Foreclosure

Data released Monday shows an increase in mortgage related fraud in areas with high rates of foreclosures and underwater borrowers. Risk analytics firm Interthinx released its annual Mortgage Fraud Risk Report which analyzes loan applications and determines the most significant mortgage fraud risk trends for the past year. According to the report, overall mortgage fraud risk is highest in areas that have been hit hardest by the housing and economic downturns, and fraud criminals are migrating to these regions.

The number of new filings for foreclosures in the state of New York fell in 2010, but the percentage of properties in the foreclosure process is growing, according to a new report from New York State Comptroller Thomas P. DiNapoli. He says the sharp drop in new filings can be attributed in part to a temporary suspension of foreclosure related activity, not an improvement in the market.

The mortgage default risk index from University Financial Associates (UFA) registered a reading of 141 for the first quarter of 2011. The index's baseline of 100 correlates to the default risk of the 1990s. Translation -- investors and lenders should expect defaults on loans originated in Q1 to be 41 percent higher than that of loans originated in the 1990s. UFA says the most important story behind the numbers is that the default risk index has found a plateau, and if inflation rates continue to rise, default risks will improve more rapidly.

New York City Comptroller John Liu has announced a victory for the members of the New York City Pension Funds who have long been calling for banks to conduct an independent audit of their mortgage foreclosure practices. The NYC Pension Funds requested an audit of the banks' practices in November and again in January to no avail, but the Securities and Exchange Commission (SEC) has ruled that the banks must put the group's request on the ballot at their annual shareholder meetings this spring.

In a partnership with the city of Detroit, Bank of America will open two customer assistance centers in the area to provide homeowners at risk of default or foreclosure with counseling and on-site decision making for mortgage modification programs or other payment assistance. The bank also plans to donate and refurbish 10 vacant homes for the city's ""Project 14"" program, and will work with the city to identify up to 100 low-value and vacant properties for demolition.

Radar Logic's latest RPX Composite, which tracks home prices in 25 major metros, declined to $179.50 per square foot in January, its lowest level since 2007. The company says the rapid decline suggests weak market fundamentals, including a high supply of homes coupled with high rates of mortgage defaults. The report also notes that sales of foreclosed homes by financial institutions, or ""motivated sales,"" made up 35 percent of all home sales as of January 20, the second highest share of motivated sales that Radar Logic has observed.

A push for servicers to implement principal write-downs and provide screening for as many modification options as possible before proceeding to foreclosure has been met with stiff resistance from servicers and some lawmakers. Meanwhile, the number of loan modifications pales in comparison to the number of foreclosures. But new data suggests that modifications and even write-downs in certain cases might actually be more beneficial to investors as well as struggling borrowers.

Ohioans undergoing foreclosure mediation who can't afford to hire an attorney now have another option. Capital University Law School recently developed a program to connect law students with people going through foreclosure. Upperclass law students volunteer their time for the pro bono program to help homeowners understand the mediation process.

Freddie Mac issued new policy guidelines to its servicers this week that prohibit foreclosures in the name of Mortgage Electronic Registration Systems Inc. (MERS). The electronic registry has come under fire lately, despite the fact that several state courts have recently upheld MERS' right to foreclose. It became a focus of last fall's robo-signing scandal when the MERS name appeared within defective affidavits. Fannie Mae told its servicers last spring they were no longer allowed to foreclose in MERS' name, and now Freddie Mac is following suit.

Opposition to the proposed servicer settlement developed a stronger stance this week as four attorneys general released a letter to Iowa's Tom Miller, who is leading the states' investigation. Attorneys general from Virginia, Texas, Florida, and South Carolina said while they support actions to correct problems unearthed by the robo-signing scandal, the proposal includes mandates and suggestions that are out of the scope of their enforcement role. They expressed particular uneasiness over the provisions surrounding principal write-downs.