From Bank of America this morning:
Bank of America has extended our review of foreclosure documents to all fifty states. We will stop foreclosure sales until our assessment has been satisfactorily completed. Our ongoing assessment shows the basis for our past foreclosure decisions is accurate.
While sales have been halted, notices of default (NOD) will continue.
∙ Statement from Bank of America Home Loans [bankofamerica.com]
This brief statement gives no explanation of why the assessment needs to complete before continuing with foreclosures. Are they developing a new strategy to help distressed homeowners to continue paying ? Worried about the effect continued foreclosures will have on their collateral assets ?
Can anyone fill in the blanks of this content-free statement ?
Thank God! It’s an outrage to think that an evil and nefarious bank would take away a poor fellow’s home just because he wasn’t paying his mortgage.
Hi MOD,
My read is that they are worried about selling their foreclosures with clouded titles.
What a clusterf@ck situation. That event alone makes me go to the “cautiously bullish on SF RE” side.
Foreclosures will be a trickle. This will slow down the deflation side of the current Deflation (homegrown) vs Inflation (imported). Inflation will probably win, and that’s bullish for RE anywhere for the next 10 years. The factors that created the past bubble are still there (limited supply, tech cash cows, cheap financing for creditworth buyers).
Sorry Diemos, Tipster, A.T. and whoever else I was siding with as permabear. I am buying a place in the next 6 months and I see 3 good candidates where I am ready to take action. All have sellers with more than enough equity to be flexible and realistic, a little work, a great location. It will be a good market to buy into for the next couple of years.
The invisible hand is preparing to reach into the taxpayer’s pocket again.
Like I said the other day, I don’t expect the foreclosure pipeline to clear in an efficient manner, and this is just one more reason why (and probably not the last). Were I into conspiracy theories, I say that this was a deliberate attempt by the banks to spare their balance sheets by any means necessary, because when a home is foreclosed on, they have to mark to market, and usually nowadays that means recognizing a loss. So any tool that comes to hand that will reduce or delay foreclosures helps their profitability.
Even if there was a problem caused by these so-called ‘Robo-signers’ at the banks, don’t go expecting anybody to get prosecuted or sent to jail. There’s nothing to see here. Move along.
If these mortgages that went into the securitization mill are so clouded that ownership of the mortgage debt cannot be established, what does that say about the securities (MBS, CDOs) themselves? Isn’t generating bogus securities in this manner interstate wire fraud?
Yes, I’m hoping some folks go to jail. That’s the only thing wall street personnel actually fear.
I am happy to hear that foreclosures will be stalled for a few more months. Or years. If only it could have be done in time to “save” the house next door to my old place from foreclosure … In other good news, a house behind my new place just sold for $1.2M in <10 days. There is money out there for the right house in the right neighborhood!
186 listings last week, 27 sales, according to redfin (it changes by the minute) at a time of the year in which inventory usually starts leveling out (always check the trends against the yearly norms). Not a good time to buy.
Not that many foreclosures in SF. Some, but not that many. California Reconveyance Co handles a large portion of them from what I’ve seen and they do a good job cleaning up the paperwork before they actually foreclose. They don’t appear to be stopping. I’ve seen very very few BofA foreclosures thus far and the few that have come out have not been aggressively priced. As a result, I don’t think this is going to have as great an effect here as in other areas, though it will have some effect. The effect here will be modest.
If anything, now that BofA mortgages get a one year free pass, I think this is going to tip more of their customers who were on the fence into not paying. Probably ends up causing more problems later.
To see when it is safe to buy, you only need to watch three things: jobs, jobs and jobs. Low interest rates help some, but don’t help very much when you or your spouse are unemployed or underemployed.
They’ll have to hire a ton of people to handle the upcoming flow. With training and ramping up, expect the moratorium to last a while…
To see when it is safe to buy, you only need to watch three things: jobs, jobs and jobs. Low interest rates help some, but don’t help very much when you or your spouse are unemployed or underemployed.
I hear you. We’re part of the lucky ones to have enough cash down not to worry about manageability of a mortgage. If one of us two loses his income, we’ll still be more than OK, which is what every responsible family should aim for in this economy. Buy a bit smaller than you CAN. Don’t follow the salesman/mortgage broker’s call to buy too much house.
