Foreclosures slow to a crawl as banks are forced to refile faulty paperwork

So how much of a delay in foreclosures is the robo-signing fracas causing?

Freddie Mac, the now essentially taxpayer owned company that with Fannie Mae, finances or guarantees about half of all U.S. mortgages, told the Financial Times on October 25 that its now taking as long as eight months for a house to work it’s way through the foreclosure process. That process took about two months before the start of the mortgage crisis.

The delay comes because borrowers and judges are challenging bank attempts to foreclose at every stop of the way now that the robo-signing scandal has shown that many banks don’t have the paper work they need to foreclose or at least haven’t properly certified that they do. (Robo signers, bank officials checking over the paperwork for a foreclosure, it turns out certified the completeness and accuracy of thousands of foreclosure packages without actually reading the documents.) The judges ruling on foreclosures are throwing an increasing percentage of foreclosures back to banks for refilling too.

The result is that while before the mortgage crisis many people moved out of their homes upon receiving a foreclosure notice, now many are staying in those houses until the sheriff evicts them. Read more

Citigroup says it doesn’t have a mortgage foreclosure problem

Only one big surprise in Citigroup’s (C) third quarter earnings announced before the New York Stock market opened October 18.

No, not the penny a share in earnings above the Wall Street estimate of 6 cents a share. A slight positive surprise certain was a high probability event after JPMorgan Chase (JPM) surprised last week.

No, not the decline in revenue to $20.74 billion, below the analyst consensus of $21.15 billion and down 5.7% from the third quarter of 2009. That is exactly the problem that JPMorgan Chase reported too and it points to the problems that U.S. banks are having in generating growth in their core business.

No, not even the drop in credit losses that led to the release of reserves against loan losses of about $1.96 billion for the quarter. That’s the expected story at this point in the bank recovery. Read more

Add another word to English as spoken on Wall Street: robo signer.

These are the folks at banks and mortgage servicing companies who signed hundreds of foreclosure documents a day. Frequently they didn’t read them at all. Even more frequently they didn’t bother to check that the financial information in the foreclosure documents was accurate or that the financial company bringing the foreclosure could even prove that it had actually owned the mortgage in question and had the legal right to foreclosure. 

But the robo signers signed away putting their signatures on a line that said they had reviewed the documents for accuracy.

The result is a virtual national moratorium on mortgage foreclosures and an investigation by every single state attorney general—yep, all 50 of them—into the mortgage servicing industry.

According to FBR Capital Markets, losses for banks and other mortgage servicing companies from the moratorium could run to $6 billion to $10 billion and stretch out for at least four or five years.

Ah, if only that was the biggest bill hanging over the U.S. banking industry. But it’s not. Potentially. There’s this little problem called “put-backs.” That could be much bigger. No one knows how much bigger or who owns how much of it. And that’s a huge issue for investors since we all know how much Wall Street likes uncertainty.

How much bigger? Read more

Goodbye Fannie Mae and Freddie Mac as feds decide to delist stocks on NYSE

Shares of Fannie Mae and Freddie Mac, once the giants of the mortgage financing world—plunged yesterday, June 16, on news that the companies’ shares would no longer trade on the New York Stock Exchange. The shares will trade only on the over-the-counter bulletin board system.

The shares have been in danger of delisting since 2008 when federal regulators took over the companies and their stock  prices collapsed. The Federal Housing Finance Agency, which now governs the two companies, instructed them to delist voluntarily after warnings from the New York Stock Exchange that Fannie Mae faced a mandatory delisting since its shares price had averaged less than $1 for the past 30 days.

The Federal Housing Finance Agency could have avoided the delisting by ordering the companies to perform a reverse split wherein, say, 10 shares priced at 56 cents (yesterday’s close for Fannie Mae shares) turn into 1 share worth $5.60. But it’s unlikely that a reserve split would have kept the price above $1 for long and the agency, which is facing the need to come up with a plan to fix these two key players in the mortgage market, has apparently decided that defending the share price of two companies that are currently not viable as public companies sent the wrong signal to the financial markets.

Fannie Mae and Freddie Mac own or guarantee about 50% of the $11 trillion mortgage market but only an unlimited line of credit from the Federal government has kept the companies alive. Taxpayers now own 80% of the two companies and it’s likely that any final plan will require billions more in taxpayer money (the agency estimates $177 billion) so any restructuring will almost certainly wipe out any remaining private shareholders.

The Obama administration has said that it doesn’t plan to tackle the job of restructuring Fannie Mae and Freddie Mac until 2011.

The biggest short-term effect? Read more

Can taxpayers begin to get off the hook?

This week’s attempt by the FDIC (Federal Deposit Insurance Corp.) to sell securities backed by residential mortgages and construction loans marks a huge milestone in the road back to normalcy for the financial markets this week. Let’s hope the markets pass the test.

The FDIC has bundled together some of the mortgages and loans it owns after taking over failed banks into a mortgage-backed security of the kind that was the mainstay of the mortgage market before the financial crisis.

That market has been essentially closed for new business since the crisis with only Fannie Mae (FNM) and Freddie Mac (FRE) willing to buy these securities with funds provided by taxpayers. Banks use this market to sell mortgages that they have originated so they can put the proceeds back into new mortgages. When this market is frozen, banks have to hold onto the mortgages they’ve originated and that reduces the money they have available for new mortgages. If banks know they can’t securitize and sell their mortgages, they become more reluctant to lend. And that reduces the availability of mortgages.

Because private investors haven’t been willing to buy these securities post-crisis, taxpayers through Fannie Mae and Freddie have been left as the only buyers. That’s been necessary to keep the market functioning at all, but Fannie and Freddie can’t keep expanding their books forever. At some point private investors need to step back into this market.

The mortgage-backed securities that the FDIC will offer for sale this week are designed to entice private investors back into the market. Read more