New York State Banking Department issues report on pre-foreclosure notices

The New York State Banking Department has announced that more than 76,744 pre-foreclosure notices were sent to New York homeowners who have fallen behind on their mortgage payments since May 31, 2010. A total of 134,000 pre-foreclosure notices have been sent since data collection began on February 13, 2010. If a borrower does not become current on their mortgage within 90 days of receiving the notice, the lender then has the right to begin the formal foreclosure process.

The four counties with the highest total number of pre-foreclosure filings on owner-occupied, 1-to-4 family properties were Suffolk County, Queens, Nassau and Brooklyn. These are the same four counties that topped the last report issued on June 10, 2010.

Starting next month, the Banking Department’s online filing system will begin accepting lis pendens information on mortgages that have a pre-foreclosure notice file in the system. A lis pendens is a written notice that a lawsuit has been filed against a property and is the legal beginning of the foreclosure process. The lis pendens data will be included in the Department’s next pre-foreclosure notice report, which will be issued in January 2011.

To read the entire Banking Department press release, click here.

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With Millions of Foreclosures on Horizon, Should States Mandate Mods?

The foreclosure crisis is far from over. According to figures released by the Center for Responsible Lending (CRL), since the crisis took hold, 2.5 million homeowners
have already lost their homes and another 5.7 million are at imminent risk of foreclosure. Looking ahead, the nonprofit research group says it’s projected that between 10 and 13 million foreclosures will have occurred by the time this crisis abates.

The federal government has implemented a mixed bag of foreclosure-prevention programs over the past two years in the hopes of stemming the tide, even incentivizing all parties involved, from lenders and servicers, to investors and the homeowners themselves. But housing analysts, watchdog groups, and industry insiders agree, they’ve yet to hit on a silver bullet solution.

CRL argues that the power to stop unnecessary foreclosures and stabilize local housing markets lies with state legislatures. With exclusive control over their state-specific foreclosure laws, the Center says lawmakers should impose mandatory loss mitigation standards for all servicers prior to foreclosure.

A recent study by the State Foreclosure Prevention Working Group found that “nearly three years into the foreclosure crisis…more than 60 percent of homeowners with seriously delinquent loans are still not involved in any loss mitigation activity.”

In a report written by Sara Weed, a policy attorney at CRL, and Sonia Garrison, a senior researcher for the organization, the Center outlines its proposal for state policymakers to apply “common sense standards to any actor pursuing foreclosure.”

The authors argue state legislatures should mandate that mortgage servicers assess whether foreclosure is in the financial interest of the investor before proceeding to foreclosure.

To be effective, CRL says this mandatory loss mitigation standard should be combined with a requirement that the foreclosing party provide homeowners with a loss mitigation application in tandem with any pre-foreclosure notice or pre-foreclosure communication.

If after the loss mitigation assessment the servicer opts to move forward with foreclosure, the authors recommend states institute a requirement that the foreclosing party

submit an affidavit disclosing their specific reasoning for the denial of a loan modification, including the inputs and outputs of any loss mitigation calculations.

In addition, homeowners should be granted a defense to foreclosure (or equivalent right in non-judicial foreclosure states) based on failure of the foreclosing party to engage in a “good faith review” of foreclosure alternatives, according to CRL.

“The reality is that many of these foreclosures can and should be avoided. All too often, troubled mortgages are sent to foreclosure, driven by a system biased in favor of foreclosure sales over sustainable loan modifications, even when foreclosure is more costly,” the authors wrote.

The report notes that borrowers seeking a loan modification are often told that they have been denied due to “investor restrictions.” However, a recent CRL research report points out that modification is more often than not a win-win for the investor and the borrower.

The Center says in fact, investors themselves often claim that they are not standing in the way of modifications and have voiced concerns that servicers are not acting in their best interest either.

According to the authors of the report, “spillover” costs extend throughout the neighborhood and the larger community. CRL estimates that by 2012, the foreclosure crisis will strip neighboring homeowners of $1.9 trillion as foreclosures drain value from nearby homes, pushing even more borrowers underwater on their mortgage.

Meanwhile, state and local governments continue to be hit hard by declining tax revenues coupled with increased demand for social services, according to CRL. The Urban Institute estimates that a single foreclosure costs $79,443 after aggregating the costs borne by financial institutions, investors, the homeowner, their neighbors, and local governments. But the Center says even this number understates the true cost, since it does not reflect the impact of the foreclosure epidemic on the nation’s economy.

“We cannot afford to wait any longer for the housing market to stabilize itself. If implemented quickly, states can prevent unnecessary foreclosures before it is too late,” authors Weed and Garrison said in the CRL report.

The recent news of some servicers circumventing state laws to push foreclosures through quickly has brought every attorney general in the country together and pitted them directly against the servicing community as one powerful and determined force.

Some attorneys general have come out and said mandated loan modifications may be considered as part of a settlement with servicers who’ve filed improper foreclosure affidavits. But such a stipulation would only apply to those foreclosure cases where documentation was found to be defective, and it’s expected servicers will put up a strong fight against such terms.

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Untitled

Reconsidering Foreclosures, Short Sales and Listings in an Upside Down Market

When sales activity has diminished, as is the case in today’s market, appraisers have a much smaller pool of comparable transactions available to them. Such times require that appraisers give greater scrutiny to transactions that have traditionally been discarded. 