Old Republic National Title Insurance just announced it will not insure any Chase or GMAC titles until this is resolved.
http://www.suntimes.com/business/2780650,CST-NWS-FORECLOSE07.article
In the end this will be a tempest in a teapot. They tried to do this on the cheap and cut corners and they cheaped themselves right into perjury. All that will happen is that they’ll have to go back and spend a lot of money to do it right this time. But don’t shed any tears for the bankstas, Mr. Taxpayer will wind up footing the bill.
Can anyone fill in the blanks of this content-free statement ?
The banks are in scramble mode. there are some absolutely major things happening right now and nobody really knows the ramifications, except that right now we’re in a clusterfrack.
there are several different factors at play here.
1) the so called “robo signers”. it has come to light that the big banks are foreclosing on homes using improper affidavits signed by Robo Signers. this is illegal (perjury). Most of the people losing their homes through this process “deserve” to lose their homes because they couldn’t pay as agreed. However not all. Thus, the banks are trying to come up with another solution on how to get the foreclosures going again without robosigners.
a fairly simple fix, although costly for the banks. (unless the various Attourneys General sue the banks for perjury and fraud based on the past robo-signer behavior)
2) there is ample evidence that the banks are forging (or as they like to say “recreating”) documents in order to foreclose. Specifically, they often times need a certain document to foreclose that they do not have for whatever reason. Thus, they just fabricate the document. (using ‘allonges’ or “document retrieval services”)
again, here legally the homeowner usually “deserves” to lose the house and the bank is legally right to take the house back, but doing so in an illegal way.
This may or may not be problematic, because it appears that in some cases the original document no longer exists.
3) the third issue is much more sticky, and may be a major problem. it also has NOT been proven, although there is some indication that this is a problem ANECDOTALLY. Briefly, many mortgages (most?) were securitized and sold as mortgage backed securities from 2005-2009 or so. In order to do so, they had to adhere to New York laws which REQUIRES that the mortgage (the note AND the deed of trust) be put into the trust at the time of trust formation, and it has to happen in a specific way. (at the time of trust formation, NOT later).
there is an indication (again, NO PROOF) that the various banks and IBs did not put the notes into the trust as they were supposed to do.
IF (big if) that is the case, then those trusts legally contain only a cash stream from the mortgage and NOT a legal claim on the underlying house itself. Which means that the MBS investors cannot foreclose since their MBS doesn’t contain the note.
in other words, BofA (as servicer) may not have the legal right to foreclose on a home whose mortgage is part of a MBS if that MBS trust does not have the note inside of it.
this is a catastrophe for real estate if true, because it POTENTIALLY clouds the titles for any home that ever had a mortgage that has been securitized. you cannot at this time legally go back and put the note into the trust as it violates NY trust law.
there is no easy fix for this. any attempt at a fix must be a state by state basis because the recording of titles etc is a STATE issue.
===
as for buying a house, I certainly wouldn’t right now. The entire legal framework for who owns what house is under scrutiny. as it stands there COULD in theory be hundreds of thousands or even millions of people who don’t have clear title to their home
that said: it will also grind foreclosures to a halt, which will clearly lower supply helping to support prices.
which will be more important? I guess we’ll have to see how the politics play out.
======
the person (I think) who is way ahead of the pack on this is Yves Smith at nakedcapitalism.com.
Read all of her sequential posts starting around mid September, but especially starting 9/27/2010 if you want to understand the problem.
remember: SOME of this is proven (like robosigners being pervasive), some is probable (like mortgage servicers not having appropriate documents and forging them) and some is still no where near proven (problems with the trust formation for MBS securities).
http://www.nakedcapitalism.com/2010/09/more-evidence-of-bank-fubar-mortgage-behavior-florida-banks-destroyed-notes-others-never-transferred-them.html
From what I understand, the Title insurer issue is related to foreclosure sales only, not regular sales.
This all means an almost freezing of all foreclosures.
What it also means is that banks will have a real disincentive to redo crazy loans like Option ARMs or stated-income-for-all mortgages. If they know they cannot get away with bloody murder, they won’t go back to extra-loose lending.
Excellent news overall.
I think prices will be buoyed a bit by this.
The key seems to be to not buy foreclosures or homes that have been refied during the secuitization craze.
I noticed what I felt was a surprising amount of new home construction going on in Portland when I was there a short while ago.
