The mortgage industry has a lot going on this week, including a massive drop in foreclosures and reports of government disappointment with lenders. Despite reports that the foreclosure rate has plummeted, a large number of mortgage servicers are still being held responsible for the foreclosure crisis and the fact that, in time, foreclosures are expected to increase again.
U.S. Foreclosures Reach Lowest Level in 3 Years
A report released by RealtyTrac Inc. on Thursday revealed that U.S. foreclosure filings fell in the first quarter of 2011 to the lowest level seen in three years.
A total of 681,153 U.S. properties received default, auction or repossession notices from January to March. This number is down 15 percent from the previous quarter and 27 percent from a year earlier.
But the Irvine, Calif.-based data seller wants to be clear that the drop is not an actual representation of the market. Because lenders have a backlog of flawed paperwork to work through thanks to delays from the documentation scandal in 2010, many more homes are waiting to be repossessed.
Major Servicers Forced to Review Foreclosures
In related news, Federal bank regulators announced on Wednesday, after an investigation was completed, that 14 of the nation’s largest mortgage servicers will be punished for “significant weaknesses” in their practices.
One way the government plans to punish servicers, which include Bank of America, Citibank, JPMorgan Chase and Wells Fargo, is by ordering them to hire outside firms to review each foreclosure action they had pending from Jan. 1, 2009 through Dec. 31, 2010.
Banks will then be required to identify borrowers harmed by their deficiencies and compensate them appropriately. Also, they will face financial penalties that have yet to be announced.
New Rules for Mortgage Servicers
In addition to going back to “fix what was broken” in the mortgage industry, servicers will be required to make the following changes in their practices:
- Give distressed homeowners a single point of contact when dealing with their mortgage servicer.
- Refrain from foreclosing if modified mortgages are not delinquent.
- Increase supervision of third-party vendors, including foreclosure law firms that work for them.
- Create a process that lets borrowers submit requests for remediation if they feel they’ve been treated unfairly.
Regulators say the servicers undoubtedly violated state and Federal laws and that can’t go unpunished. The acts have had a tremendous effect on the housing market recovery and placed excessive burdens on the court system.
The hope is that the changes can effectively right some wrongs in the mortgage industry. Even more important, regulators want to make sure that individual homeowners are compensated for the stress they’ve had to undergo.