Here’s why and how appraisers are reconsidering foreclosures, short sales and listings in an upside down market.

Foreclosures
A sales transaction that complies with the definition of market value is often referred to as an “arm’s length” transaction. In this regard, an “arm’s length” transaction refers to a conveyance in which the parties are typically motivated, well informed, acting in their own best interest, have time to market the property and are not deploying unusual financing incentives.

Perhaps the most frequently cited example for a “non-arm’s-length transaction” is the sale of a foreclosed property. This is because, in a normal market, the mortgage balance is most often below market value. When the mortgage balance is below market value, the foreclosing lender has the option to cut the price of the real estate in order to achieve a quick sale.  This allows the foreclosing lender to terminate his investment in the loan quickly and favorably, without the risk of an extended marketing period.  Similarly, an owner who is selling in a normal market, under the duress of foreclosure, can cut his price for the purpose of quickly getting out from under a mortgage to salvage his credit. 

However, the relationship between the mortgage balance and market value is overturned under the recessionary market conditions we are presently experiencing. We all watched while the real estate bubble inflated larger and larger, rising to its fattest somewhere around the end of 2005 or early in 2006.  During this inflating period, credit was easily available and lenders were competing to make loans to buyers who were competing with other buyers in bidding up prices, often even higher than the original asking prices.  When the bubble eventually burst and values began to decline, many owners were left with huge mortgage balances. As the market declined precipitously, market values dipped below the principal balance on many mortgages, leaving owners “upside down.”  This situation was exacerbated as the supply of listings and foreclosures accelerated, while prices continued to plummet. 

These new market conditions created a new and abnormal relationship between the mortgage principal and market value. We now see that mortgage balances are often much more than market value. Foreclosing lenders are finding themselves with collateral that is worth considerably less than the mortgage amount. In many ways, this “upside down” posture makes a sale by a lender of foreclosed property much more similar to any other market transaction where a seller is simply trying to get as much as he can out of his real estate. No longer does the foreclosing lender have the ability of creating a “non-arm’s-length” transaction by simply choosing to liquidate the investment at below market value.  Instead, the foreclosing lender is now on equal footing with any other seller in the marketplace (typically motivated), simply trying to get the most money possible out of the real estate. Doesn’t this new set of circumstances equate the lender to any other seller?  Doesn’t this new set of circumstances qualify a sale of foreclosed property as an “arm’s length” transaction? 

Short Sales
One particular form of evidence that these transactions represent “arm’s length” arrangements is the emergence of the “short sale.”  A “short sale” is the modern label for a transaction in which the lender has simply agreed to accept a loan payoff that is less than the mortgage balance. In the circumstance of a “short sale,” there is no actual foreclosure because the owner and the lender (as well informed and well advised sellers) know that the value of their real estate and collateral has diminished and wish to take advantage of a present opportunity to get cash out of the property, just as would any other active seller.  There is no special or creative financing, only a mutual agreement by owner and lender to sell, just as any other seller might agree to sell. This often qualifies these transactions as “arm’s length” under current market conditions.

Nonetheless, many appraisers remain intent on avoiding the use of foreclosed and “short sale” transactions, claiming these transactions are representative of duress because of the depressed state of the recessionary market.  But the fact that these transactions are representative of the current state of the market is the very reason they are more worthy of our consideration. When the market is oversupplied and prices are low, we have an obligation to seek a value in our appraisals that realistically represents what a seller can obtain in the open market. The fact that a seller in the open market must compete with a plethora of other sellers, many of whom are lenders, cannot be ignored in any legitimate quest for market value. 

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Foreclosure, what does it really mean to people?

Miami, FL- (October 25, 2010) For the vast majority of homeowners, new questions about the state of foreclosures appear to be irrelevant. Few people seem to have been wrongly thrown out of their homes, and those who have been are generally months or years behind on their mortgage payments.

But the fallout from the crisis is beginning to be felt in real-estate markets across the country, particularly in places dominated by vacation homes and investment properties. Some of the worst-hit areas could be Western ski towns, because fall is the busiest time of the year for sales.

Real-estate salespeople in some of those places are worried. "September and October are usually the height of the selling-season for us," says Rich Armstrong, who owns the brokerage Rare Properties in Jackson Hole, Wyo. "Now we are seeing a number of what we call 'fence sitters,' people who would have leapt in even a month ago, but now are waiting on the sidelines."

The "foreclosure crisis" is a result of the frenzied real-estate boom and bust of the past decade. Banks made foolish loans, and borrowers signed up for them—only to default later, as the economy slumped. Banks rushed to reclaim properties, launching a record number of foreclosure proceedings.

In the past several weeks flaws have emerged in that complex process. Because of the high volume of foreclosures, the documentation supporting legal actions was prepared hastily, and some homes were seized improperly

Yet the far bigger worry is what happens next. A frenzy of lawsuits and banks' examinations of their own practices could throw more of the millions of foreclosures of the past few years into legal jeopardy. Attorneys general in all 50 states are investigating, and plaintiffs' lawyers are working hard to perfect their legal strategies for suits on behalf of people who have been foreclosed on.

