With Foreclosure Freezes Over, Banks Step In

This should come as no surprise, though it’s certainly a sign that more hard times are ahead: Banks are moving forward with foreclosures now that voluntary freezes by lenders are over, The Wall Street Journal reports today.

As TWI reported recently, a ban on foreclosures by mortgage giants Fannie Mae and Freddie Mac ended for good on March 31, with no further extensions. But other lenders, from JPMorgan Chase to Citigroup, also had instituted voluntary freezes, and they are also now over. It all raises a question that TWI explored when some of the voluntary freezes began: Do foreclosure freezes really help homeowners, or just kick the problem down the road?

From The Journal:

Some mortgage companies had stopped foreclosing on borrowers as they waited for details of the Obama administration’s housing-rescue plan, announced in February, which provides incentives for mortgage companies and investors to reduce borrowers’ payments to affordable levels. Others had temporarily halted foreclosures while they put their own programs in place, or in response to changes in state laws.

Now, they have begun to determine which troubled borrowers are candidates for help, and to move the rest through the foreclosure process.

The resulting increase in the supply of foreclosed homes could further depress home prices and put additional pressure on bank earnings as troubled loans are written off.

Some of the mortgage companies are themselves receiving funds under the government’s financial-sector bailout, which could make their actions politically sensitive. But mortgage companies say they are taking steps to keep borrowers in their homes, and are only resorting to foreclosure when there are no other options.

Here’s what The Journal says regarding Fannie and Freddie:

Both Fannie and Freddie have stepped up sales of foreclosed properties since their moratoriums ended on March 31. Freddie says it has started to complete some foreclosure sales, such as those involving investment properties or second homes, though it continues to delay foreclosures on loans that may be eligible for modification under the Obama plan.

Fannie has told servicers that “a foreclosure sale may not occur on a Fannie Mae loan until the loan servicer verifies that the borrower is ineligible” for a loan modification under the Obama administration’s plan, “and all other foreclosure prevention alternatives have been exhausted,” a Fannie spokeswoman says.

I don’t see how this proves that Fannie and Freddie actually have stepped up foreclosures on most homeowners, though they may be moving forward on investment properties and second homes. Both Fannie and Freddie have a mandate to hold off on foreclosing until they can determine whether the homeowner qualifies for the Obama administration housing rescue plan.

If we suddenly see a huge flood of foreclosures ahead, and most involve Fannie and Freddie properties, it will be evidence that the Obama homeowner rescue plan isn’t enough to slow down the foreclosure machine. But it’s too early to draw that conclusion. While the foreclosure rate is clearly on the rise, it t remains to be seen how bad it all will get, and whether the foreclosure freezes really did much to keep troubled borrowers in their homes for good.