I chalked it off to Portland not having been hit as hard by the real estate crash as parts of California, Nevada and Arizona were.
But now I read this which doesn’t make sense unless maybe Reno developers are prescient and know a title cloud is coming for lots of their local SFR real estate and that demand for new homes will rise sharply.
http://www.rgj.com/article/20101002/HOMESCAPE/10020303/1321/NEWS
I am right there with you in hoping, but I’ll say no, they don’t fear it. It doesn’t happen, so why should they?
1 & 2 are really just symptoms of 3. I don’t know how much more proof you need that original documents were mishandled and are not where they need to be than the simple fact that banks are 1) trying desperately to push through by having some schlub sign off saying everything looks kosher without really looking, and 2) fraudulently attempting to recreate the original documents.
3 is the big stinker in the punchbowl here. It’s going to be very interesting to see how it plays out. The potential is staggering.
“Deserving” or not, the bank is not “legally right” if the documents aren’t there.
I’m not sure what any State other than NY could do to remedy the fact that original docs were not put into the trust. It’s going to take your State by State title validation and NY taking a pickaxe to its trust laws to “fix” the newest bankster disaster. It’s questionable whether either one is realistic, much less a coordinated both.
“My read is that they are worried about selling their foreclosures with clouded titles.”
I agree. Title insurance companies are saying that they won’t insure certain titles. Congress wants to step in now on the GMAC/Chase issues regarding improper documentation in 23 states. Bank of America is probably being cautious here, since they are the next largest lender in those 23 states, most likely. It’s also not clear that everything is on the up and up in the other 27 states, especially since Bank of America has occasionally foreclosed on the wrong house.
“this is a catastrophe for real estate if true, because it POTENTIALLY clouds the titles for any home that ever had a mortgage that has been securitized. you cannot at this time legally go back and put the note into the trust as it violates NY trust law.”
The irony is that the banks created MERS in order to make it easier to administer and foreclose on loans that had been securitized, but MERS is in many states making it harder to do so because it made the banks lazy on paperwork.
ex-SFer, thanks for the link.
Perhaps Obama’s numbers will drop sufficiently that he’ll have to jail a banker to remain politically viable. Tan man in stripes, anyone?
Wonder if we’ll start seeing the phrase “clear title” in MLS listing notes.
I can’t tell you how many times a bitchy bank employee has pointed to some fine print to use as justification for placing holds on my money.
It’s nice to see they are now being forced to abide by that same fine print.
No sorrow here.
M.R.
Gil wrote:
Even if we are just talking about foreclosures, I can see this one both ways.
What Gil writes makes sense from the standpoint of homes that are currently in some state of distress (NOD, NOTS, and so on) won’t actually get foreclosed on in any reasonable time frame (“…until our assessment has been satisfactorily completed.”). That delays price discovery, and it’s fairly well established that large numbers of distressed properties on the market lowers prices, so delaying the foreclosure process will probably reduce the rate of overall price decline by reducing the number of new homes entering the market during any given time frame in the near future. On top of this, you have the effect of loan modification programs and foreclosure prevention and redemption programs.
On the other hand, all of my associates in the real estate business (and I am not in the real estate business) say that buying a distressed property right now is a slow, frustrating and often costly (in terms of your time as a buyer being spent buttonholing ban officers) process. A close friend of mine just picked up a short sale property in the south bay and it took over seven months to close because the lender hemmed and hawed over approving the price. Witness the socketsite editor calling out advertised short sales that don’t mention if the price is pre-approved (hell, it’d be interesting to know what percentage of short sales/REOs currently listed on the MLS do say that the asking price is pre-approved). So what might end up happening is that supply (“inventory”) keeps going up, with the number of potential buyers not even close to increasing at a similar rate, which would imply that prices should start to fall as buyers have more and more choices, sellers would have to lower prices to lure buyers to their particular property.
If I had to bet, I’d bet on the latter effect lowering prices, because the former is a second-order effect. And if this is indeed a correct analysis (a big if :-), you could have both of them in operation at the same time and the latter could just swamp the former.
“as for buying a house, I certainly wouldn’t right now. The entire legal framework for who owns what house is under scrutiny. as it stands there COULD in theory be hundreds of thousands or even millions of people who don’t have clear title to their home”
Great summary ex SF-er, but the quoted advice is too extreme. This is what title insurance is for. Go ahead and buy — heck, use the “possible” title problems as a bargaining chip to get a lower price.
