Perilous
Times
Huge Surge in Bank of America Foreclosures
Published: Tuesday, 15 Sep 2011 | 12:29 PM ET
By: Diana Olick - CNBC
Bank of America is ramping up its foreclosure processing, sending
out far more notices of default to borrowers in August than in
previous months, well over 200 percent more month-to-month.
A notice of default is the first stage of the foreclosure process
in non-judicial foreclosures states, that is, where foreclosures
do not go before a judge.
The notice of default is usually sent when a borrower is 90 days
or more overdue in payments, but that timeline has been extended
significantly during this housing crisis, due to the so-called
"robo-signing" processing scandal and the sheer volume of troubled
loans.
Mortgage and housing analyst and strategist Mark Hanson alerted me
to unusually high legal default filing activity, and his research
points to Bank of America [BAC Loading... () ] as the
primary driver. I contacted a Bank of America spokesman, who
responded:
"It appears the numbers you noted to me this afternoon
generally track with our own numbers for key categories. It
should be noted it’s driven more in key states like California and
Nevada than overall, and certainly the progress we’re seeing is
limited to non-judicial states. Judicial states continue to move
very slowly, with key states like New Jersey only beginning to
start processing foreclosures again this month."
The foreclosure numbers are down very slightly year-over-year, but
only because August 2010 was one of the highest foreclosure months
on record, and of course was just before the "robo-signing"
scandal was uncovered. Delays in processing have artificially
lowered the foreclosure numbers over the past year, so this new
surge is likely addressing loans that have been long delinquent,
but unaddressed.
In other words, the foreclosure pipeline is filling again.
RealtyTrac, a widely followed foreclosure sale and data site, is
also confirming a surge in overall notices of default in its
August numbers, to be released later this week. They do not cite
Bank of America specifically, which bought Countrywide Financial,
taking on millions of troubled loans.
"We've been seeing REO [bank-owned property] sales, and processing
of loans through foreclosure. This increase may simply be the
lenders and servicers starting the next cycle. August
traditionally is a high month for foreclosure actions, so part of
the increase might be seasonal," says RealtyTrac's Rick Sharga.
"Could be any number of reasons - but with 3.5 million delinquent
loans, this had to happen sooner or later."
The question of course is, is this a one month catch-up purge or
will it continue at high levels for a while? And if the latter,
will other banks follow suit quickly? Because if other banks see
Bank of America pushing more loans to foreclosure, which will
inevitably means more properties heading out for sale, they may
want to get in before that glut of properties pushes prices down
even further.
"This proves once again that "credit" as measured by legal
defaults and foreclosures is not necessarily about borrowers
missing payments, rather about what the servicers chose to do
about it," notes Hanson.