NEW YORK -- It's no secret that Bank of America wants to put its mortgage-related woes behind it. But it appears that a key $8.5 billion settlement with large investors is playing a role in pushing many more people into foreclosures.
The number of homes across the country that received an initial default notice -- the first step in the foreclosure process -- jumped 33 percent in August from July, the foreclosure listing firm RealtyTrac reported last week. It was the largest monthly increase since August 2007, right after the housing bubble had burst.
Now a preliminary analysis reveals the largest escalation of foreclosures came from Bank of America. Just in California, default notices sent by Bank of America soared 96 percent in August from the previous month.
The dramatic rise is particularly evident in certain California towns and cities. For instance, notices surged 95 percent in Fresno and 76 percent in Sacramento.
Bank of America says that taking action on its foreclosure pipeline will set the stage for a housing market recovery. However, consumer advocates say Bank of America and the other lenders are ramping up foreclosures without cleaning up shoddy paperwork practices, which led to a moratorium in foreclosures last October.
"Bank of America has a ticking time bomb in its books and it needs to show investors that it is moving," said Ira Rheingold, an attorney and executive director of the National Association of Consumer Advocates.
" 'Does that mean it has improved its practices?' No. But Bank of America is in a desperate place," said Rheingold.
On June 29 the Charlotte, N.C., bank struck an $8.5 billion settlement with a group of large investors -- including Pimco, the New York Fed and Blackrock -- who claimed the bank had sold them poor quality investments based on faulty mortgages. The settlement is still subject to court approval; a decision is expected in November. Several other investors and homeowners have also filed objections with the court to block the settlement.
Bank of America spokesman Richard Simon said the bank's increased foreclosure actions had nothing to do with the settlement. Instead it stems mainly from a return to more timely filings on new defaults. He also noted that the bank has improved quality controls and was moving homes into foreclosure "only after all other options with homeowners have been exhausted."
Forced to Clear a Backlog
Clearing the backlog of foreclosures and defaulted loans is a key part of the terms of the settlement. Bank of America has to reduce the number of risky mortgage loans and find third-party companies that can help speed up the process. This includes helping homeowners modify loans or herding defaulted loans into foreclosure sales.
The bank's actions to start clearing the backlog started from the date the settlement was signed, said Scott Humphries, a partner at law firm Gibbs & Bruns, which represented investors in the settlement. "It does not have to wait for court approval," he said.
Bank of America is hopeful that the settlement will be approved, as it's a key part of the process to enable management to focus on other issues.
The bank's stock has been decimated this year -- falling more than 50 percent since January. That's because Bank of America has been hit by a spate of lawsuits from large investors, the government and corporations who say the bank should either buy back the billions of dollars of faulty mortgages or pay damages. Most of the mortgages were written by Countrywide Financial Corp., the country's largest mortgage lender which Bank of America bought in 2008.
Last October, Bank of America and JPMorgan Chase were among a group of banks that temporarily halted foreclosures after problems surfaced with the way they were handling foreclosure paperwork. The concerns included shortcuts such as people signing legal affidavits without checking documents or forging signatures. The shoddy mortgage paperwork has led to a headache for the industry where lenders at times don't know how much homeowners owe on their loans and often can't prove what bank or investor legally owns the mortgage.
More Paperwork Problems?
Foreclosures have continued to be stalled in some states because of court delays. In New Jersey last month a judge ruled that four major banks could resume uncontested foreclosures under court monitoring. This ruling led to a 42 percent increase in homes receiving a default notice in August from the previous month. In Atlantic City, N.J. alone default notices rose 68 percent.
On the national level, there wasn't any immediate reason, other than the Bank of America settlement, to explain the spike of defaults in such places as Tallahassee, Fla., where an additional 81 percent of homeowners received default notices. In Carson City, Nev., default notices rose by 185 percent.
Consumer advocates say there aren't any signs that the shoddy paperwork practices have been cleaned up even as foreclosures are being sped up.
"Bank of America will do the exact same thing now, except faster," said Don Barrett, partner at the Barrett Law Group, which is representing homeowners who seek to block the settlement. Barrett is a former tobacco lawyer who represented cases for attorneys general of several states against the tobacco industry.
