Monday, October 18, 2010

Foreclosures - what's next?

Per Steve Brown from

Texas Attorney General Greg Abbott said Wednesday that he is joining with attorneys general and regulators from 49 other states to investigate improper home foreclosure procedures.

The action comes a week after Abbott sent letters to 30 of the state's top mortgage lenders asking them to halt all foreclosures and resales of foreclosed properties.

Abbott's office said that the multistate mortgage foreclosure group's "chief focus will be the accuracy and validity of documents that lenders and servicers used to support foreclosure proceedings."

"Specifically, the states will review whether individuals who confirmed facts supporting foreclosures – either in affidavits or other related documents – actually had personal knowledge of the facts to which they swore," the attorney general's office said in a statement.

Mortgage companies around the nation have come under fire for having officers or agents authorize home foreclosures without completely reviewing the documentation. "Robosigning" was used on thousands of electronic documents related to home foreclosures.

Several major lenders, including Bank of America , JPMorgan Chase and Ally Financial, have halted foreclosure activity while they sort out the situation.

But so far, the Texas attorney general's efforts – which are just a request and do not have the full effect of law – aren't having much of an impact on local home foreclosure filings.

"It looks like the postings might be off 10 to 12 percent at this point, but they are still coming in fast and furious," said George Roddy, president of Addison-based Foreclosure Listing Service Inc. "There are obviously some problems in the system.

"But good grief, with the number of foreclosures going on in this country, it's hard not to have problems," Roddy said.

Home foreclosures are at near record levels in North Texas and the U.S. this year. So far in 2010, more than 50,000 home foreclosure filings have been recorded in the Dallas-Fort Worth area.

In most cases, the local home foreclosures are due to economic issues – loss of jobs and income – and subprime mortgages, which can increase payments to borrowers over time.

"The people having problems today are not going to benefit that much from a foreclosure moratorium," Roddy said. "We hope this is short-lived, the lenders will find the mistakes, and we can move on with this."

In contrast to some states where judicial foreclosures are the norm, in Texas most borrowers will have to file suit against their lenders to legally dispute or overturn a foreclosure.

But the Texas attorney general's office said that both "judicial and nonjudicial foreclosures will be subject to the workgroup's review."

Real estate sales industry members in Texas and across the country are bemoaning the potential slowdown in sales of foreclosed homes, which now make up a big chunk of their business.

In the D-FW area, about a quarter of the homes sold this year have been distressed properties.

The National Association of Realtors warned this week that thousands of U.S. homebuyers in the process of acquiring a previously foreclosed properly now face uncertainty.

"As the leading advocate for homeownership issues, we understand that many lenders need a time-out to review their actions to ensure that homeowners are not improperly foreclosed on and that the lenders are following regulations and state laws," Realtor president Vicki Cox Golder said in a statement.

"After that, the foreclosure process must resume quickly to return stability to families, the housing market and the economy."

Housing analysts have warned that a prolonged delay in home foreclosures and resales of those properties will drag out the U.S. housing markets recovery.

"The lenders are going to have to work out some kind of settlement agreement on this," said James Gaines, an economist with the Real Estate Center at Texas A&M University. "We have enough troubles with the housing market.

"If you let this fester and the problem grow, you create a negative psychological impact to the market."

Gaines said Texas home sales, which have already suffered since federal tax credits expired this spring, could sink another 20 to 25 percent if foreclosure resales are halted.

"My expectation is there already will be some fallout."

The Texas Association of Realtors has warned its members that the investigation into lenders' practices could delay home sales and some properties already under contract.