The suits might well fail. But just the threat that past foreclosure rulings might be overturned could result in collateral damage. In some places, banks are rushing foreclosed properties to market. In others, buyers are stepping back, refusing to buy foreclosed properties or "short sales"—homes sold by owners for less than the mortgage balance. In markets already beset with large inventories of foreclosed properties, the result could be a slower recovery.

Coastal markets and ski areas are feeling the most anxiety. Some already are littered with foreclosures—in part because they're dominated by second-home and investment properties. Those owners are more willing to walk away from a house that isn't their primary residence.

Foreclosure tracker RealtyTrac estimates that, nationwide, 30% to 35% of properties in foreclosure are owned by investors or were second homes. In Aspen, Colo., the figure is about 60%, says Kim McKinley, owner of McKinley Sales Real Estate in Basalt and Aspen, Colo. If foreclosure proceedings slow from here, inventory could jump, leading to price weakness late

"We're concerned that the phantom inventory buildup will cause a more rapid and drastic drop in prices in Aspen, which is just getting started in terms of foreclosures coming to the market," says Ms. McKinley.

The timing of the foreclosure mess is especially inconvenient for ski towns, given the fall selling season.

Property owners are growing nervous. In Park City, Utah, lenders are quickly unloading foreclosed homes ahead of what could be a long, stalled foreclosure process, says Joe Trabaccone, a real-estate agent there.

On Oct. 11, for example, J.P. Morgan Chase put up for sale an 8,000-square-foot home adjacent to a private gated golf course. Mr. Trabaccone initially recommended the property be listed for $1.6 million, but Chase opted for $1.26 million. "They are offering these homes far too low just to hurry up and sell them," Mr. Trabaccone says.

Even so, it hasn't worked. A buyer made an offer and signed a contract, but then backed out.

In South Lake Tahoe, Calif., on Thursday, Freddie Mac, the big government-sponsored guarantor of mortgages, put a foreclosed home that had just been listed for sale on hold, freezing the property until paperwork could be straightened out. The foreclosure mess "seems to be filtering down and it could be an impact," says Doug Rosner, the broker who had listed the home. Three other properties in town were also frozen, another real-estate agent says.

The "sand states" of Arizona, California, Florida and Nevada are being hit as well. These areas, too, have a lot of vacation and investment properties—and a lot of foreclosures.

Robin Speronis, a real-estate broker in Cape Coral, Fla., says business had been picking up recently, with several inquiries a day—until the latest foreclosure scandal broke. Since then, she says, inquiries have shriveled to just one in the past week.

Susan Weeks, 55 years old, and her husband, Eddie, aren't optimistic. The couple had expected to retire and downsize when they bought a condo in Clermont, Fla., near Orlando, in 2007 for $192,000. Their plan was to sell their primary residence 10 minutes away and live in the condo. The trouble: They can't sell their first home.

The Weeks paid $269,000 for their three-bedroom home in 2004. The house next door, a bit larger, is listed at $185,000, Ms. Weeks says.

The couple has decided to move back to their primary home and take a renter for the condo. But while that brings in $850 a month, the Weeks take a $450-a-month hit on the condo —on top of the $2,400 a month they pay every month on their primary home.

"We're just going to wait it out," she says.

The possible foreclosure wars to come loom so largely over Florida markets that Ms. Speronis is urging condo sellers to consider any offer they get, even if it is far below asking price or what is owed on the mortgage.

Dianne Cloutier, a records supervisor in Chelmsford, Mass., had been looking for a retirement property in Cape Coral, but decided to wait because of the foreclosure mess. "It's left us on hold until we are sure the banks have legitimately foreclosed on people and that nobody can come back on us to get their property back," she says.

Foreclosures aren't the only problem. Short sales are getting more difficult to pull off, too.

In Bend, Ore., agents say buyers are avoiding short sales or even backing out of contracts because they don't want to deal with paperwork hassles or the chance of a court challenge later.

"I have some people saying 'I don't want to mess with bank-owned properties or short sales,'" says Dianne Willis, principal broker with RE/MAX Sunset Realty in Sunriver, Ore. "They're reluctant because it can be a frustrating process, especially for those who are looking to make a big move."

The short sales "can be very frustrating," adds Becky Ozrelic, of with Steve Scott Realtors in Bend. "You just have buyers waiting and waiting."

For sellers, lining up a short sale was tough even before the latest foreclosure crisis. Banks and mortgage "servicers," the outfits that process payments, already had been scrambling to handle surging workloads.

Mike and Kim Schwarz of San Jose, Calif., are coming up on the one-year mark on their short-sale saga.

The couple had acquired several investment properties over the past few years, including one in Thousand Oaks, Calif., for $751,000. After the tenants stopped paying rent, the Schwarzes couldn't cover the payments and decided to sell, Mr. Schwarz says.

They lined up a buyer in November 2009, and started working with their loan servicer on the short sale. For lenders, short sales are ugly because they guarantee a loss, but they often are preferable to a foreclosure, in which the lender is saddled with a tough-to-sell house.

The servicer, Residential Credit Solutions, took six months to process the paperwork, the Schwarzes say. Faxes and emails were sent, but nothing happened, Mr. Schwarz says.

"We typically don't hear from borrowers about long delays," says Dennis Stowe, president of Residential Credit.

