The national foreclosure crisis has resulted in loan closings being scuttled in some regions, and fears are mounting that, if the situation is not soon rectified, it could damage the one area where lenders are reaping stellar profits: originations.
John Walsh, the chief executive of Total Mortgage Services LLC in Milford, Conn., said Connecticut's recently adopted 60-day, voluntary moratorium on foreclosure sales caused his firm to scrap REO-related closings during the past two weeks and that more cancellations are in store this week.
"The unintended consequence of this is that some people won't get to buy houses," he said. "This is not a good situation."
If Connecticut Attorney General Richard Blumenthal obtains a binding 60-day moratorium on foreclosures in the state, further delays in closing REO transactions could be the consequence.
Cary Sternberg, the president of Excellen REO, a national asset management company, said Blumenthal's stance means, "undoubtedly, [that] some sales will fall through altogether due to buyers' unwillingness to wait."
Christopher Dannen, the president of the Connecticut Mortgage Bankers Association, said the association would not want to see foreclosures conducted without proper due diligence.
"Now the industry has another black eye because we have people who are foreclosing that should not be foreclosing," said Dannen, a vice president and residential lending sales manager at People's United Bank in Bridgeport, Conn. Its September pipeline grew 72% from a year earlier, mostly due to a significant refinancing boom.
"Originations have been very strong," he said. "We've had some of the best months we've had in a long time."
But the bank had an REO closing canceled recently by a large national bank, just two days before the scheduled sale.
Dannen said the foreclosure crisis will weigh on the market because it will increase inventory.
"There will be more inventory," he said, "and I guess you could say it will affect us if there's more inventory and prices drop further."
JPMorgan Chase & Co. Chairman and CEO Jamie Dimon said last week that a temporary halt in foreclosures would not have much impact on the housing market but qualified that by adding "if the crisis ends in three to four weeks."
"If it went on for a long period of time, it will have a lot of consequences — most of which will be adverse on everybody," he said.
JPMorgan Chase is now halfway through a review of 115,000 loans that are in foreclosure to ensure they were processed properly.
Several other big lenders are reviewing their foreclosure practices for the same reason; they include Ally Financial Inc.'s GMAC Mortgage, Bank of America Corp. and PNC Financial Services Group Inc. B of A has temporarily halted foreclosures in all 50 states, but said Monday it will restart some cases next week. Others have halted them in the 23 states where foreclosures are handled by courts.
"A moratorium on foreclosures puts a moratorium on short sales and the whole market," said Gene Tricozzi, director/past president of the New York Association of Mortgage Brokers and a mortgage broker at Northern Funding Corp.
"Twenty-five percent of the sales now are foreclosed properties. If you put a moratorium on it, that can only slow the market down even more," he said.
The disruptions are apparently not affecting all areas of the country. Bill Dallas, the CEO of Skyline Financial Corp. in Calabasas, Calif., said he does not believe the crisis has hurt home sales in his state, though all the media attention "has added grist to the mill of confusion."
