8 origination point for the week ending Oct. 14, down from last week's average of 4.27%. A year ago the average was 4.92%. This is the lowest rate the survey has recorded since its inception in 1971. Mortgage rates were last at this level in April 1951, according to Freddie Mac. The Bankrate survey of large banks and thrifts reported the average rate for a 30-year, fixed mortgage is 4.47% with a 0.32 origination point, slightly above the 25-year-old survey's record low of 4.45% posted last month. Rates for 15-year FRMs are falling steeply, setting a new low for Freddie Mac.
The GSE said the rate was down to 3.62% with an average origination point of 0.8. The rate for a 15-year FRM was 4.37% a year earlier. Bankrate said the average rate for 15-year, FRMs of 3.85% is a new record low and down from 3.87% a week earlier. Frank Nothaft, vice president and chief economist at Freddie Mac, attributed the declining rates to the loss of 95,000 nonfarm payroll jobs in September. The GSE said the average for a 5-year, adjustable-rate mortgage is 3.47% with an average 0.6 origination point, down from 4.38% a year ago. The average remained flat with last week. Bankrate reported the average rate for a 5-year, ARM fell last week to 3.62% from 3.64% previously. The one-year Treasury-indexed ARM averaged 3.43% with an average 0.7 point up slightly from 3.4%. At this time last year, the one-year ARM averaged 4.6%.
Copyright Loss Mitigation Institute LLC 2010.
All Rights Reserved.
The mortgage-foreclosure crisis spilled into the financial markets on Thursday, driving down bank stocks and weighing on mortgage bonds as investors took a grim view of the potential costs. Shares of U.S. banks fell, while the broader stock market was essentially flat. Bank of America Corp., potentially among the most affected, dropped more than 5%. Bank bonds also fell, and the cost of buying protection against a possible debt default by banks climbed. "The level of uncertainty in the economy is at extraordinarily high levels to begin with," said Jack Scott, chief investment officer at BlackHawk Capital Management, a Charlotte, N.C., money manager that owns mortgage securities. "The foreclosure problem adds another layer of acute uncertainty."
So far, the foreclosure crisis hasn't affected consumer mortgage rates, which remain near record lows. They are closely linked to rates on U.S. Treasurys, which have tumbled in recent months. Until recently, investors hadn't fled financial stocks. If the issues raised about foreclosure practices in recent days are easily resolved technical glitches, with most foreclosures resuming after brief delays, then the impact on most investors would be small. "The [mortgage] market seems to be functioning relatively well, but that could change depending on how we see this play out," said BlackRock Inc. portfolio manager John Vibert. But some fear that it may be difficult to do any foreclosures for a while.
The risk is that foreclosure flaws are so widespread, or the political furor so heated, that the entire process grinds to a halt, as Citigroup analyst Joshua Levin said in a conference call this week. In some cases, that would choke off much of the cash flow used to pay mortgage bondholders. Another concern is that banks could be forced to modify billions of dollars in loans, including reducing principal, which could leave bondholders as big losers. Banks, meanwhile, could be hit with investor lawsuits, and foreclosure delays could bring short-term losses. Some investors are pushing for banks to take back nonperforming mortgages in cases of faulty documentation.
Harry Smith spoke with economics correspondent Rebecca Jarvis about the government program designed to help struggling homeowners.
BofA serviced $2.1 trillion in mortgages in 2009 overall, a 5% increase from the year before. Of the other "big-four" lenders, only Wells had a yearly increase at 0.9%. Both Chase and Citi saw decreases. Simon said Bank of America is working through the backlog of its HAMP trials that are still awaiting action. "Progress has been made by Bank of America as we have focused on getting through the backlog of aged trial modifications over the past three months and completing actions on the ineligible mortgages will begin to show up in coming reports," Richard Simon, a spokesman for BoA said. "Until then, any conclusions seem premature." But HAMP may only be a microcosm of the issues in loss mitigation. Lender Processing Services’ Applied Analytics division reported in August that more than 2.6 million mortgage loans are 90+ days delinquent and not yet in foreclosure, the heart of the shadow inventory of homes waiting to hit a troubled market.
In the series, How Low Can You Go, Contributor Vera Gibbons spoke to Chris Wragge about finding great deals on foreclosed homes.
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