Now this all could be a very expensive problem for title insurers. So I suggest picking a title insurer with a gold-plated balance sheet — Department of Insurance and A.M. Best web sites provide that info with about 2 minutes of searching.
Brahma,
One thought that came through my mind:
If banks become spooked of going through the foreclosure due process, maybe they’ll start cranking the short-sale machine, or do loan-mods by lowering the owed amount. They might be more lenient now that they know the foreclosure is not Easy Street anymore.
I think this will blow over in a couple of months. The legal system is set up to give clear title to homes. There are all kinds of laws and procedures to do so, the issue is that they weren’t being followed. But there are ways around that too.
The purchaser bought a home with clear title and the mortgage holder slapped a claim onto the deed and then foreclosed with some iffy procedures both with respect to its claim and the perfection of its claim.
An easy way around this is a deed in lieu, or a quitclaim in a cash for keys arrangement. That works and is effective TOMORROW, not in 18 months. My experience has been that, where, liek here, lots and lots of money is involved, you can pay lawyers who will come up with processes to clear the titles. New trusts will be formed, the paper dumped into them, and the paper will be assigned to the old trust. Will that take 18 months? Doubt it. Might take a month or two to make sure you have it right, you do it, take the first ones to a judge and see what he says. If he says it’s fine, then you now have the process and you just hire functionaries to repeat that process. So maybe it holds everything up for two months.
The reality is that here you have a bunch of union pension funds and other investors who are losing money hand over fist while this gets worked out, and it’s in no one’s real interest to let this go on for too long. The fact is the owners stopped paying their mortgage, they cannot pay, and the home needs to be sold with a clear title. It was cheesy that procedures weren’t followed for the ones foreclosed, but it’s not cheesy that a mortgage holder needs to foreclose on a home the owner stopped paying for years ago.
So although no one is going to “let a good crisis go to waste here”, it will mostly be political grandstanding for a month until the elections are over, then the politicians will do what their donors want them to do. People going through foreclosure don’t donate too much money, whatever gets done will be forgotten by the time of the next election and so I don’t see a legislative solution as out of the question, as long as its 3 and a half weeks from now.
I just don’t see anyone holding these up for very long. This will blow over, get fixed and people will move on. Lawyers will make some money. Staffs will get beefed up by a couple of dozen people. And it will be over.
A.T. — do you have confidence that these title insurance companies with gold-plated balance sheets are not facing a recently discovered overhang (or overhanging tsunami, if you prefer) of clouded titles? Remember folks, the title insurance you pay for at closing insures the lender, not the home-buyer, though the home-buyer can opt to pay extra to be covered too.
Also, are those gold-plated balance sheets made up of AAA-rated MBS and CDOs? If one could learn anything from the past few years is that non-adversarial financial ratings systems are a sham.
“Will that take 18 months? Doubt it. Might take a month or two to make sure you have it right, you do it, take the first ones to a judge and see what he says. If he says it’s fine, then you now have the process and you just hire functionaries to repeat that process. So maybe it holds everything up for two months.”
I’m mostly with tipster here. The robo-signer issue shouldn’t take that long to fix for any individual house. However, it does mean that every file will need more individualized attention than banksters had been given them previously. They have the money and the staff to throw at the problem to get it fixed.
The politicians are mostly grandstanding, as tipster said, but that doesn’t mean the banksters aren’t scared about subpoenas. These people do deserve to be foreclosed on, but that doesn’t mean it’s politically popular.
The real problem to the banksters is that now anyone with an attorney will put even more scrutiny on their foreclosures to find other problems in the files. The banksters might fix problem #1 that ex SF-er identified, but good attorneys will put more scrutiny on things like #2 and #3, and other potential problems, because they know that the banksters were playing it fast and loose with paperwork.
mUcH aDo aBoUt NoThInG!
Delancey, I don’t know of any easy way to dig up details on title insurers’ asset pools. Maybe public filing available on the insurers’ web sites. Summary reports list assets, liabilities, policyholder surplus, and gains/losses, and tri-annual reviews give a bit more information. Some of them have a pretty puny surplus, which is one obvious red flag.