The buyer walked away from the deal in June. The couple found another buyer in August, and resubmitted the short-sale paperwork. Mr. Schwarz says he has sent paperwork to Residential Credit four times since.

On Friday, Mr. Schwarz says, Residential called to tell him the short-sale paperwork looked good and the sale should close in mid-November.

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The Art of Happiness

Making Each Day Your Best

In The Art of Happiness, the Dalai Lama shares this powerful insight into life:

"I believe that the very purpose of our life is to seek happiness. That is clear. [Regardless of religion], we are all seeking something better in life. So I think the very motion of our life is toward happiness."

But how are we to achieve this happiness that we all seek? What common factor can we rely upon, regardless of our health, wealth, appearance, family, etc? The Dalai Lama goes on to discuss how the mind can be trained for happiness, despite a lack of material wealth and success. It's that whole idea of "wanting what you have versus having what you want."

Stephen Covey refers to this as "responsibility," or the ability to choose your response. Tony Robbins calls it "reframing your perspective". James Allen simply calls it "self-control." Whatever name it goes by, the principle is the same: We all have the power to think positive thoughts, and to react positively to every "negative" thing that happens in our lives.

Why, then, is it so hard to do?

Because like anything of any worth, it takes effort. It takes practice. It takes time. And like most skills, the sooner you begin, the sooner it gets easy. But no matter how old we are, we can all start practicing positive thinking today, and begin being happier immediately.

It's very easy to get out of practice, however, so it's best to surround yourself with triggers for happiness. Music is one of the best triggers. Just think how happy we get when we hear Little Orphan Annie singing, "The Sun Will Come Out Tomorrow," or Bobby McFerrin crooning, "Don't Worry, Be Happy." We can also remind ourselves with little incantations such as "look on the bright side" when things aren't going as planned.

I hope this tip brightens up your day!

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Selecting a New Water Heater

Many homeowners wait until their water heater fails before shopping for a replacement. Because they are in a hurry to regain their hot water supply, they are often unable to take the time to shop for the most energy efficient unit for their specific needs. This is unfortunate, because the cost of purchasing and operating a water heater can vary greatly, depending on the type, brand, and model selected and on the quality of the installation.

To avoid this scenario, you might want to do some research now--before you are faced with an emergency purchase. Familiarize yourself today with the options that will allow you to make an informed decision when the need to buy a new water heater arises.

Types of Water Heaters Available

Within the last few years, a variety of water heaters have become available to consumers. The following types of water heaters are now on the market: conventional storage, demand, heat pump, tankless coil, indirect, and solar. It is also possible to purchase water heaters that can be connected to your home's space heating system.

Storage Water Heaters

A variety of fuel options are available for conventional storage water heaters--electricity, natural gas, oil, and propane. They range in size from 20 to 80 gallons (75.7 to 302.8 litres). A storage heater operates by releasing hot water from the top of the tank when the hot water tap is turned on. To replace that hot water, cold water enters the bottom of the tank, ensuring that the tank is always full. Because the water is constantly heated in the tank, energy can be wasted even when no faucet is on. This is called standby heat loss. Newer, more energy efficient storage models can significantly reduce the amount of standby heat loss, making them much less expensive to operate.

Demand Water Heaters

It is possible to completely eliminate standby heat losses from the tank and reduce energy consumption 20% to 30% with demand (or instantaneous) water heaters, which do not have storage tanks. Cold water travels through a pipe into the unit, and either a gas burner or an electric element heats the water only when needed. With these systems, you never run out of hot water. But there is one potential drawback with demand water heaters--limited flow rate. Typically, demand heaters provide hot water at a rate of 2 to 4 gallons (7.6 to 15.2 litres) per minute. This flow rate might suffice if your household does not use hot water at more than one location at the same time (e.g., showering and doing laundry simultaneously). To meet hot water demand when multiple faucets are being used, demand heaters can be installed in parallel sequence. Although gas fired demand heaters tend to have higher flow rates than electric ones, they can waste energy even when no water is being heated if their pilot lights stay on. However, the amount of energy consumed by a pilot light is quite small.

Heat Pump Water Heaters

Heat pump water heaters use electricity to move heat from one place to another instead of generating heat directly. To heat water for homes, heat pump water heaters work like refrigerators in reverse. Heat pump water heaters can be purchased as integral units with builtin water storage tanks or as add ons that can be retrofitted to an existing water heater tank. These systems have a high initial cost. They also require installation in locations that remain in the 40° to 90°F (4.4° to 32.2°C) range year round and contain at least 1000 cubic feet (28.3 cubic meters) of air space around the water heaters. To operate most efficiently, they should be placed in areas having excess heat, such as furnace rooms. They will not work well in a cold space.

Tankless Coil and Indirect Water Heaters

A home's space heating system can also be used to heat water. Two types of water heaters that use this system are tankless coil and indirect. No separate storage tank is needed in the tankless coil water heater because water is heated directly inside the boiler in a hydronic (i.e., hot water) heating system. The water flows through a heat exchanger in the boiler whenever a hot water faucet is turned on. During colder months, the tankless coil works well because the heating system is used regularly. However, the system is less efficient during warmer months and in warmer climates when the boiler is used less frequently. A separate storage tank is required with an indirect water heater. Like the tankless coil, the indirect water heater circulates water through a heat exchanger in the boiler. But this heated water then flows to an insulated storage tank. Because the boiler does not need to operate frequently, this system is more efficient than the tankless coil. In fact, when an indirect water heater is used with a highly efficient boiler, the combination may provide one of the least expensive methods of water heating.

