Viewpoint: What's Behind Banks' Big Foreclosure Push?

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What does it mean that Bank of America and other lenders have restarted their foreclosure engines with a vengeance? Was the 7 percent spike in month-over-month foreclosure filings a retaliatory strike to show the government that the banks mean business and aren't to be messed with? Did lenders use the hapless public to send a message to the state attorneys general -- who have banks in their crosshairs as they seek a hefty settlement for robo-signing and other foreclosure shortcuts that cost people their homes?

Nobody ever accused the banks of playing nice, now did they? But theories like the above probably are best filed with the ones that say Lee Harvey Oswald didn't act alone and Israel tipped off Jews to the 9/11 terrorist plot.

Truth is, says Rick Sharga of RealtyTrac, the 3 million to 4 million homeowners who were behind in their payments when the robo-signing scandal broke and banks were forced to freeze foreclosures nine months ago have been waiting on the sidelines for judgment day -- the day when the big banks and lenders cleaned up their foreclosure process and once again were ready to proceed. That day has come.

Bank of America and the nation's large mortgage servicers remain embroiled in settlement discussions with state attorneys general and federal regulators over faulty foreclosure practices, but Sharga says that lenders have been working to clean up their act, and the uptick in foreclosure filings, to some extent, reflects a confidence that the process is now above reproach -- or at least above legal reprimand. The attorneys general were expected to have produced a settlement of more than $20 billion by now, as well as changes in how mortgages are serviced.

"Basically," says Sharga, "servicers got tired of waiting. They had delayed their actions, figuring the new regulations would be imminent." Imminent or not, they decided to just move forward. And move forward in earnest they did: In Orange County, Calif., Bank of America alone increased its default filings by almost 200 percent.

Seasonal Stress, Too

But before anyone hits the alarm button, Sharga also says the uptick reflects a seasonal pattern too. Adjustable rate mortgages for homes bought in the springtime (a busy homebuying time) generally reset during the summer. With that higher monthly payment comes an increasing strain to afford it. People stop paying and notices of default are sent out.

RealtyTrac noted in a press release that despite the monthly increase, default notices were still down 18 percent from August 2010 and were 44 percent below the monthly peak of 142,064 default notices in April 2009.

And the last conspiracy theory connected to the August foreclosure activity is that the banks acted in collusion -- all deciding at once to relaunch their foreclosure machines.

Again, says Sharga, not true. Bank of America filings were up by 96 percent month-over-month, but both Wells Fargo and Chase numbers were down.

So the good news is: We aren't looking at a third wave of foreclosures, but rather the leftover ones caused by difficulties of the economy and job losses. The bad news? It will take two to three years for the market to work through this backlog and until then, it's a slow, flat recovery.

Also see:
Viewpoint: Hey Mr. President, How About Housing?
Mortgage Mod Hell: Trapped Between Lenders, Collectors
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