Fear of a National Foreclosure Moratorium Passes but Concerns Persist

Even though the White House backed away from endorsing a national foreclosure moratorium, the issue isn't going away anytime soon — and servicers and vendors alike are worried that the 'Foreclosure-gate' scandal will continue to harm the market.

Of particular concern to the industry is an increase in vacant homes.

"Somewhere down the line, these properties will go into foreclosure," said Robert Klein, chairman of Safeguard Properties, a national REO field services company. "Nothing is being accomplished by delaying the foreclosure."

He and others in the industry believe that once a moratorium expires, chances are the house will be lost to the homeowner anyway. "These loans are delinquent," said the Safeguard chief. "People are not paying their mortgages."

Servicers and REO managers are concerned that if homes stay vacant too long they will deteriorate and become harder to sell, exacerbating the real estate downturn.

Despite intense national media scrutiny on the issue, housing markets have yet to seize up.  

Bill Dallas, who heads Skyline Financial, a retail lender based in Calabasas, Calif., said he has yet to see any negative impact on his business. "This foreclosure mess has not yet hurt the market — not that I've seen," Dallas told Managing REO.

He said noted, however, that the intense media scrutiny has "added grist to the mill of confusion."

A nonbank lender, Skyline's biggest market is California, but the company is licensed to fund in roughly two dozen states.

Foreclosure-gate became a national story in late September when GMAC Mortgage halted foreclosures in 23 states after admitting that it had cut corners in processing troubled loans. Soon enough, several other national servicers said they would double check their foreclosure practices, making sure they were in compliance with state and local laws.

For a few days in early October it appeared that a national foreclosure moratorium might become a reality until the White House officially shot down the idea, saying such a move would delay and hurt a recovery in the housing market.

"We believe freezing foreclosures for all banks in all states, whether we have a reason to believe them to be in error or not, is simply not the prudent step to take in this fragile housing market," said Federal Housing Administration chief David Stevens.

He added that, "While we understand the eagerness to make sure that no American is foreclosed upon in error, we must be careful not to overreach and apply a remedy that will make the underlying problem of foreclosure worse."

Although the White House passed on a moratorium, it's still possible that several state attorney generals might ban together to pass some time of regional ban on foreclosures.

Roughly two dozen state AGs are investigating the issue and Ohio has already sued Ally Financial for foreclosure fraud, a charge the bank holding company denied.

All totaled, as MSN went to press, two of the nation's three largest servicers — Bank of America and JPMorgan Chase — had some type of foreclosure moratorium in place. But the temporary halt in seizing homes was not expected to last more than a few weeks.

According to figures compiled MSN and the Quarterly Data Report, B of A and JPM as servicers control 35% of all housing debt in the U.S.

Attorneys that represent servicers said they are not surprised consumer lawyers are making a big deal out of the problem.

Laurence Platt, a partner with the Washington law firm K&L Gates, said consumer attorneys are looking for "any reason" to stop home foreclosures after loss mitigation efforts fail.

"I am concerned that at some level these attacks are a pretext simply to stop foreclosures and permit defaulting borrowers to keep their homes without regard to payment status," Platt said.

—Paul Muolo also contributed to this report