This Day On The Street
Continue to site
ADVERTISEMENT
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here

Banks' Foreclosure Pain Persists Even After Settlement

Short sales are considered a better alternative to foreclosures as it minimizes cost to the banks while allowing borrowers time to find alternative accommodation.

Yet it has the same effect as a foreclosure in some ways. The borrower still loses his home and his credit score is damaged.

Critics of the settlement also point out that banks would have pursued short sales anyway and should not be given credit for doing so.

Banks also forgave $19 billion worth of principal. But, here again, most of the relief was on second mortgages, which in the event of foreclosure gets lower priority than the primary mortgage.

Banks forgave only $6.04 billion in primary mortgages. Forgiving the second loan may reduce the total amount of debt owed by the borrower but for those who are deeply underwater and struggling to make monthly payments, this does not help them avoid foreclosure.

Meanwhile, the servicers are racing to fulfill their obligations under the settlement and put it behind them.

Bank of America said Thursday it had completed $30 billion of "real and meaningful relief" and that it is on track to meet its obligations under the settlement by the first quarter of 2013.

But the big banks may find their foreclosure woes are not yet over.

A dozen of the largest mortgage servicers entered into another $9.3 billion settlement with regulators earlier this year over previous foreclosure abuses.

Under that agreement, banks will pay $3.5 billion in direct payments to eligible borrowers and over $5 billion in other assistance, such as loan modifications and forgiveness of deficiency judgments. The agreement covers about 4 million borrowers whose homes were in foreclosure in 2009 and 2010 with the participating servicers.

The settlement would allow lenders to cease the independent foreclosure review process that was mandated under an April 2011 enforcement action.

Regulators had determined that the foreclosure review process, which involved a case-by-case review of millions of loan files, was proving too expensive, time-consuming and ineffective.

But since then, questions have mounted on why regulators terminated the review process so abruptly, amid press reports that the review process was rigged from the beginning.

"The opaque nature of the consent order process and resulting agreement in principle raises many questions about the validity of the IFR and the appropriateness of settlement figures discussed in the news," Rep. Maxine Waters, the lead Democrat on the House Financial Services Committee said in a recent letter to regulators.

Banks may not be able to move on from the foreclosure problems as quickly as they would like to.

-- Written by Shanthi Bharatwaj in New York

>To contact the writer of this article, click here: Shanthi Bharatwaj.

>To follow the writer on Twitter, go to http://twitter.com/shavenk.

>To submit a news tip, send an email to: tips@thestreet.com.
Disclosure: TheStreet's editorial policy prohibits staff editors and reporters from holding positions in any individual stocks.
2 of 2

Check Out Our Best Services for Investors

Action Alerts PLUS

Portfolio Manager Jim Cramer and Director of Research Jack Mohr reveal their investment tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
Quant Ratings

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
Stocks Under $10

David Peltier uncovers low dollar stocks with serious upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
14-Days Free
Only $9.95
14-Days Free
Dividend Stock Advisor

David Peltier identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Updates with exact steps to take - BUY, HOLD, SELL
Trifecta Stocks

Every recommendation goes through 3 layers of intense scrutiny—quantitative, fundamental and technical analysis—to maximize profit potential and minimize risk.

Product Features:
  • Model Portfolio
  • Intra Day Trade alerts
  • Access to Quant Ratings
Options Profits

Our options trading pros provide over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.

Product Features:
  • Actionable options commentary and news
  • Real-time trading community
SYM TRADE IT LAST %CHG
BAC $18.17 1.60%
C $58.92 0.94%
JPM $68.95 1.30%
WFC $57.94 0.95%
XLF $25.27 0.92%

Markets

Chart of I:DJI
DOW 17,751.39 +121.12 0.69%
S&P 500 2,108.84 +15.59 0.74%
NASDAQ 5,114.6870 +25.4810 0.50%

Free Reports

Top Rated Stocks Top Rated Funds Top Rated ETFs