Adriana Barnes
March 31, 2011
http://dailynewspulse.com/bank-foreclosures-are-becoming-a-long-term-universal-nightmare/2215428/
Representatives of the five largest mortgage servicers — Bank of America Corp., JPMorgan Chase & Co., Wells Fargo & Co., Citigroup Inc. and Ally Financial Inc.— met with government officials in Washington on Wednesday. They discussed a settlement of investigations into problems in the foreclosure process, including bank employees signing documents without reading or understanding them, a practice called robo-signing. Iowa Atty. Gen. Tom Miller, who is leading the negotiations for the states, said that the session was a good first meeting but that no agreement was imminent. Attorneys general of all 50 states and representatives of seven federal agencies are investigating the foreclosure troubles.
Even Bigger Losses
First, if home prices are declining, then banks will incur much bigger losses on low down payment loans that default. If home prices have dropped 15% in the two years since a no down payment mortgage was originated, then suddenly the best-case scenario for the bank is a 15% loss. If that same loan had a 20% down payment instead, then the bank might be able to break even, or the borrower may have been able to simply sell the home. As a result, banks face much higher potential loss severity with low down payment loans. Moreover, since banks don’t want to realize a big loss on a loan, they might also prolong the time it spends in housing inventory before accepting a bid to purchase, which will help to magnify the housing market’s troubles as supply overwhelms demand.
The lenders include Bank of America, JPMorgan Chase, Citibank, Wells Fargo, OneWest Bank and GMAC Mortgage. Each institution must answer by Friday how it satisfies a number of factors in its foreclosure process, including record-keeping, document reviews, training programs and quality-assurance procedures. They must also file a list of all contested and uncontested residential mortgage foreclosure actions that were pending in the court when Rabner issued the order on Dec. 20.