In the past few weeks, Ally Financial (the former GMAC) put a halt to its foreclosure proceedings in 23 states. Today, J.P. Morgan Chase put a freeze on 50,000 foreclosures due to uncertainty over whether proper paperwork procedures had been followed.
Although Chase spokesperson Tom Kelly said the company was sure that the foreclosures would ultimately happen, there are lingering questions about who actually owns the underlying paper for these properties. That’s what happens when you slice and dice mortgages as if they were carrots and celery.
Officials at Fitch Ratings said the problems with these loans are industry-wide. I heard that from a bankruptcy judge in Georgia two years ago, and again last year. She was astounded at what lenders were putting forth in affidavits attesting to ownership. This isn’t new. And, I’m wondering why it’s suddenly “unacceptable.”
My guess is that borrowers are finally making enough noise to be heard. The screams of those who are in Loan Modification Hell are getting louder and more folks in the general media are apparently hearing the din. (There are more than 1,000 comments on my dozen blogs called “Loan Modification Hell” on CBS MoneyWatch.com. Check them out for a taste of what’s going on in the real world.)
That’s good news. Too bad it had to come to this.
The housing numbers don’t really look any better. There is already a three or four-year (depending on how you count) supply of foreclosures that has to be sold before we can start to really improve. One new statistic – foreclosures are selling for 26 percent less than comparable non-foreclosed properties in the neighborhood, up from 27 percent. Not quite sure why that is happening. Whenever I talk to someone about buying foreclosures, they’re buying them for 25 to 30 cents on the dollar, not 73 cents. That’s typically a short sale price.
But last week, when I was at the Five Star Conference for default servicers in Dallas, Fannie Mae Chief Economist Doug Duncan and I were having a little side discussion about the true nature of the so-called “shadow inventory” of foreclosures. His take (and mine)? We could be facing anywhere from 4 million to as many as 11 or 12 million foreclosures still to come – in every neighborhood in this country.
Calling a temporary halt to foreclosures while lenders doublecheck signatures isn’t going to make the problem go away. It will just postpone the inevitable.
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Doesn’t this suddenly raise the value of property with clear titles? If a substantial number of people/investors get burned on bad foreclosures that are reversed by the courts because the property wasn’t owned by the lender who foreclosed, it will rapidly dampen the enthusiasm for foreclosed properties.
For people who have to buy a home now, won’t they give preference to real estate that can show a clear path of ownership and a clear title? Wouldn’t this mean that if you own your home free and clear and want to sell it, you might be able to actually get a premium for it?
In a side note,wouldn’t a substantial number of felony fraud indictments of banking corporations for lying to the courts vis a vis ownership of foreclosed properties, inhibit their abilities to act in a fiduciary capacity, as well as lose their licenses and stock value? What’s the mark to model theoretical value on the books if you don’t own the mortgage?