Foreclosures spike in August

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Foreclosures increased 33% from last month according to RealtyTrac.  A large amount of this is attributed to Bank of America.  There was a lawsuit filed claiming that the foreclosure process was fraudulent because they were using an “auto-signature” on paperwork, so that put a stop to a number of foreclosures.  It looks like those foreclosures are now being pushed through the system.  On the bright side, foreclosures are still 33% below  last year…

Mortgage servicers started the foreclosure process on more than 78,800 properties in August, a 33% increase from the month before and the highest monthly increase in four years, according to RealtyTrac

…Overall filings, including default notices, scheduled auctions and bank repossessions, reached 228,098 in August, up 7% from the previous month but still down 33% from last year.

Read Full Article from HousingWire

This is part of the “Shadow Inventory”.  There have been a number of estimates on how large this shadow inventory is. Call this blinding optimism on my part but I don’t believe the shadow inventory will hit the market in large numbers.   I will try to quantify my theory with some data in the coming weeks, but right now I speculate that the banks will work off the inventory with refinancing and short sales.   The banks are getting smarter at this and are realizing that they take a huge bath when they take the property back.  The foreclsoures are still a big problem until employment gets back up where people can meet their obligations again.

FHFA Lawsuit against Banks, Update

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I am not sure where this lawsuit is going yet, I don’t understand what can be gained by it other than politically.  At the same time, I’m not sure that FHFA doesn’t have a case. 

It seems counter-intuitive to me to spend billions of dollars to bail out banks only to turn around and sue them putting them back into the same position again.  Wouldn’t it have been easier just to let them fail?  Would have saved everyone a lot of money, and with the same net result…

Basically FHFA is claiming that many of the loans in the security bonds sold by these banks were misrepresenting what was contained in the securities; summarized in 2 categories.  Category 1, LTV ratios and Category 2, Owner Occupant Status.   It seems to me the later one is probably more related to the borrower than the bank that originated the loan as far as “fraud” is concerned…  I wonder if FHFA will expand this to go after the borrowers that stated they were owner-occupying they weren’t?

I suspect this will get brushed aside with a settlement and slap on the wrist…  But in the mean time, here is some information on FHFA’s claim against the banks. (read full article from HousingWire)

Major banks and others acquired during the financial crisis allegedly misrepresented the owner occupancy and loan-to-value ratios by sometimes as many as 50 percentage points or more on securities sold to Fannie Maeand Freddie Mac, according to the lawsuits the Federal Housing Finance Agency filed last week….

…It looked at whether or not the borrower’s tax bill was sent to the property’s address or a different one, whether the borrower claimed a tax exemption or whether the mailing address of the property was reflected in credit reports, tax or lien records.

On one securitization underwritten by JPMorgan Chase (JPM: 33.44 -3.44%), owners did not occupy 2.5% of the underlying properties, according to the prospectus given to investors. After conducting the test, the FHFA found this number to be at 14.6%, more than five times the amount disclosed to investors.

“The data analysis revealed that for each securitization, the prospectus supplement misrepresented the percentage of non-owner occupied properties,” according to the lawsuits.

The FHFA also conducted retroactive automated valuation models to determine the value of the properties at the time the mortgages were originated. This was done to uncover any possible faulty loan-to-value ratios.

The prospectus for one security issued in 2007 underwritten by Bank of America (BAC: 6.99 -3.59%) stated all of the loans held a LTV ratio of less than 100%. According to the FHFA analysis, more than 8.8% of the loans in the security actually held LTVs above 100%. Another security issued by Countrywide Financial Corp. showed 27% of the loans held LTVs higher than 100%, according to the analysis, as opposed to none.

Federal Housing Financing Agency (FHFA) Sues Banks over Mortgage Backed Securities

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It is news like this that makes it near impossible to predict the market correction.  Depending on what happens here, it could either mean the mortgage business gets cleaned up or that it will shut all mortgage lending down – thus sending us into further housing slump…  Or it could just be a blip on the radar and not have any real impact.

We just spent Billions on bailing these banks now, now our Government is suing them?  Will we then need to bail these banks out after the lawsuit??  I don’t get it…

We are in uncharted waters here and I am not sure how this will play out…  I’ve got a gut feeling this is not going to help anyone out.  If we are not careful through this mess, we are heading in the direction where the only way you can get a mortgage is if the Government grants you one. (technically you give the mortgage lien on the property and receive the money or the note…)

The Federal Housing Finance Agency is ready to file suit against the nation’s largest banks, accusing the financial institutions of misrepresenting the quality of mortgage backed-securities sold in the run-up to the 2008 financial meltdown, The New York Times reported Thursday.

According to the article, the FHFA lawsuits will target Bank of America (BAC: 7.33 -7.33%), JPMorgan Chase (JPM: 34.92 -3.80%), Goldman Sachs (GS: 106.69 -4.88%) andDeutsche Bank (DB: 37.00 -4.15%) among other large MBS players.

Read Full Article from HousingWire

UPDATE:

The FHFA alleges these institutions, their executives and some lead underwriters violated federal securities laws, violated common law, failed to conduct proper due diligence and provided allegedly false information when selling these products.

What the FHFA seeks in recovery will not equal what the GSEs paid for the MBS sold. However, in each suit, the FHFA disclosed how much Fannie and Freddie bought from each particular bank and subsidiary in the case of BofA.

  • JPMorgan Chase: $33 billion
  • RBS: $30.4 billion
  • Countrywide: $26.6 billion
  • Merrill Lynch: $24.8 billion
  • Deutsche Bank: $14.2 billion
  • Credit Suisse: $14.1 billion
  • Goldman: $11.1 billion
  • Morgan Stanley: $10.5 billion
  • HSBC: $6.2 billion
  • Bank of America: $6 billion
  • BarCap: $4.9 billion
  • Citi: $3.5 billion
  • Nomura: $2 billion
  • Société Générale: $1.3 billion
  • First Horizon: $883 million