The recent settlement of the robosigning case brought against a number of major U.S. banks by attorneys general of the states will most likely result in increased levels of foreclosure seizures. The involved banks have greatly slowed their foreclosure process during the negotiations, allowing some homeowners in default to remain in their properties without paying for months or even years. Now that the case has been settled with what amounts to a slap on the wrist for the banks for engaging in practices which resulted in allegations of fraudulent paperwork, the banks are likely to move quickly to help their bottom lines.
The $25 billion settlement will be parceled out in chunks. About $17 billion will go to help about a million owners who are facing foreclosure. The settlement includes $5 billion to pay for foreclosure prevention programs and $3 billion to lower homeowners' interest rates with a small residual of $1.5 billion left over to compensate homeowners who suffered from poorly handled foreclosures.
It seems that about 750,000 people are supposed to receive direct payments of around $2,000 to partially compensate them for servicing errors. Regardless of how the money will be handed out, it must filter it's way through the existing or new bureaucratic structures to actually reach the homeowners' hands. This has proved to be a slow and not too effective process in the past with other government assistance programs. It remains to be seen how quickly it will happen and how much this settlement will actually help.
The end effect, however, will most likely be an increase in the rates of home seizures and an increase in the REO inventory levels. If this is not dealt with carefully by the banks, it will result in a further decline of the market as these properties are placed for sale and increase inventory levels.
A reasonable speculation is that investors are likely to purchase many of the REO properties and convert them to rentals. The central Florida market has seen quite a large amount of this sort of sales action in the past few months. As a result, our inventory levels here are lower than they have been for some time and there has been enough competition to actually bring prices up a few percentage points during the past year. This situation may very well change as a result of the settlement and resultant actions by the banks.
There is an old Chinese curse which goes something like, "May you live in interesting times." The real estate market is poised to get a lot more interesting shortly if the above speculations are correct.
Namaste!
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