Fear of Foreclosure Fraud Driving Down REO Sales, Home Prices - FDL

[WillyT]

Fear of Foreclosure Fraud Driving Down REO Sales, Home Prices
By: David Dayen - FDL
Monday November 22, 2010 1:12 pm

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After the extreme amount of outright fraud in mortgage origination, you would have thought that nothing could dissuade homebuyers from purchases. But the geniuses in the mortgage industry have managed to finally keep buyers sitting on their wallets, because of the scandalous level of foreclosure fraud.

The ongoing controversy surrounding foreclosures is taking its toll as homebuyers refused to look at distressed properties in October, and foreclosure sales suffered from delays, according to the latest Campbell/Inside Mortgage Finance Monthly Survey.

Both the share of home purchases involving distressed properties and average prices for foreclosed properties fell last month, the survey found.

14 percent of owner-occupant homebuyers and 6% of real estate investors refused to look at foreclosed properties last month. In short-sale properties the numbers jumped to 30% of buyers and 20% of investors. Given the worsening of the problem, and the very real possibility that originators never conveyed the mortgages into the trusts who now claim to own them, I can’t see this getting better in the near-term.

The fraud, then, led to investor and homebuyer fear, reducing home sales and lowering prices. Remember that the banks’ argument has been that these foreclosures must go through quickly in order to clear the market and let prices rise again. By faking the documents in a rush to foreclose, the banks have had the exact opposite effect.

Meanwhile, Cook County Sheriff Tom Dart, who refused to move forward on foreclosure evictions as the problems with documentation mounted, reluctantly agreed to resume operations, but not before issuing a stern warning to the servicers:

"For the people who have been involved with this and think now that because the (Cook County) State’s Attorney’s office has ordered me to go ahead with the evictions that everything’s fine . . . No, we are going to be looking at you for criminal violations,” Dart said. “You may have got through one storm now, the other one is coming.”

Dart singled out Bank of America, JP Morgan Chase and GMAC/Ally Financial last month for problems with eviction notices. He said Friday that investigators continue to find problems with bank employees signing off on foreclosure documents they haven’t read, although he did not single out individual companies <...>

“We are being overwhelmed with abundant evidence that there are irregularities,” he said, adding that just a cursory investigation by his financial crimes unit has shown problems in eviction order after eviction order. “Irregularities are going on all over the place here. It’s the norm.”

The servicers won’t be hiring Tom Dart as a celebrity endorser anytime soon.

The increased attention from sheriffs, judges and politicians will only raise awareness of the problems with practically all of the nation’s foreclosures. As those properties become impossible to sell, home prices will fall and more people will slip into negative equity. Maybe the banks think there’s an endgame in kicking every homeowner out of their property in America, but that makes no economic sense. Somewhere down the line, they’ll need to cut their losses.

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Link: http://news.firedoglake.com/2010/11/22/fear-of-foreclosure-fraud-driving-down-reo-sales-home-prices/

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[WillyT]

1. Kick !!!

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