It seems the whole country has been in an uproar the last two weeks, either in favor of or against the foreclosure freezes at a number of the nation's largest banks. But now that the banks are beginning to lift the freezes, there's been comparative quiet. And that's odd, because there are a number of lingering effects of the foreclosure freeze that will not benefit anyone -- not buyers, and not the banks themselves.
The freezes, which varied by bank in terns of what foreclosure activity was frozen and in which states, had been instituted by Bank of America, GMAC Mortgage (a division of Ally Financial) and JPMorganChase -- which, combined, service 23 million mortgages with $3.68 million in unpaid principal balances -- in response to employees' testimony that tens of thousands of foreclosure documents had been signed without ever being read, and other alleged improprieties in foreclosure document processing.
Bank of America, the nation's largest bank, announced today that it would start resuming foreclosure proceedings in the 23 states that require a judge's approval to foreclose or evict a former owner from their foreclosed home. BofA's self-imposed foreclosure moratorium -- the only one that extended to all 50 states -- is still in effect in the 27 non-judicial foreclosure states. Ally Financial/GMAC Mortgage has lifted its own foreclosure freeze entirely. At this point, JPMorgan Chase is the only major bank whose freeze is still in full effect; the Chase freeze halted 56,000 foreclosures in the 23 judicial foreclosure states, although the bank is reviewing foreclosure documents in 41 states.
Why so soon? Many industry experts loudly objected to calls for a nationwide foreclosure freeze, arguing that a lengthy, national freeze would effectively put a halt to the recovery of the housing market. Nevertheless, many wonder if 17 days -- the time from October 8, when Bank of America announced its freeze, to today -- isn't too soon for the banks to have truly reviewed and resolved any robo-signing glitches.
For its part, Bank of America claims that its review of foreclosure proceedings revealed "no cases" where the foreclosure would not have "gone through," absent the alleged deficiencies in the foreclosure processing work-flow. Jamie Dimon, CEO of JPMorgan Chase, says the same thing, that no Chase homeowner has been "evicted out of a home who shouldn't have been."
Even HUD Secretary Shaun Donovan agreed that the foreclosure processing issues at the banks do not pose a "systemic" problem to the financial industry, but clarified that the Obama Administration is more concerned about ensuring homeowners are getting their fair chance at loan modifications, short sales and other foreclosure alternatives, in light of the banks' apparent haste to foreclose on homes.
Even though the autumn seems to be bringing a springlike thaw to these foreclosure freezes, there are at least four lingering after-effects that impact housing consumers:
1. Government investigations are still underway. The only freezes implemented thus far were voluntary freezes self-imposed by the banks in question. A laundry list of government agencies are still investigating these issues. There is a multi-state investigation underway by the Attorneys General of 50 states; and some state AGs have petitioned for court-ordered, statewide foreclosure freezes. In addition, the federal Departments of Justice, Treasury and Housing and Urban Development, as well as the Office of the Comptroller of the Currency are all conducting their own investigations.
Long story short: this issue isn't over yet. Not by a long shot.
2. Title insurance is still an issue. Normally, buyers needn't worry too much about whether they are receiving clouded title on a property, because their title insurance policies protect their interests. In the wake of the robo-signing drama, though, three of the nation's largest title insurers said they would not be offering title insurance to buyers of many of the bank-owned homes that may have had flawed foreclosure proceedings.
If you're financing your home purchase with a mortgage, your lender will require a title insurance policy. Until the banks convince the title insurers that they legitimately and properly foreclosed on their inventory of bank-owned homes, title insurance will be tougher to come by. And never close the deal until you have title insurance.
3. Buyers still may be hesitant to buy REOs. Buyers are increasingly wary of buying bank-owned homes (Real Estate Owned -- by the bank, or REOs), out of their concern that robo-signing and other glitches in foreclosure processing might cause the former owners to dispute whether the bank actually had the right to foreclose on -- and resell -- the home. These fears are largely unfounded, as courts would rather award damages to the foreclosed homeowner than injure a new, innocent buyer, and most buyers of homes foreclosed on before these issues came to light do have title insurance protection.
Nonetheless, a foreclosed family in Simi Valley, Calif. recently broke back into their former home and has decided to live there, pending a court's determination of whether the foreclosure was wrongful, even though the home's new buyers were just days away from moving in!
Buyers who want to avoid foreclosure-related drama are well-advised to prioritize individually-owned properties, until the smoke clears on this whole debacle.
4. Individual homes will have a desirability boost. As buyers' skepticism toward foreclosed homes increases, non-distressed homes will get a big boost in desirability. If you're an individual seller and can keep your home's price aggressively low, one after-effect of the robo-signing drama and the foreclosure freezes could be that you have increased chances of reeling in a buyer before year's end.
Foreclosure freezes end - but there are lingering after-effects