When the team of federal and state negotiators reached the $26 billion agreement with the five major mortgage lenders earlier this year, one of the consequences has been a resumption of foreclosures. RealtyTrac reports that most foreclosure activities have declined. However, during the first quarter of 2012, foreclosures flings have increased an average of 10% in 26 states. Indiana registered a 45 percent on an annual basis, and Florida‘s foreclosure filings rose by 26 percent. Florida has about 25 percent of the nation’s foreclosures, with more than 365,000 foreclosures cases.
Since the housing crash in 2008, more than 3.4 million Americans have lost their homes to foreclosures, according to the real estate analytics firm CoreLogic. This number of foreclosures overwhelmed mortgage lenders and mortgage servicers.
After the robo signing scandal dominated new headlines in October 2010, a litany of other questionable foreclosure practices rose to the surface. The public backlash forced many mortgage lenders to place a moratorium on foreclosure processing.
Consequently, delinquent many homeowners delinquent in their mortgage payments have been able to stay in their home, rent-free. In some cases, delinquent borrowers have been in their homes for years and have not made one mortgage payment.
The mortgage settlement reached in February 2012 resolved many of the issues surrounding the scandal. Now mortgage lenders have started to deal with the foreclosure backlog and move new foreclosures through the system.
Foreclosure Processing Backlog
RealtyTrac reports an average time of 370 days for a complete foreclosure—from the initial missed payments to the bank gaining possession of the property. In some states, the average was even longer Florida - 661 days and New York - 1,056 days. Lending Processing Services pegs the nationwide average number of days, from missed payment to bank repossession, at 667 days as compared to 253 days in 2008.
Most of the backlog in foreclosures is in “judicial” states. Judicial states require mortgage lenders to file foreclosure lawsuits in state court systems. As a result, mortgage lender only pursued cases it believed would pass legal scrutiny. In non-judicial states, trustees or title company employees review foreclosure cases. This approach to foreclosing on homes lessens the likelihood of stringent legal reviews.
The acceleration in foreclosure filings will likely put further pressure on residential real estate prices. Many housing market analysts believe clearing out this “shadow inventory” of delayed foreclosures will help the market reach bottom and home prices can finally reflect real value.
New Foreclosure Guidelines
Mortgage lenders must incorporate new rules into their foreclosure process before filing lawsuits or conduction out-of-court foreclosures. The modification to the foreclosure banks must make include the following items:
- Provide homeowners with a payment history of the mortgage that precedes to the period when the mortgage payments were less than 60 days delinquent
- Provide the borrower with a copy of the note executed by the borrower for the mortgage
- Demonstrate a “right” to the note or provide the name of the investor holding the note
- Ensure the accuracy and completeness of all documents and provide competent and reliable” evidence
Mortgage lenders must also provide training and proper supervision of employees involved in the preparation or execution of foreclosures-–related paperwork, including declarations, affidavits and sworn statements.