On Thursday, data released by RealtyTrac, the leading online marketplace of foreclosure properties, revealed that foreclosure filings fell to a 3 year low in February. Last month, a total of 225,101 properties were slammed with notices of default, auction or repossession, down 14% from the prior month and 27% when compared with February 2010.
Foreclosures tumbled as the lenders are facing inquiry for flawed paperwork and faulty procedures. They are currently taking a very cautious approach towards the foreclosure processes and trying to put in place a new system to deal with home loan failures.
In February, foreclosure decline was higher in the judicial states, where documents are required to be filed in the court, as against the non-judicial states, where no such filing is required. The first step in the foreclosure process, issuance of default notice, dipped 19% sequentially in judicial states but inched up 13% in non-judicial states. Moreover, rate of bank repossessions, the final stage, fell 24% from the prior month in judicial states, while it declined 14% in non-judicial states.
According to the report, though foreclosures are declining, they are surely going to bounce back as the mortgage servicers get out of the legal hassles. However, this is likely to take a decent time, as a huge backlog needs to be cleared out.
In September-October last year, JPMorgan Chase & Co. (JPM), Bank of America Corporation (BAC) and Ally Financial Inc. temporarily suspended foreclosures across the country. The main reason behind this was the discovery of faults in the documents as a result of using “robo-signers” (employees who sign hundreds of documents a day without verifying decisive information).
Following the detection, the regulators along with the state attorney generals (AGs) had started an inquiry on almost all mortgage servicers including JPMorgan, BofA, Ally Financial Inc., Wells Fargo & Company (WFC) and Citigroup Inc. (C). However, last month, the initiatives to settle critical deficiencies with mortgage servicers were held back due to disagreements among the groups involved over the strictures of fines and penalties. Nevertheless, the regulators are trying to sketch a plan to penalize mortgage servicers by mid-March.
Additionally, last week, many large U.S. mortgage servicers received a document proposing changes in foreclosure policies from AGs and federal regulators. The document provides a blueprint for certain permanent changes in mortgage servicing practices and summarizes a mandatory code of conduct. The main idea behind this proposal is to prevent further foreclosure mess and settle deficiencies in the procedure.
Hence, it is not the time to relax and think that foreclosures will continue to decline as a result of stability in the housing market. The fall in foreclosures is a just sign that the lenders are not speeding up the process. Once the matter related to the mess is resolved, foreclosures are bound to rise as many homeowners are defaulting on payment of loans due to high levels of unemployment and fall in property prices.
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