Solar Water Heaters

Through specially designed systems, energy from the sun can be used to heat water for your home. Depending on climate and water use, a properly designed, installed, and maintained solar water heater can meet from half to nearly all of a home's hot water demand. Two features, a collector and a storage tank, characterize most solar water heaters. Beyond these common features, solar water heating systems can vary significantly in design. The various system designs can be classified as passive or active and as direct (also called open loop) or indirect (also called closed loop). Passive systems operate without pumps and controls and can be more reliable, more durable, easier to maintain, longer lasting, and less expensive to operate than active systems. Active solar water heaters incorporate pumps and controls to move heat transfer fluids from the collectors to the storage tanks. Both active and passive solar water heating systems often require "conventional" water heaters as backups, or the solar systems function as pre-heaters for the conventional units. A direct solar water heating system circulates household water through collectors and is not appropriate in climates in which freezing temperatures occur. An indirect system should not experience problems with freezing because the fluid in the collectors is usually a form of antifreeze. If you are considering purchasing a solar water-heating system, you may want to compare products from different manufacturers. Just choosing a solar water heater with good ratings is not enough, though. Proper design, sizing, installation, and maintenance are also critical to ensure efficient system performance. Although the purchase and installation prices of solar water heaters are usually higher than those of conventional types, operating costs are much lower.

Criteria for Selection

As with any purchase, balance the pros and cons of the different water heaters in light of your particular needs. There are numerous factors to consider when choosing a new water heater. Some other considerations are capacity, efficiency, and cost.

Determining Capacity

Although some consumers base their purchase on the size of the storage tank, the peak hour demand capacity, referred to as the first-hour rating (FHR), is actually the more important figure. The FHR is a measure of how much hot water the heater will deliver during a busy hour. Therefore, before you shop, estimate your household’s peak hour demand and look for a unit with an FHR in that range. Gas water heaters have higher FHRs than electric water heaters of the same storage capacity. Therefore, it may be possible to meet your water-heating needs with a gas unit that has a smaller storage tank than an electric unit with the same FHR. More efficient gas water heaters use various non-conventional arrangements for combustion air intake and exhaust. These features, however, can increase installation costs.

Rating Efficiency

Once you have decided what type of water heater best suits your needs, determine which water heater in that category is the most fuel efficient. The best indicator of a heater's efficiency is its Energy Factor (EF), which is based on recovery efficiency (i.e., how efficiently the heat from the energy source is transferred to the water), standby losses (i.e., the percentage of heat lost per hour from the stored water compared to the heat content of the water), and cycling losses. The higher the EF, the more efficient the water heater. Electric resistance water heaters have an EF between 0.7 and 0.95; gas heaters have an EF between 0.5 and 0.6, with some high-efficiency models around 0.8; oil heaters range from 0.7 to 0.85; and heat pump water heaters range from 1.5 to 2.0. Product literature from manufacturers usually gives the appliance’s EF rating. If it does not, you can obtain it by contacting an appliance manufacturer association. Some other energy efficiency features to look for are tanks with at least 1.5 inches (3.8 centimeters) of foam insulation and energy efficiency ratings.

Comparing Costs

Another factor uppermost in many consumers' minds is cost, which encompasses purchase price and lifetime maintenance and operation expenses. When choosing among different models, it is wise to analyze the lifecycle cost--the total of all costs and benefits associated with a purchase during its estimated lifetime. Units with longer warranties usually have higher price tags, though. Often, the least expensive water heater to purchase is the most expensive to operate.

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Courts Are Delaying Foreclosures

Miami, FL - . The recent suspensions of foreclosures by four major companies that service mortgages
compound a problem that had existed for years in states where foreclosures are handled
by the courts.

In the 23 states in which foreclosures must be approved by a judge, the process takes
longer than in states where courts are not involved, and some economists say it's among
the factors delaying a housing rebound.

One comparison widely cited: In California, where judges don't handle foreclosures,
the housing market appears to have hit bottom a year ago and has been bouncing back.
In Florida, where foreclosures go through the court system, prices keep falling, and
foreclosure inventory continues to rise.

On Friday, Bank of America Corp. announced it would suspend foreclosure sales in all
50 states. That follows the bank's earlier suspension of tens of thousands of foreclosures
in the states that handle foreclosures through the court system, a move also taken by
GMAC Home Mortgage, Inc., a unit of Ally Financial Inc.,
and J.P. Mortgage Chase & Co.'s home-loan unit.

Meanwhile, several state attorneys general, as well as members of Congress,
are calling for an across-the-board foreclosure moratorium on foreclosures to sort out
alleged irregularities in foreclosure documents submitted by the banks.

Obama administration officials said such a move risked worsening the housing crisis
because foreclosures account for such a large share of all home sales. "Stopping that
process could have significant impacts on prolonging the housing recovery,"
said David Stevens, the commissioner of the Federal Housing Administration. Mr. Stevens.

