Q&A WITH MARK SPRAGUE
Mark Sprague is a noted and respected expert on the real estate industry and the Austin market, in particular. He is also the Director of Business Development for Mission Mortgage and we are fortunate to have access to his expertise and opinions. Recent news about the freeze on foreclosures by some of the nation’s largest banks has led to a flood of questions. Today, Mark discusses the issue given what we know right now.
Lately, the media has been reporting on a freeze on foreclosure proceedings by some of the largest banking entities in the country. Most recently, we have heard that some of these banks are re-starting the foreclosure process where they feel they have appropriately reviewed their procedures to ensure that everything is fair and legal. Meanwhile, investigations and reviews continue.
Question: Were the foreclosures in question initiated against borrowers who should not have been targeted?
Answer: No one seems to dispute the fact that these titles were in foreclosure due to the mortgagees not following the parameters of the contracts (not making payments, etc.). No reports have been issued indicating that borrowers who made the proper payments are impacted by this situation. All information out so far points to paperwork and procedurals concerns regarding the foreclosure process AFTER the borrower had been found to be in default of the terms of their contracts.
QUESTION: So what’s the big deal? If the reasons for the foreclosure were legitimate, then why does it matter if we delay them to check on the procedures being used?
ANSWER: Clearly, no one should be foreclosed on improperly – even if it’s a technicality. The delay in foreclosures is not a good thing. Yes, foreclosures are a bad thing, but delaying it is even worse. The decisions to stop foreclosures came amid reports of bank processors approving documents without properly reviewing them and bank agents ordering the foreclosures. Atty. generals and politicians called for more mortgage lenders to halt foreclosure proceedings after allegations that several banks failed to properly review documents. The alleged practices include “robo-signing,” in which documents are signed but not read. Many major national banks will slow down or stop foreclosures in most states as it reviews its procedures, according to The Wall Street Journal. A significant concern is moratoriums on foreclosures or sales will mean more distressed inventory. That could depress or flatten housing prices, particularly in those hard pressed 32 counties where over 55% of all foreclosures are nationally. The faster it can be resolved, the better it will be for the market. The longer it’s drawn out, the more uncertainty there will be in the housing market and it could have a crippling effect. Delaying the foreclosures, of course, leads to an entirely new set of problems. Having a buildup of properties hitting markets around the country at the same time will not be good.
QUESTION: If the banks are halting the process and they are owed the money from the original mortgage, then aren’t they the only ones to be impacted (assuming the reasons for the foreclosures are sound and legal)?
ANSWER: Delaying the process raises the chance for “deeper losses to bondholders as taxes and insurance payments are fronted” according to an article in Reuters. Investors such as pension funds, mutual funds, and insurance companies will be hit, and any servicers fronting the money obviously will suffer from that. Before you think this doesn’t affect you and me, consider what your 401(k) and other long term pensions invest in. This isn’t just about homeowners. It’s about correcting what was done incorrectly as quickly as possible. Those servicing companies who have put a moratorium on foreclosing on the property often times still owe the ultimate investor the scheduled monthly interest, based on their contract.