Why the Stalled Foreclosures?

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Stalled foreclosures could swamp home-buying market

October 24, 2010|By Mary Shanklin, Orlando Sentinel

• Joe Raedle, Getty Images

As big lenders' recent freeze on foreclosures begins to thaw, local real-estate agents worry that those bargain properties will now flood the market and further sink housing prices.
Just a few weeks after Bank of America, J.P. Morgan Chase and other big banks announced a temporary halt to foreclosures because of concerns about improperly signed documents, they are preparing to restart the process. The question is: How many of those stalled foreclosures will lenders put on the market at the same time?
"That's the big question — will they come back in a big thud or will they trickle in?" said Winter Park real-estate broker David Welch of Re/Max 200. "Unfortunately, I don't know anyone who knows what the answer is. I think if they come flooding back it obviously won't be a good thing in the market."
Since the moratoriums were announced at the beginning of the month, 53 percent of the scheduled foreclosure sales in Orange County have been canceled — creating a backlog of as many as 850 properties that lenders pulled from the process just prior to their hitting the market. In the three weeks preceding the freeze, only 38 percent of the county's auctions had been canceled, primarily because of judicial requirements for mediation and for face-to-face conversations between lenders and borrowers.

In Orange County Courthouse Room 350, crammed with investors attending the daily foreclosure auctions, longtime buyer Jack Coughlin said last week that he sees banks sitting on a growing inventory of foreclosed houses just waiting to hit the market.
"Are they going to release them all? If they do there is going to be a 20 percent drop in values," Coughlin said. "People ask, 'Where are these properties?' They are sitting in banks' vaults."
Thomas Kelly, a spokesman for J.P. Morgan Chase, said last week his company is still reviewing cases and had not announced any kind of timetable for releasing foreclosed properties to the market.

Bair says stalled foreclosures a concern

ARLINGTON, Va., Oct. 25 (UPI) -- Federal Deposit Insurance Corp. Chairwoman Sheila Bair said Monday she is concerned stalled mortgage foreclosure processing could damage U.S. housing markets.
Speaking at an FDIC and Federal Reserve sponsored conference on the foreclosure debacle, Bair said, "The robo-signing controversy underscores just how time-consuming and expensive foreclosure really is for all parties concerned."

She said any federal loss-sharing agreement with mortgage investors based on "improperly executed foreclosures" would not be honored "until problems are appropriately remediated."

Robo-signing refers to the practice of signing documents either in advance of the content being entered or so quickly the signer could not have thoroughly read or understood the document being signed.

She said if minimum standards are met -- "if the property is vacant or if the lender/servicer offered a meaningful payment reduction … and the borrower could still not perform on the loan" -- then the foreclosure should be allowed to proceed.

"I fear that the litigation generated by this issue could ultimately be very damaging to our housing markets if it ends up unduly prolonging those foreclosures that are necessary and justified," she said.