In the past week there have been various news announcements stating that banks have started moving forward on foreclosures in most states. Bank of America will lift foreclosure freeze in 23 states by next week, and GMAC has lifted its freeze in the 23 states where it halted foreclosures - Less than a month from when the freezes started. This is a far faster resolution than the months of delays some analysts had predicted for the nation's battered housing markets.
Now that we know that banks are getting back on track with moving through the foreclosure process on thousands and thousands of homes across the U.S., you still may be asking yourself what this all means. Here is some background on how the freeze started and its impact on the housing market:
After evidence surfaced that mistakes where made in foreclosure documents and in some instances foreclosure documents were signed by mortgage companies without anyone reading them the nations largest banks—JPMorgan Chase & Co., Ally Financial's GMAC Mortgage unit, PNC Financial and Bank of America Corp., put a freeze on processing foreclosures. These banks are in the process of checking to see if their employees made errors in loan documents needed to complete these foreclosures. Other large banks such as Wells Fargo & Co. and Citigroup Inc. say they have no plans to suspend foreclosures and they are confident they have complied with state laws.
It appears that mortgage companies may have felt overwhelmed by the paperwork involving millions of foreclosures and defaults. These companies took shortcuts to manage the onslaught rather than hiring more staff. One short-cut used is to “robo-sign” thousands of documents that were not actually read.
By halting foreclosures most banks are still initiating foreclosures but are no longer evicting people or selling foreclosed homes in the states that require judges’ approval. However, Bank of America had stopped seizing foreclosed homes but continued to sell homes that had already been foreclosed on and are still processing new foreclosures.
The foreclosure freeze should cause only a temporary slowdown in the number of homes seized by lenders. One reason is that four states hardest hit by foreclosures—Nevada, Arizona, California and Michigan—aren't among the 23 states where many lenders are halting foreclosures.
In home markets where foreclosures are on hold, prices could stop falling, at least for a while. That's because fewer foreclosed homes will be for sale. Agents who manage sales of foreclosed homes are already seeing some of those sales put on hold. These agents can't complete transactions involving mortgages handled by the lenders that have halted foreclosures. And a major title insurance company, Old Republic National, has said it won't insure foreclosed homes sold by JPMorgan and Ally Financial. It says it worries that flawed foreclosure paperwork could put the home's ownership in doubt. Another, Stewart Title, is clamping down on sales of foreclosed homes that may be linked to flawed documentation.
If you are a homeowner in the middle of foreclosure you may be curious if you can possibly get your home back. You can hire a lawyer or approach a housing counselor who will examine your mortgage and foreclosure paperwork. Lawyers for homeowners will look for errors and use them to pressure lenders to at least forgive a portion of the homeowners' loans. But most experts say people who have lost homes to foreclosure don't have much hope in the long run, especially if banks can show judges that they have corrected any errors.
If you have recently purchased a foreclosed property you may be worried that somebody can take it back. However, in most cases this cannot happen. Previous owners can use the lender that sold the property but that won’t be easy. Even if such lawsuits succeed, title insurance protects homebuyers from any claim on the property that surfaces after the deal is closed.
About a third of all home sales right now are foreclosure-based. As such, freezing these sales, as well as current and near-future foreclosures, will arrest approximately one-quarter of all home sales. Moreover, home sales will likely become further depressed as many would-be homebuyers wait for the “flood” of foreclosed homes that will inevitably follow the freeze. When this flood happens, it may actually serve to spur property values overall. Experts are predicting a false positive gain during the fourth quarter due to elimination of a large number of sales at the bottom of the market. This could lead to a distorted picture of what the nature of the market really is.
The good news is we are moving out of this foreclosure freeze quicker than anticipated, so the impact may not be as significant as experts once thought.
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