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New foreclosures on U.S. homes fell in fourth quarter

The number of new foreclosures on U.S. homes fell in the fourth quarter on programs to keep borrowers in their houses, improving loan quality and settlements concerning foreclosure abuses, a report on Wednesday showed.

However, there has yet to be a robust recovery in the overall health of loans in the U.S. housing market, according to Bruce Krueger, a mortgage official at the Office of the Comptroller of the Currency (OCC), which produced the report.

The amount of new foreclosures initiated in the fourth quarter fell by 16 percent from the previous quarter and by 17.9 percent from a year earlier, according to the OCC report.

Part of the decline can be attributed to efforts by regulators to get banks to cut back on the so-called "dual tracking" practice of starting a foreclosure while a loan modification is pending, Krueger said.

There is now more emphasis on pursuing ways to keep a borrower in their home, such as reducing interest rates on loans, rather than jumping straight to a foreclosure action, he said.

"I think we're certainly seeing signs that servicers are starting to clamp down on that dual-tracking process," he told reporters. "We certainly are not yet seeing signs of a robust recovery in the overall quality of the mortgage servicing portfolio."

The U.S. housing market still faces major challenges such as an oversupply of homes and depressed prices due to the number of foreclosed properties for sale.

There are signs the market may be stabilizing. House prices were unchanged in January from the prior month, the first time they have not fallen since July 2011, data showed on Tuesday.

Kruger said there is evidence banks are pulling more borrowers out of the foreclosure process to negotiate a loan modification.

The number of foreclosures that were in process during the fourth quarter fell by 4.1 percent from the previous period.

Modification programs are not always successful.
Of the almost 2.4 million modifications tracked by the OCC since the beginning of 2008, 48.3 percent of the borrowers are still current on their loans and about 17 percent are in the middle of or have completed the foreclosure process.

How banks treat struggling borrowers has been under intense scrutiny since late 2010 from state and federal officials due to accusations illegal shortcuts were taken in the years following the 2007-2009 financial crisis to speed up foreclosures.
In April 2011, several large banks entered into a settlement with the OCC, the Federal Reserve and the now defunct Office of Thrift Supervision on steps to improve their foreclosure processes, which included ending the dual-tracking process.

In February, Bank of America, JPMorgan Chase & Co., Citigroup Inc., Wells Fargo and Ally Financial struck a $25 billion US deal with state attorneys general and the Justice Department to settle allegations of foreclosure abuses.

As part of the settlement banks will have to put more money toward loan principal reductions and other efforts to keep borrowers in their homes.

Going forward it should boost the amount of loan modifications being done across the country, Krueger said.

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