AT
I’m not so sure that the title insurers are as rick solid as you think they are. Have you ever had to collect on title insurance before? Ready to start trying now? Risky imo. AIG was once AAA rateed
Tipster,
I’m not as certain as you are that this can be easily swept under the rug or cleaned up. We are talking state’s rights vs federal law.
You CANNOT go back and put the notes into the trust retroactively.
There is no such thing as an easy fix IF the notes were not put into the trust. However we do not know if this allegation is true… this is not to say that nothing can be done, it us only to say that we have a very complicated legal fiasco that they have tried to bury several time but it won’t die.
It is not easy to overturn 200 plus years of established state contract and property laws… not even for the federal govt.
Those seemingly in the know are very nervous.
I am not a lawyer, nor do I play one on tv.
Why would anyone want to buy a property with a title that is less than clear? You buy a foreclosure that you believe is legit, and then 7 years down the road find out that it is not… It seems obvious to me that this is an additional (and potentially very high) transaction cost. If buyers are “building in” this transaction cost into their offers, then prices should drop precipitously….
^^^ You’re right about an unclear title affecting the purchase price. I bought a property once that had a little mar on the title but the contract price reflected the risk and cost to clear the title. It took about a year and cost some lawyer’s fees to straighten out but now the property is improved “on paper”.
It is really a case by case basis. Some title flaws are innocuous while others are scary.
I’m in agreement with ex SF-er, this is potentially a huge issue. The absolute best case is that the courts determine that the vast majority of foreclosures were done in a legal matter. Anything else has ramifications far beyond just the real estate market.
In the medium to long term, banks being unable to foreclose on properties will result in banks being insolvent, which will result in an even tighter lending environment, which will lead to lower real estate prices.
Ultimately, home prices are tied to the health of the economy, and insolvent banks are not a good sign for the economy.
So in summary, I think the best case for everybody is that this is more of a news story, than an actual issue, but I’m definitely worried about this matter.
as you all know, I am rarely concise.
Someone has worked with Yves Smith and Tom Adams (arguably the two people who broke this mortgage story and kept up the pressure) to make a “foreclosure fraud for dummies” post.
it is pretty straightforward and easy to follow and it will help elucidate the POSSIBLE (again, unproven) problems that I highlit way above. it is best of one reads both the post and the embedded links within the post.
it shows why there is no easy fix to this problem IF “problem 3” exists.
2 weeks ago I was skeptical that problem 3 existed, but after seeing what many Attorneys General have started saying not to mention some people in finance land and the Federal Government it is becoming increasingly likely.
You don’t just have banks versus the people here. If you did it would be easy. Our govt would step in to prop up the banks like they always do.
we have Federal vs State Governments
Banks vs defaulting home-borrowers
Senior vs Junior MBS investors
MBS investors vs Servicers and Banks/IBs
Fannie and Freddie vs Banks
and so on. a lot of power there, forming battle lines.
http://rortybomb.wordpress.com/2010/10/08/foreclosure-fraud-for-dummies-1-the-chains-and-the-stakes/
ex SF-er, I don’t see any reason to have a serious concern that title insurance from a well-rated insurer won’t pay off if needed. Insurance is very tightly-regulated (at the state level — effective regulation that is far different from federal regulation of financial markets) and there are guaranty associations that pay off in the extremely rare circumstance that an insurer fails (maybe not 100 cents on the dollar but close). To my knowledge, not a single insurer in the AIG family has defaulted on a single penny of claims because of financial weakness (sure, they all deny claims all the time for other reasons). It was the non-insurance financial divisions of AIG that blew it.
AT:
my goal isn’t to argue too much. I neither agree with you nor disagree with you.
Titles may be a breeze or they could be a catastrophe. to my knowledge we have never seen an issue were the titles to untold numbers of homes may be clouded.
Already at least one title insurance company has stated that they will no longer insure certain types of foreclosure sales until the matter is clarified.
I don’t know how easy or hard it would be if I bought a home and later found out that there were competing claims on the title to my home.
all I am saying is that there is a risk to buying a home with a clouded title. as you stated, one can be compensated for this risk by getting a cheaper sales price. that might make it worth the risk.
on a side note, in some countries there are major problems with titles, and thus you have a two tier system… one tier of homes with proven titles, and another tier of homes with cloudy titles. Morocco comes to mind immediately. so clearly it is not necessarily armageddon if many homes have clouded titles.
as for AIG: they were able to pay on all their claims in part because the Federal Govt bailed them out with untold billions of dollars.
