Banks Dodge Expected Wave of Foreclosures

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A steady flow of better-than-expected news out of the housing market is painting a brighter picture for the nation’s lenders and, perhaps best of all, a predicted tidal wave of foreclosures never made it to shore.

The latest green shoot in the housing market came Tuesday, when existing-home sales in April rose 3.4% amid slower distressed-sale activity, the National Association of Realtors said. And prices leaped 10%. Furthermore,  year-over-year, sales rose 10%, notching their 10th straight month of gains.

Once again, the latest data pushed the most recent legal wrangling backstage. On Monday, the Federal Deposit Insurance Corp. fired another salvo: It filed two lawsuits against JPMorgan Chase (NYSE:JPM), Citigroup (NYSE:C), Bank of America (NYSE:BAC), Deutsche Bank (NYSE:DB) and other firms over mortgage-backed securities. The FDIC is seeking to reclaim $77 million for two failed banks it has taken into receivership — banks that allegedly lost the money on securities backed by residential mortgages.

That $77 million sum, while not trivial, is hardly material to the banks’ balance sheets. After all, JPMorgan remains solidly capitalized amid its ongoing $2 billion-and-counting trading loss.

No, the nation’s lenders and their share prices won’t be undone by the relentless drips and drops of legal actions. Of more concern is the flood of inventory in the form of foreclosed homes that was supposed to hit the market, further depressing house prices — a flood that has so far failed to materialize.

Foreclosures were supposed to surge when the greatest legal overhang was put to rest in April. That’s when a federal judge signed off on the $25 billion mortgage settlement with the nation’s biggest lenders. Bank of America, Citigroup, JPMorgan, Wells Fargo (NYSE:WFC) and privately held Ally Financial coughed up $5 billion each to Uncle Sam and state governments to put the whole fraudulent-foreclosure-robosigning fiasco to bed.

Since lenders had to hold off on foreclosing on properties amid the scandal, it was taken for granted that the mortgage-servicer settlement would unleash a wave of foreclosures as banks played catch-up on filings.

So it’s been something of a welcome surprise for banks, homeowners and the housing market that the foreclosure tsunami hasn’t happened. Indeed, the U.S. foreclosure rate hit a five-year low in April. Moreover, the number of homes seized by banks dropped 7% in April versus March, according to RealtyTrac, for the third straight month of declines.

More data pointing to stabilization: Home repossessions fell 26% year-over-year, and the number of homes lenders have put on the path of foreclosure dropped 4% month-to-month and 2% year-over-year. On a national level, at least, the foreclosure crisis appears to be taking a turn for the better.

In other evidence that inventory is tightening, national home prices rose 0.6% in March from February, the first month-over-month advance since July, according to CoreLogic.

It was a given that housing prices wouldn’t stabilize until the foreclosure backlog burned off, but that may not be the case. A decline in distressed sales, cash incentives to borrowers to do short sales, the Home Affordable Refinance program — and record-low mortgage rates — are blunting the impact of what was expected to be a new glut of inventory.

Of course, the housing market has a long way to go in its recovery, but the worst of the mortgage mess — and its legal fallout — looks to be behind the nation’s lenders.


Article printed from InvestorPlace Media, https://investorplace.com/2012/05/banks-dodge-expected-wave-of-foreclosures/.

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