Buyer's Market: Million-Dollar Foreclosures
Bank of America Escalates Foreclosures After Settlement
Location: Cherry Hills Village, Colo.
Price: $8.95 million
Sq. Ft.: 21,320
Situated in affluent Cherry Hills Village, this home is absolutely enormous, spanning more than 20,000 square feet on its 2.5-acre plot. The home boasts mountain views, five fireplaces, a giant family room and a garage that holds a whopping nine cars. The neighborhood homeowner's association offers a clubhouse, pool, tennis courts and trash removal.
This shingle-style mansion commands 359 feet of beachy lakefront and three total acres of prime Orono real estate. The residence, which features tile floors and vaulted ceilings, also offers a carriage house for any guests you'd like to keep at arm's length on their lake house sojourn.
Behind its stately stone and stucco exterior, this home offers equally elegant interior character with decorative features, like exposed-beam ceilings, reclaimed wood floors and Victorian-style chandeliers. The home sits on a ridge in the Upper Canyon of Silverleaf that has uninterrupted panoramas of the city.
Location: Castle Rock, Colo.
Price: $2.55 million
Sq. Ft.: 8,607
This home fits its town's name: With its turret and a stone exterior the mansion resembles a castle. Officially labeled a "mountain contemporary," the home is located on a cul-de-sac and comes with a four-car garage.
But that's not all it comes with. Get the full details by viewing the listing.
The "Wyndham Estate" sits on Newport's posh Ocean Drive. Having undergone extensive renovations, the massive stone baronial mansion offers a ballroom, music room, elaborate landscaping and a rooftop deck with panoramic views of the ocean.
It's hard to argue with the listing description when it describes this behemoth as "extraordinarily opulent." Adjacent to the world-class Arizona Biltmore Golf Course, the estate has a sweeping paved motor court that leads up to a massive amalgamation of stone, wood and iron -- 17,799 square feet of it.
It's the sort of home you can actually get lost in. For avid cooks -- servants or otherwise -- there's a lot to work with: The mansion has four kitchens. In addition to myriad other amenities, the monster residence offers a home theater, pool, spa, sauna, steam room and elevator.
Location: Del Mar, Calif.
Price: $4.495 million
Sq. Ft.: 3,142
Said to offer the most square footage of all homes in the ritzy Beach Colony of Del Mar, this stunner is steps from the beach. Special features include a great room, multiple patios and a secluded outdoor area with a spa, sand room and game room.
This storied estate built in 1930 may need "major renovating," according to the listing, but its lush landscaping is sure to impress: Three whole acres of garden stretch across the premises, offering paths, grottoes, waterfalls, caves, and ponds draped with tropical trees and other foliage.
Location: Las Vegas, Nev.
Price: $2.45 million
Sq. Ft.: 13,198
One of many, many other foreclosed homes in Las Vegas, Ground Zero of the housing crisis, this home shows just how far the dollar really goes when it comes to Sin City dirt. For $2.45 million, you get seven bedrooms, eight bathrooms, 13,198 square feet, a lighted tennis court, a come-hither pool and much more.
Live it up in this Spanish-style mansion built in 2002 -- you know, back when Kelly Clarkson and home prices were on the rise. The years have not been kind, however, and another millionaire’s misfortune could be your ticket to the good life.
Whoo, doggie! Everything’s bigger in Texas, including this over-the-top, Mediterranean-style villa. Unfortunately for the previous owner, this dream castle was built in 2009, right in the middle of the housing market’s freefall. The massive manor includes three bars, a game room, a lounge, a “poolside kitchen and fountain,” multiple fireplaces and two elevators. So much for fiscal austerity.
The fact that a home of this caliber can end up in the bank’s pocket shows just how pervasive the housing crisis has been. Built in 2004, this glass and concrete beauty is one sprawling, intricate showroom. With panoramic views of the hilly Denver landscape, this modern four-bedroom is perfect for star gazing – just so long as you’re comfortable with the neighbors staring back.