Thursday, March 15, 2012

Can The Nationwide Foreclosure Settlement Help The Construction Industry?

Unfortunately, probably not. Government officials filed papers Monday, March 12 asking the federal court supervising the litigation to approve a $26 billion settlement worked out between Bank of America, JP Morgan Chase, Wells Fargo, Ally Financial and Citigroup on the one side, and forty nine state governments on the other side. Oklahoma, the 50th state, made a separate deal. More banks are expecte to join in the settlement terms if the court approves them.

Documents supporting approval of the settlement include employee reviews at Bank of America reflecting company requirements for employees processing foreclosure paperwork to process 49 affidavits per hour, and 51 mortgage assignments per hour. That means reviewing, correcting and signing almost one court document per minute. A review of chase paperwork reflected that only 12% of foreclosure filings actually documented the amount allegedly owed by the homeowner, and only about 3% of the foreclosure complaaints were accurate in respect of the amount claimed to be owed. A Wells Fargo E-mail told employees to expect 100 affidavits delivered at 9 a.m., and they must all be signed by noon the same day. This would mean reviewing and signing the documents at the rate of one every two minutes without a break of any sort for three hours.

One employee at Ally signed up to 10,000 affidavits in support of foreclosure litigation each month – or a rate of one every 64 seconds during an 8 hour work day, with no time for breaks.

Of the $26 billion, $2.5 billion will go to state governments, including Wisconsin and Missouri, which have already announced their intention to divert settlement funds for reduction of general state budget shortfalls rather than using them to help struggling hoimeowners to avoid foreclosures. Three quarters of a million homeowners who already lost their houses in foreclosures will receive about $2,000 each in compensation – accounting for the next $1.5 billion. Up to $17 billion will go toward reduction of mortgage balances on homes which are underwater in today’s depressed real property market. Another large chunk will pay more than $100,000.00 each to active duty military servicemen and women whose homes were foreclosed in violation of the Soldiers and Sailors Civil Relief Act.

Even the state officials who negotiated the deal acknowledge that it won’t do much to relieve the glut of foreclosed homes depressing the housing market, because the total depth of the underwater housing phenomenon could reach a staggering $750 billion. Even if the number of participating banks increases to the anticipated total of 14, and the value of the settlement goes up to the predicted level of $30 billion, it’s just a 4% drop in the bucket.

It could take years for the residential real property market to clear the inventory of foreclosed and to be foreclosed houses, so new home construction might resume some semblance of its former healthy pace.

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