The number of homeowners falling behind on their mortgages for the first time has finally fallen close to pre-housing-crisis levels, but those already in trouble on their mortgages may still not be getting a fair shake from their lenders.
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New York Attorney General Eric Schneiderman announced Monday he is suing Bank of America and Wells Fargo for, "339 violations of standards agreed to," under the National Mortgage Servicing Settlement. That settlement, signed by the nation's five largest lenders in early 2012, was the result of so-called "robo-signing," or foreclosure paperwork infractions and fraud.
"The five mortgage services that signed the National Mortgage Settlement are legally required to take specific, rigorous, and enforceable steps to protect homeowners," Attorney General Schneiderman said. "Wells Fargo and Bank of America have flagrantly violated those obligations, putting hundreds of homeowners across New York at greater risk of foreclosure. I intend to use every tool available to my office to hold these companies accountable under the terms of the National Mortgage Settlement."
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The settlement's monitor, former North Carolina Banking Commissioner Joseph A. Smith noted, "a significant increase," in consumer complaints in the second half of 2012.
In a February 2013 report he reported 5,700 consumer complaints submitted to his office, about half of which related to problems with loan modifications or customer service.
The banks have extended close to $46 billion in gross relief to more than 550,000 borrowers under the settlement so far, according to the Office of Mortgage Settlement Oversight. Thousands of borrowers have had their mortgage principal slashed under the settlement, which should reduce future delinquencies. Negative equity is a primary driver of new delinquencies, a fact all too clear in a new report Monday from Lender Processing Services.
"Looking at the March data, we see that borrowers with equity are actually outperforming the national average—at 0.6 percent, this group is quite close to pre-crisis norms," said Herb Blecher of LPS Applied Analytics, which released the delinquency report Monday.
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"The further underwater a borrower gets, the higher those problem rates rise. Borrowers with loan-to-value (LTV) ratios of just 100-110 percent are actually defaulting at more than twice the national average. For those 50 percent or more underwater, we see new problem rates of 4 percent."
As home prices rise, more borrowers are coming up from underwater on their home loans. There were 41 percent fewer loans nationally in a negative equity position in March, according to LPS. Still, that's approximately 9 million loans, or 18 percent of all active mortgages.
The picture is bleaker in states harder hit by the housing crash. In Florida, Nevada, Arizona and California, an average 28 percent of all loans remain underwater, according to LPS.
"Are we out of the woods yet in terms of foreclosures? No, not by any means," said Rick Sharga of Carrington Mortgage Holdings and formerly of RealtyTrac, a foreclosure sales and data company. "Are foreclosure numbers the best since 2006, 2007? Yes, but 2006, 2007 were awful years in terms of foreclosure activity."
There is still a considerable pipeline of delinquent loans in states where a judge is required in the process. Florida, New York and New Jersey are looking at several years' worth of backlogs.
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