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October 5th, 2010

Thousands in 23 states affected by foreclosure suspensions

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For a few weeks now, we’ve known that Ally bank has postponed foreclosure proceedings because they allegedly “robo-signed” thousands of foreclosure documents. In the days since, JP Morgan Chase has had to follow suit, halting foreclosures in 23 states due to similar allegations. The Office of the Comptroller of the Currency (OCC) has since ordered six more of the nation’s largest mortgage servicers to review their foreclosure proceedings in order to investigate tactics similar to those used by Ally and Chase.

The six servicers include: Bank of America, Citigroup, HSBC, PNC Bank, U.S. Bancorp, and Wells Fargo & Co.

The 23 states impacted include: Connecticut, Florida, Hawaii, Illinois, Indiana, Iowa, Kansas, Kentucky, Louisiana, Maine, Nebraska, New Jersey, New Mexico, New York, North Carolina, North Dakota, Ohio, Oklahoma, Pennsylvania, South Carolina, South Dakota, Vermont, and Wisconsin.

What happened exactly?

The term “robo-signing” has been used quite a lot to describe what happened at Ally and Chase. Employees admitted to signing thousands of foreclosure documents without proper review:

In May, Ice Legal LP, a Royal Palm Beach, Fla., law firm, deposed Beth Ann Cottrell, a Chase document-signer who said she regularly signed off on about 18,000 foreclosure affidavits and other documents each month without reviewing the loan files.

Earlier this month, Detroit-based GMAC Mortgage Co. announced it would suspend evictions and pending sales of foreclosed properties in certain states while it investigated its document-signing process. A GMAC robo-signer, Jeffrey Stephan, admitted in depositions that he signed as many as 500 foreclosure affidavits each day without reviewing the necessary files or having his signatures properly notarized.

What does this mean for the markets?

As if the housing and mortgage markets needed another strike against them. Mark Zandi, Chief Economist at Moody’s.com says the effects of these foreclosure delays could be with us for years.

From National Mortgage News:

Commenting on foreclosure moratoria affecting the mortgage divisions of Ally Financial and JPMorgan Chase, Zandi told The Washington Post that moratoria and legal challenges could delay the foreclosure process and lengthen property seizures, on average, to three to 10 years in some instances.

Mortgage and housing economists expect four to six million new foreclosure filings over the next two years, citing a step up in activity from the nation’s largest servicers as well as Fannie Mae and Freddie Mac. Many of these players in the mortgage industry are losing hope in the success rate of loan modifications, foreclosure vendors told National Mortgage News.

In states where judicial foreclosures are the law — such as Florida —  processing times take longer because a judge’s approval is needed and the courts are flooded with a backlog of cases, and a growing number of legal challenges. The publicity surrounding Ally’s and JPM’s problems are expected to delay foreclosures even further as more class action attorneys target the sector and file new lawsuits.

One investor in nonperforming loans told NMN that he estimates that in Florida, if a mortgagor files for bankruptcy, he can stay in the home for as long as four years.

If the six other servicers ordered by the OCC to review their foreclosure process find that their actions are similar to that of Ally and Chase, recovery could take even longer than Zandi’s forecast. The one bright spot is that some borrowers will get some extra time to live in their homes rent free. Even then, however, there’s no timetable on when the final axe will fall.

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3 Responses to “Thousands in 23 states affected by foreclosure suspensions”

  1. Citigroup, Ally Sued for Racketeering Over Database, by Margaret Cronin Fisk and Thom Weidlich, Bloomberg.com « Oregon Real Estate Round Table Says: October 5th, 2010 at 1:14 pm

    [...] Thousands in 23 states affected by foreclosure suspensions (hsh.com) [...]

  2. Tweets that mention Thousands in 23 states affected by foreclosure suspensions | HSH Financial News Blog -- Topsy.com Says: October 5th, 2010 at 1:49 pm

    [...] This post was mentioned on Twitter by HSH Associates, HSH Associates. HSH Associates said: Thousands in 23 states affected by foreclosure suspensions http://bit.ly/dj3FiQ There is one bright spot… [...]

  3. Boston Foreclosure Lawyer Says: November 24th, 2010 at 11:59 pm

    The national foreclosure suspensions that have been implemented by numerous mortgage servicers has caused a great deal of concern over the housing market and what difficulties may arise from the cessation and recalls of some foreclosures.

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HSH.com's daily blog focuses on the latest developments in the mortgage and housing markets. Our mission is to relate how changes in mortgage rates and housing policy, as well as the latest financial news, impacts consumers, homebuyers and industry insiders alike. Our 30-plus years of experience in the mortgage industry gives us an edge as we break down the latest changes in an ever-changing market.

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Tim Manni

Tim Manni is the Managing Editor of HSH.com and the author of their daily blog, which concentrates on the latest developments in the mortgage and housing markets.

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