Foreclosures slow but housing market still hurting

By Dave Clarke

WASHINGTON (Reuters) – Home foreclosures slowed in the fourth quarter, but that is likely to be a brief reprieve once banks move more aggressively back into this area following a review of their mortgage servicing practices, according to a report released by U.S. banking regulators on Thursday.

A group of 50 state attorneys general and about a dozen federal agencies are probing mortgage servicing problems that came to light last year, including the use of “robo-signers” to sign hundreds of unread foreclosure documents a day.

In the final months of 2010 some big lenders, such as Bank of America Corp, briefly suspended foreclosure proceedings as they reviewed their methods for dealing with troubled borrowers.

New and completed foreclosures are expected to increase in the coming quarters with this pause having ended, according to the report from the Office of the Comptroller of the Currency and the Office of Thrift Supervision. The OCC regulates national banks and the OTS regulates the national thrift industry.

In the fourth quarter, completed foreclosures dropped by almost 50 percent to 95,067, while newly initiated foreclosures fell by almost 8 percent to 352,318.

Foreclosures in the pipeline actually increased because the number of newly initiated foreclosures was larger than those completed in the fourth quarter.

The inventory of foreclosures being processed jumped more than 7 percent to 1.3 million in the fourth quarter.

What to do with borrowers who can no longer afford their homes is a raging political and policy debate.

The state attorneys general are facing off with banks over changes to their mortgage servicing processes and whether principal writedowns should become a major part of efforts to keep borrowers in their homes.

The two groups met on March 30 to kick off negotiations that could be lengthy and contentious.

The banks at the meeting were Bank of America, JPMorgan Chase & Co, Citigroup Inc, Wells Fargo & Co and Ally Financial Inc.

Republicans want to end the Obama administration’s primary foreclosure prevention program — the Home Affordable Modification Program (HAMP) — arguing it has been a failure.

Earlier this week, the House of Representatives voted 252-170 to terminate HAMP. But the bill is unlikely to clear the Democratically controlled Senate.

Thursday’s report shows HAMP loans are performing better than separate industry efforts to keep borrowers in their homes.

OCC and OTS officials noted, however, that the report paints a limited picture of the program. The data only includes borrowers who made it to the end of the process and had their mortgages modified, and does not include participants who dropped out.

HAMP is also set up in such a way that it likely attracts people most able to keep making payments, while industry programs cover a wider swath of troubled homeowners, the officials said.

In a sign of good news for the housing market, the total number of serious delinquencies, those 60 days or more past due, fell 8.2 percent to 1.76 million in the fourth quarter, according to a report.

The OCC and OTS Mortgage Metrics Report provides performance data on first-lien residential mortgages serviced by national banks and federally regulated thrifts. The mortgages in this portfolio comprise about 63 percent of all mortgages outstanding in the United States.

(Reporting by Dave Clarke; editing by Lisa Von Ahn and Andre Grenon)

Foreclosures slow but housing market still hurting