The most notable statistic in the RealtyTrac May 2012 U.S. Foreclosure Market Report released today was the year-over-year increase in foreclosure starts following 27 months of annual declines.
More than 109,000 properties nationwide started the foreclosure process during the month of May, a 12 percent increase from April and a 16 percent increase from May 2011. The last time foreclosure starts increased on an annual basis was January 2010, when they were up less than 1 percent from January 2009.
This indicates that the frozen-up foreclosure process — caused by fallout from the robo-signing controversy back in October 2010 — is finally starting to thaw at a national level. A major contributor to that thaw was the national mortgage settlement between five major lenders and 49 state attorneys general concerning foreclosure processing abuses — finalized and approved by a judge on April 4.
The settlement, in effect, gives at least the five major lenders clarity about how to move forward with the non-performing mortgage loans in their portfolios. Certainly a big part of that move-forward strategy involves loan modifications, refinancings and streamlined short sales — the bulk of the $25 billion required of the lenders in the settlement goes toward those efforts. But the settlement also lays out clear guidelines for how lenders should complete a foreclosure properly — implicitly acknowledging that the above foreclosure alternatives will not work for every distressed loan and that some necessary bank repossessions must occur going forward.
The foreclosure-processing guidelines in the settlement include the following:
- No more robo-signing, where the person signing foreclosure-related documents has no personal knowledge of the facts of the foreclosure case.
- Pro-active borrower notification. The settlement guidelines stipulate that lenders must send a notice to a delinquent borrower at least 14 days before referring the delinquent loan to foreclosure.
- Proper documentation of the lender’s authority to foreclose on the homeowner. Basically this involves the bank providing documented evidence that they own the note (mortgage loan) that is delinquent.
- Dual-track restricted, meaning that lenders and servicers may not move forward with the foreclosure process if it has received an application for loan modification from the delinquent borrower and has not yet finished reviewing that application.
- Single point of contact required. Lenders and servicers are required to assign a SPOC to each distressed homeowner who makes contact with them.
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