White House adviser David Axelrod on Sunday questioned the need for a moratorium, saying that valid foreclosures with accurate documents should go ahead. "Our hope is this moves rapidly and that this gets unwound very, very quickly,'' he said on CBS's "Face the Nation"

Richard Cordray, Ohio's attorney general, said Sunday that as many as 40 state
attorneys general across the country intend to open an investigation of lenders and
servicers to figure out the scope of the problems with foreclosure documents.

While it remains unclear how long the foreclosure process will be stalled,
economists say any delay is bad for the housing market long-term. "Foreclosures are being delayed with good intentions, to protect consumers, but it's really just delaying the inevitable," says John Burns, a real estate consultant in Irvine,Calif. "They're delaying the eventual housing recovery."

A report released last month by RealtyTrac, which tracks foreclosures,
found that foreclosures sales amounted to an average of 24% of all home sales
during the second quarter of this year, which totaled about 248,000 homes.
In Nevada, one of several western states that was hard hit by the housing downturn,
foreclosure sales comprised 56% of all sales activity.

"Before all the bank suspensions and the robo-signers, we were headed for some big price declines in the fourth quarter. But now, in a place like Florida, in the short term, this will stabilize prices, because there won't be this bubble of supply hitting the market all at once," says Ivy Zelman, a housing analyst at Zelman & Associates in Cleveland.

While slowing foreclosures could have some positive benefits—stabilizing prices in the short term—economists argue that the vast majority of borrowers in trouble ultimately lose their homes, and the delays and interventions do more harm than good.

Florida and California have led the nation in foreclosures since the housing crisis began and both saw average home prices drop more than 50% between 2007 and 2009.

But while the percentage of mortgages in foreclosures continues to rise in Florida, it is falling in California.

Mark Zandi, chief economist of Moody's Analytics, said that price recoveries in states is closely tied to the length of the foreclosure process and has pressed for a standardization of foreclosure laws at the federal level to expedite the process.

The judicial process isn't the only determining factor. California's economy is more diverse than Florida's and real estate, long term, has always been a stronger bet in California, which explains why buyers would pounce once prices declined.

Data prepared for The Wall Street Journal by LPS Analytics shows that the time it takes for a borrower to go through the foreclosure process nationally has steadily climbed in all states in the past five years, and now takes an average of 478 days, up from 302 days in early 2005.

In Florida, the average foreclosure now takes 573 days. In California, the average is 457 days, though many take less than 120 days.

"We're seeing a mess and we're seeing a process that takes anywhere from nine months on the short end to two or three years," said Peter Murphy, president of Tampa, Fla.-based Home Encounter LLC a realty firm.

He says that in the last week, as the documents issue unfolded, he saw 15% of all foreclosure-sales listings of bank-owned homes yanked from the market. "I would expect that if we didn't have the judicial process, we'd be either right at the bottom, or we'd be bumping along the bottom getting ready to recover."

　Consumer advocates say the judicial process gives consumers a better chance to work out their problems. But Florida's court system is so overwhelmed with foreclosures that last year it began calling judges out of retirement to handle hundreds of foreclosure cases a day in a forum that became known as the "rocket docket."

Economists argue the efforts are wasteful because in the large majority of cases, borrowers have already turned over the keys to the home and walked away from their loans. Others stopped paying because, they said, defaulting was the only way to get their lender to consider a loan modification.

Matt Johnson, a 37-year old preacher and schoolteacher who now lives in Tampa, Fla., bought a $250,000 home in Gainesville at the height of the market in 2006. He defaulted three years later, hired a lawyer, failed to sell the house and hasn't made a mortgage payment in thirteen months. The home is vacant, awaiting repossession.

In California, when a homeowner defaults, the lender sends a notice, then must wait 90 days before scheduling a trustee sale of the house. The trustee sale must occur at least 21 days after it is scheduled, meaning that the quickest California foreclosures can take 111 days after default.

Samuel Kuoha, a 63-year old retired police officer and karate instructor, lost his home in El Cajon, Calif., in less than four months after defaulting on the $450,000 mortgage, which he refinanced in 2004 into a subprime loan, with payments that reset from $2,800 to nearly $5,000 per month. He says instead of serving him with papers, about 100 days after he defaulted, a bank representative gave him 30 days notice to move out.

"Next thing we know, some guy walked up to the door, and told my wife that they now owned the home, that they had bought it on the courthouse stairs," he said. Mr. Kuoha has since moved to Arizona, where he rents a house from a friend.

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Bank of America Halts Foreclosures

Miami, FL - .Bank of America Corp. imposed a nationwide moratorium on foreclosures and the sale of foreclosed homes after it came under intense pressure from a government-run housing-finance giant worried about documentation problems, people familiar with the situation said.

The bank called the halt as concern mounted from legislators and state prosecutors about procedures used by lenders to foreclose on homes. Many banks use so-called robo signers, employees who sign hundreds of documents a day, without carefully reviewing their contents, when foreclosing on homes. Critics say that could result in improper foreclosures.

Freddie Mac, the government-run mortgage-finance company that along with Fannie Mae owns many of the mortgages serviced by banks, pressed Bank of America to expand its search for problems with the foreclosure documentation process, said the people familiar with the situation.

On a call Thursday with several banks that included Bank of America, a Freddie official said the mortgage company wanted the institutions to look at foreclosure documentation across all 50 states, and asked them to consider putting a stop to the entire foreclosure process, say people familiar with the call.

