The views expressed in any article published in this blog are the author's own and do not necessarily reflect the views of Joseph Foster or Bob Lupoli.

Thursday, February 9, 2012

Foreclosure Deal and U.S. Home Seizures - Real Principal Reductions?

Joe: what do you think? Does the deal mainly help the banks or the home owners? See the comment by Paul Diggle – he said principal reductions under the settlement seem small. -Bob

Foreclosure Deal to Spur U.S. Home Seizures
By Prashant Gopal and John Gittelsohn - Feb 9, 2012 
The $25 billion settlement with banks over foreclosure abuses may trigger a wave of home seizures, inflicting short-term pain on delinquent U.S. borrowers while making a long-term housing recovery more likely.

Lenders slowed the pace of foreclosures as they negotiated with attorneys general in all 50 states for more than a year over allegations of faulty and fraudulent paperwork used to repossess homes. With today’s agreement, banks are likely to resume property seizures.

“The best thing about the settlement, frankly, is that it will be done,” said Stan Humphries, chief economist for Seattle-based Zillow Inc. (Z), a provider of home-sales data. “The shadow of the settlement hung over the market for a year now.”

The backlog of foreclosures has trapped homeowners in properties they can no longer afford, depressed prices by increasing the number of abandoned properties and led banks to tighten mortgage credit standards because of uncertainty about their potential obligations. Foreclosure starts fell 46 percent in December from October 2010, when the investigation into the so-called robo-signing of mortgage documentation began, according to Irvine, California-based RealtyTrac Inc.

The agreement will direct $17 billion to writing down debt to buffer about 1 million homeowners from foreclosure. About 11 million U.S. homeowners have negative equity, or owe more on their mortgages than their homes are worth, according to CoreLogic Inc. (CLGX), a real estate data provider. That has limited their ability to sell or refinance and reduced the incentive to keep paying.

Strategic Default

Principal reductions may help cut the number of mortgage defaults by improving homeowners’ finances and reducing incentives for so-called strategic default, when homeowners walk away from a property because they have too much negative equity, according to a Federal Reserve report sent to Congress on Jan. 4. Home prices have dropped 33 percent from their July 2006 peak, according to the S&P/Case-Shiller index of values in 20 U.S. cities. U.S. homeowners have $750 billion in negative equity, Humphries said. The settlement will help the housing market “at the margins, but little more,” according to an analysis late last month by London-based Capital Economics of the impact of the settlement on housing. Principal was reduced on 10,772 loans, or 7.8 percent of the mortgages with payment modifications, in the third quarter of last year, according to the office of the U.S. Comptroller of the Currency. All of those loans were held by private investors or bank portfolios.

Reductions ‘Seem Small’

“There has been a lot of discussion of principal reductions and whether that’s the one measure the U.S. housing market needs to get it going again,” Paul Diggle, a property economist at Capital Economics, said in a telephone interview this week. “That may well be the case. But the amounts of principal reductions under the settlement seem small.”

The agreement announced today includes $5 billion in cash for states to pay for foreclosure-prevention initiatives. Loan servicers will refinance $3 billion in mortgages to lower homeowners’interest rates and pay about $1.5 billion to homeowners harmed by botched foreclosures. About 5 million homes have been lost to foreclosure in the U.S. since 2006, according to RealtyTrac.

Excluding 92 Percent

The agreement may help about 1 million homeowners with mortgage forgiveness, forbearance or loan modifications, according to Housing and Urban Development Secretary Shaun Donovan. About 750,000 more may benefit from direct payments of as much as $2,000 to compensate them for servicing errors.

For California, which has the highest number of properties in the foreclosure pipeline, banks agreed to pay $12 billion to help 250,000 homeowners with principal reductions or short sales, when a lender agrees to a sale for less than owed on the home, according to Kamala Harris, the state’s attorney general.

1 comment:

  1. There are several new regulations reducing convulsions on individual houses. There are also extra actions for any convulsions being conducted on companies that make it much more challenging to take a business.

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