Foreclosures Reappearing

The problem with kicking a can down the road is that it eventually quits rolling and you come upon it again. Such is the case with foreclosures.

Various moratoriums that were placed on foreclosures over the past few months are reaching their end and as you might have guessed, the problem is still there. So, guess what’s about to go through the roof. 

From the WSJ:

Foreclosure sales had dropped in the second half of 2008 as mortgage companies delayed taking action against delinquent borrowers. But sales have been edging up this year, according to LPS Applied Analytics, which tracks loan performance. Foreclosure-related filings increased by nearly 6% in February from the month earlier, and were up almost 30% from February 2008, according to RealtyTrac. The backlog of seriously delinquent loans has been growing.

In California, notices of trustee sales, which are preludes to foreclosure sales, climbed by more than 80% to 33,178 in March, from February, according to data from and the Field Check Group. The increase reflects both the expiration of foreclosure moratoriums and a California law enacted late last year that temporarily delayed default and foreclosure notices, says Mark Hanson, president of the Field Check Group, a research firm.

The pause in foreclosure activity was probably justifiable on several fronts. It gave nervous homeowners a chance to settle down and generally cooled a pretty intense atmosphere. More to the point it allowed the government to get its loan modification program together, roll it out to the banks and let them get a start on separating those that can be saved from those who have no hope.

It appears that the banks are getting a handle on the issue. From the Journal again, here is where the big mortgage lenders stand:

J.P. Morgan Chase has increased foreclosure actions since the expiration of a moratorium on new foreclosures that began on Oct. 31, and a later moratorium put in place at President Obama’s request. The Oct. 31 moratorium delayed foreclosures on more than $22 billion of Chase-owned mortgages involving more than 80,000 homeowners.

“We had stopped putting additional loans into the foreclosure process so we could be sure that delinquent borrowers would have every opportunity to take advantage of new initiatives that we were putting in place,” a Chase spokesman says. Borrowers who are now receiving foreclosure-sale notices, he said, “own vacant properties, have not been in contact with us and/or do not qualify for the modification programs.”

Citigroup Inc. says it stopped all foreclosures until March 12, at the Obama administration’s request, on loans serviced for Fannie and Freddie. Since then, says a spokesman, it has “reverted to our previous business-as-usual moratorium.” Under that policy, it will not initiate a foreclosure sale for any borrower who is working with Citigroup and is a good candidate for a loan modification, provided Citigroup owns the loan or has investor approval. “For borrowers who do not qualify under these criteria and where no other options are available, we will move forward with foreclosures,” the spokesman says.

Wells Fargo has also increased foreclosure actions since the expiration of its foreclosure moratorium, put into place while it awaited details on the administration’s plan. Wells Fargo “will continue to work with our customers to find solutions up to the actual point of a foreclosure sale,” a Wells Fargo spokesman says. “But the expiration of foreclosure moratoriums is having an impact.”

Both Fannie and Freddie have stepped up sales of foreclosed properties since their moratoriums ended on March 31. Freddie says it has started to complete some foreclosure sales, such as those involving investment properties or second homes, though it continues to delay foreclosures on loans that may be eligible for modification under the Obama plan.

Hopefully, the administration is through with the political end of this process and will allow the foreclosure process to work. More moratoriums risk creating a zombie like state in which no one has a feel for the bottom and buyers sit on the sidelines waiting for the right sign. Home builders are not going to start building until they are fairly well convinced that the foreclosure onslaught is coming to an end and they have a reasonable chance of selling a new home.

The process of foreclosing and selling a home is somewhat lengthy. Doing it now probably allows the banks to get the houses back into the resale market during the spring and summer sales season. A delay of more than a couple of months will push the sales into the fall and winter and likely drag out the process.

The economy isn’t going to get on any sort of a growth curve until this issue is resolved. We pretty much know that modifications have a high failure rate so it would seem prudent to get the lost causes out of the way quickly so the mod fallouts don’t pile up on top of them. What a mess, huh?

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