Many in the banking industry fear that the widening paperwork problem could cause further delay on foreclosures and threaten an already weak housing market, which in turn is stalling the broader U.S. economic recovery. On the other hand, it could provide a brief financial respite to people who have defaulted on their mortgages and are still occupying their homes.

As of August, there were more than 4.4 million home loans that were either in the foreclosure process or 90 days past due, according to mortgage research firm LPS Analytics. Since 2006, about 6.4 million homes have been lost through the foreclosure process.

Edward DeMarco, who heads the Federal Housing Finance Agency, which regulates Fannie Mae and Freddie Mac, said in an interview that officials were working to find a "tailored" response to the foreclosure problem that won't cause broader problems for the fragile housing market. "We are trying to be quick but measured in the approach and the response taken," he said. "We're concerned about the whole housing market, and we're concerned about what this means for taxpayers and other market participants."

Last week Bank of America, J.P. Morgan Chase & Co. and Ally Financial Inc. agreed to more closely examine documents used in 23 states where a court's approval is required to foreclose on a home. J.P. Morgan said its review suspended nearly 56,000 foreclosures.

In conversations with Bank of America, Freddie said financial penalties or litigation could result if the bank did not take additional steps, said a person familiar with the conversations. Bank of America told Freddie that an audit of procedures in the 23 states uncovered no errors, this person said.

But Freddie said the work didn't go far enough and asked for a review in all 50 states, as well a stop to any foreclosure sales, said people familiar with the situation. Freddie Mac declined to comment.

Bank of America Chief Executive Brian Moynihan said Friday that the bank hasn't found problems in its foreclosure process, but opted to temporarily halt all foreclosures to "clear the air." He said the bank wants to "go back and check our work one more time."

Its decision is expected to stop "a couple of thousand" foreclosure sales scheduled for the next week, according to one person familiar with the matter said. The bank declined to specify how many homes it has in the foreclosure pipeline.

So far, Bank of America is the only lender to expand its foreclosure freeze, but others may be forced to begin or broaden a review, banking executives say. Wells Fargo & Co., one of the nation's largest mortgage lenders, says it hasn't stopped foreclosing on any properties.

At this point, J.P. Morgan isn't expanding its foreclosure moratorium, but is widening its document review beyond the 23 states where it has frozen foreclosures, according to a person close to the bank.

Bank of America services 14 million mortgages, or one out of every five in the U.S., and its loan-servicing portfolio exceeds $2.1 trillion in size. Of its mortgages, 10 million came from its 2008 acquisition of troubled California lender Countrywide Financial Corp. More than 80% of its delinquent loans were acquired through Countrywide.

A push over the last week from politicians and law-enforcement officials troubled by reports of foreclosure problems only intensified the pressure on Bank of America, which has been working to improve its relations in Washington. It concluded that reviews in just 23 states wouldn't cut it with elected officials in the other states, a person close to the bank said.

"In this intense political season we are in, it didn't play well to say do it in some states but not your state," this person said.

Senate Majority Leader Harry Reid (D., Nev.), whose state has been hit hard by foreclosures, and House Oversight and Government Reform Committee Chairman Edolphus Towns (D., N.Y.), both said Friday they welcomed Bank of America's move and called on other banks to follow.

Cassandra Toroian, chief investment officer at Bell Rock Capital LLC, a money-management firm, says the additional reviews are unlikely to significantly impact the outcome for homeowners who are facing foreclosure. "It's just delaying the inevitable," she says.

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10 Trouble Spots to Consider When Purchasing a Foreclosed Home

It’s easy pickings out there for many potential home buyers. Housing prices are at their lowest in more than a decade, inventories are high, analysts are predicting a new wave of foreclosures and the government is offering two substantial tax credits for which many home buyers qualify.

But bargain buyers beware, warns Vince Mastronardi, whose property preservation business has been busy preparing foreclosed homes for sale.

“Buyers need to educate themselves about the potential pitfalls of purchasing a distressed property,” says Mastronardi, president of On-Site Specialty Cleaning & Restoration. “It’s not so much what damage occurred, but the source of that damage and how long before the problem was addressed.”

These 10 signs may indicate that trouble is around the corner.

1. Unheated house in winter months. If the home has been properly winterized, there’s no need for heat. But if the home has not been properly winterized, pipes will burst and cause water damage.

2. Missing sinks, toilets and other fixtures. Make sure they’ve been properly removed and not ripped from walls and floors.

3. Peeling, bubbling, and discolored paint; swelling in walls or ceilings (especially around kitchens and bathrooms) or a musty odor all indicate water damage and, potentially, the presence of moisture and mold.

4. Fungus growth inside cabinets, behind drawers and built-ins. Fungus could mean that there has been water damage. Since water falls down, look for the source above the mold.

5. Blocked drains or pipes will cause future problems and may have already created sewage backups.

6. Black cobwebs, greasy gray residue on walls and/or a strong oily odor. This could point to potential soot damage or a malfunctioning furnace.

7. An older home with extensive renovations. Check with the city for pulled permits in order to get remolding details. If asbestos is present and has been disturbed, be sure it’s been remediated by a certified specialist.

