Massive Delays Feared For Many Foreclosures

Recent revelations that Ally Financial and Chase Home Mortgage may have been cutting corners on their foreclosure paperwork have sent the servicing industry into a panic, with new concerns being raised about massive delays in foreclosure times and a reduction in company ratings.

Moody’s economist Mark Zandi is predicting that the crisis could—in some cases—lead to certain foreclosures being delayed for up to 10 years.

Meanwhile, investors in residential MBS are bracing for a new round of losses on their bonds.
“From a bond perspective, we are using higher-projected severities in our analysis of transactions,” said Roelof Slump, a managing director with Fitch Ratings. “Any operational deficiencies could impact the ratings.”

Ally has halted, for now, an undisclosed number of foreclosures in 23 states after revelations that one of its employees said he routinely signed off on court documents without verifying the information or having a witness present. JPMorgan Chase & Co. is halting 56,000 foreclosures in process, pending a review of whether employees properly signed and verified information on its foreclosure documents.

At least six state attorney generals have launched probes into Ally’s foreclosure practices and fears are running high that it’s only a matter of time before additional servicers admit similar problems, and Congress launches hearings.

For now, the scandal is causing rating agencies to warn residential servicers to double-check how they foreclose on troubled loans or else.

In a new notice to its servicers, Fitch said that if it determines a firm’s “processes are not adequate and remedial actions are not sufficiently robust,” it will take rating actions against the company.

Some mortgage advisors think the whole mess could blow over in a few weeks, but not all. Laurence Platt, a partner with the Washington law firm K&L Gates, told National Mortgage News that he is not surprised that consumer lawyers are looking for “any reason” to stop home foreclosures after loss mitigation efforts fail.

“Whether it is proving ownership of the loans or satisfaction of procedural requirements, servicers must demonstrate that they have crossed their t’s and dotted their i’s,” said Platt.

The attorney added, “Generally speaking, plaintiffs are not challenging whether a borrower really is in serious default for which foreclosure is a proper remedy under their loan documents. Rather they are looking to jam a stick in the spokes of the foreclosure process and bring it to a screeching halt. Foreclosure resistance should be expected.”

The “defects” cited in the Ally case were described in a deposition by a GMAC employee, who said he routinely signed off on court documents without verifying the information or having a witness present.

JPMorgan admitted that some employees “may have signed affidavits about loan documents on the basis of file reviews done by other personnel—without the signer personally having reviewed those loan files.”

JPM said it is now reviewing documents in current foreclosure proceedings to verify that the affidavits and other documents “meet the standard of personal knowledge or review where that is required.”

Chase has requested that courts not enter judgments in pending foreclosure proceedings until a review of all the cases is completed in the next few weeks.

All this comes at a time when foreclosure filings are on the rise. Dale McPherson, president and CEO of Field Asset Services, said his firm is swamped by new REO-related business and is staffing up.

“We are going to be on this ramp for the next 18-24 months,” he said. “We believe the gate has finally opened again. Granted, the last few days, we’ve been hearing about this affidavit rabbit that’s been pulled out of the hat.”