AT:
my goal isn’t to argue too much. I neither agree with you nor disagree with you.
Titles may be a breeze or they could be a catastrophe. to my knowledge we have never seen an issue were the titles to untold numbers of homes may be clouded.
Already at least one title insurance company has stated that they will no longer insure certain types of foreclosure sales until the matter is clarified.
I don’t know how easy or hard it would be if I bought a home and later found out that there were competing claims on the title to my home.
all I am saying is that there is a risk to buying a home with a clouded title. as you stated, one can be compensated for this risk by getting a cheaper sales price. that might make it worth the risk.
on a side note, in some countries there are major problems with titles, and thus you have a two tier system… one tier of homes with proven titles, and another tier of homes with cloudy titles. Morocco comes to mind immediately. so clearly it is not necessarily armageddon if many homes have clouded titles.
as for AIG: they were able to pay on all their claims in part because the Federal Govt bailed them out with untold billions of dollars.
Fair enough on the title insurance issue. Agree that we’re all just speculating and the issue could potentially become unprecedented (although the odds are low). But as to AIG, I don’t believe a penny of govt money went to the insurance subs but to the parent. The subs were pledged as collateral for the bailout of the parent, but that is very different. The insurer subs, which have remained very strong and profitable throughout, have been funneling money up to the parent, not the other way around. Income from the subs is funding the repayment of the bailout even though they were not the recipient of the bailout funds. The difference between the regulated subs and the unregulated parent is very strong evidence against the de-regulation crowd’s arguments.
lol wrote:
I think you’re right about this to a certain extent. Since people are quoting other blogs in this thread, here’s what Felix Salmon wrote last week:
So if bank management is trying to reduce their potential losses, they’ll take the course you describe, because although it won’t produce profits, it will produce fewer real losses than the foreclosure alternative. Of course they’ll still want to keep a steady hand on the throttle to avoid flooding the market with short sales and thus lowering the price level.
I’m having trouble trying to see how the banks involved in this are going to go out “hire a ton of people to handle the upcoming flow”, because how’s an upper manager going to look submitting a pro forma to his boss allocating more of the next fiscal year’s budget to a division which is producing real losses for the bank? It’s certainly possible, but I don’t think likely. We’ll see.
sfrenegade wrote:
Blood. Water. Sharks. From Reuters on Sunday, lead ‘graph:
I still don’t think anyone’s going to get prosecuted, much less go to jail, but I hope to be proven wrong.
The story goes on to quote a Federal Housing Administration Commissioner as saying that a nationwide moratorium on foreclosures isn’t the right thing to do.
“I still don’t think anyone’s going to get prosecuted, much less go to jail, but I hope to be proven wrong.”
Hear, hear, Brahma.
And now Chase says it’s going to stop using MERS:
http://news.yahoo.com/s/ap/20101013/ap_on_bi_ge/us_jpmorgan_mortgages
They should have thought of that several years ago.
The downsides here are that more foreclosures would be good for the market by clearing inventory and causing more price-setting events and that this might cause more bailout funds (stealth or otherwise) to go to banksters.
sfrenegade, I agree with you that an increased velocity of foreclosures would be good for the market. Sometimes you can’t treat a flesh wound bit by bit, you have to rip the band-aid off all at once and just grit your teeth during the process so you can apply the ointment to the entire thing.
A multi-state criminal investigation might make things worse. First, it might not produce any real indictments.
Second, the banks and the AGs will negotiate a settlement (“the banks and the AGs have agreed to a settlement that ends the suit with the banks admitting to no wrongdoing and the payment of a fine…”) that’ll include an across the board foreclosure moratorium bigger than the one that B of A, Ally, etc. have already announced, but then the banks will drag their feet on actually doing the work necessary to foreclose correctly, they don’tstaff up to the level required for the amount of documentation they have to process, and the whole situation just moves sideways for years on end.
If we had a handy metric for the shadow inventory, that’d be a way to get a handle on if this was happening (the shadow inventory would increase over time, while the above board inventory stayed level or something like that), but unless Messrs. Case and Shiller somehow gain access to the internal data at the banks, I’m not sure how we’d be able to track it.