8. Excessive painting of every nook, cranny, door and floor may mean that the seller is covering up mold.

9. Discolored subflooring. From the basement, check the subflooring above for stains and small holes, both caused by mold.

10. Air Quality. The air quality within a home tells a lot about the home’s condition. Be sure to include air and surface testing in your home inspection. It’s a few hundred dollars well spent.

“Time and technique are the most important factors of effective clean-up and preventing future problems like mold or contamination,” Mastronardi explains. “Ideally, professional cleanup begins within a few days of the damage; technicians are trained, certified or licensed; and equipment is specialized and up to date.”

Ask the seller to explain how the damage was fixed. Plus, check out the company that performed the repairs to ensure it has industry-recommended certification. If needed, follow-up with the seller or repairing company for specific repair details.

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Paperwork Missteps to Prolong Foreclosure Crisis in Certain States

Three major mortgage lenders have halted foreclosures in states where the process is handled through the court system after suspicions surfaced that employees did not follow legal procedures in preparing the required documentation. GMAC Mortgage was the first to do so, followed by JPMorgan Chase and then Bank of America.

Analysts warn that the practice of rubber-stamping foreclosures without following legal statutes may go far beyond these three, with more foreclosure suspensions expected in the coming weeks. These paperwork problems are widely expected to draw out the already devastating foreclosure crisis in the affected states.

At the request of a number of DSNews.com readers, we have dug a little deeper to provide a list of the states where judicial foreclosures are the standard and that are most likely impacted by the foreclosure suspensions announced.

According to data provided by RealtyTrac, the 23 states listed below primarily use the judicial foreclosure process, with two additional states (Hawaii and Nebraska) employing judicial procedures “fairly often.”

1. Connecticut
2. Delaware
3. Florida
4. Illinois
5. Indiana
6. Iowa
7. Kansas
8. Kentucky
9. Louisiana
10. Maine
11. Maryland
12. Massachusetts
13. New Jersey
14. New Mexico
15. New York
16. North Dakota
17. Ohio
18. Oklahoma
19. Pennsylvania
20. South Carolina
21. South Dakota
22. Vermont
23. Wisconsin

A spokesperson for RealtyTrac explained that all states allow for foreclosures to be handled through their judicial system, but the 23 listed here are the ones where it is most commonly used.

According to a Mortgage News Daily blog, the memo GMAC sent to its “preferred agents” alerting them of its foreclosure suspension includes all of the states listed above with the exclusion of Delaware, Maryland, and Massachusetts. In their place, Hawaii, North Carolina, and Nebraska were added to GMAC’s list.

Bank of America has provided DSNews.com with its list of affected states. It contains all the states cited by RealtyTrac above, with the omission of Maryland and Massachusetts and the addition of Hawaii and Nebraska.

A spokesperson for JPMorgan responded to our inquiry with “We aren’t sharing at this point.”

The analysts at the credit rating agency DBRS wrote in commentary released Monday, “Apparently, in an effort to keep up with the ever increasing volume of foreclosures, many servicers are now realizing they violated the foreclosure commencement requirements of judicial jurisdictions which necessitate that: 1.) anyone who signs an affidavit must have verified all of the information contained within the document to ensure its accuracy and; 2.) all affidavits must be executed in the presence of a notary.

The analysts added, “DBRS believes that servicers will be able to quickly correct and refile any deficient affidavits in addition to implementing the appropriate controls to ensure there is not another breakdown in process. However, RMBS [residential mortgage-backed securities] that contain these loans will likely experience higher loss severities due to longer liquidation timelines.”

The Association of Mortgage Investors issued a called to all RMBS trustees on Friday urging them to “perform their fiduciary responsibilities and protect millions of American pensioners and retirees, in the wake of reports about serious irregularities in the processing of legal affidavits by the nation’s largest mortgage servicers.”

The group says the news that has come to light “undermines the integrity and the operational framework of the housing finance and mortgage system as it exists today.”

In all cases where underlying loan files do not have the legal documents required under RMBS pooling and servicing agreements (PSAs), the Association of Mortgage Investors is demanding servicers immediately pursue the repurchase of these loans.

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Existing Home Sales Improve a Bit

The National Association of Realtors® (NAR) reported that existing home sales advanced modestly in August, rising 7.6% to a seasonally adjusted annual rate of 4.13 million units. This follows the dramatic 27% decline  in July — an adjustment to the effects of the home buyer tax credit and its deadlines, which drew home sales that normally would have occurred in July and August forward into March and April.

While the modest rise in home sales in August was a welcome development, it was still the second lowest level since the NAR began reporting total existing home sales, which includes condominiums and coops, in 1999.

The turn-around in August was consistent across housing sectors and regions. Single-family home sales rose 7.4% from 3.37 million in July to 3.62 million, the second lowest sales rate since July 1995. Meanwhile, condominium and coop sales rose 8.5% to 510,000. Regionally, total home sales increased 7.9% in the Northeast, 5.0% in the Midwest, 5.2% in the South and 13.8% in the West.

Home affordability conditions are the best in more than a generation, with the average commitment rate for a 30-year fixed rate mortgage at a record low of 4.43% in August and the NAR median house price back down to its 2003, pre-boom level.

Although this has not been reflected in recent home sales, economic conditions and job growth are expected to improve in this year’s fourth quarter, setting the stage for a sales rebound

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