Many mortgage lenders have called a foreclosure moratorium in response to criticism from consumer attorneys, state attorneys general, federal bank regulators, and other agencies.
What is this foreclosure moratorium about?
Starting in September, some lenders voluntarily suspended foreclosures around the country due to questions about the way foreclosure paperwork was processed. Some employees who worked for some of the largest U.S. mortgage lenders have been quoted as acknowledging they didn’t read or review foreclosure papers they signed and then filed with the court system.
State attorneys general, federal banking regulators, other agencies, and consumer groups also are looking into the way mortgages were placed into securities and how the bank industry tracked purchases and sales of mortgage loans. The Justice Department, the Office of the Comptroller of the Currency, which regulates the nation’s largest banks, and the Federal Housing Administration are all conducting reviews.
Lenders are now double-checking their paperwork. In many markets across the country, the foreclosure moratorium is delaying the sale of foreclosed homes, leaving home buyers in limbo. The current situation is creating difficulties and a new hurdle to the recovery of the housing and mortgage markets.
In a statement, Bank of America says it’ll resume foreclosure submissions in 23 states by approximately Oct. 25. It’s likely that other banks will follow suit.
How many homes are affected?
There’s no way of knowing exactly what percentage of foreclosures were improperly processed. Most observers believe that for most foreclosures, the problems largely involve documentation technicalities and that the properties ultimately would have been repossessed anyway.
Lenders say they plan to continue the foreclosure process on individual homes as soon as they finish checking the paperwork on each case and correcting it when needed.
Bank of America has announced it will resume foreclosure processing by about Oct. 25.
What does the foreclosure moratorium mean for the housing market overall?
It’s too early to tell if there’s an impact on the market, but the NATIONAL ASSOCIATION OF REALTORS® is monitoring the situation and will provide updates as more information becomes available.
If you’re selling your home, you may have less competition, depending on how long the foreclosure moratorium lasts: Buyers may be wary of buying foreclosures, making your home more attractive because it’s not a foreclosed property.
If you’re seeking a loan modification or a short sale, push hard for those options, which are now more attractive to banks, considering the problems with foreclosures.