October 8, 2010: If you have a Bank of America mortgage, now may be the best time in history to strategically default. Since other institutions may follow Bank of America’s lead, now may be the best time to stop making that nagging mortgage payment. Now may also be the time to start that short sale process.
The decision by Bank of America to extend its postponement to all 50 states takes effect Saturday. The bank doesn’t intend to lift the moratorium on foreclosure sales until its assessment is complete, a spokesman said. The bank hasn’t halted all foreclosure proceedings, however. If a borrower is delinquent, the bank is still issuing notices of default and pursuing efforts to modify certain mortgages, the spokesman said.
Mortgage lenders are under fire for improperly preparing foreclosure documents in their effort to reclaim as many houses as possible. The revelations have prompted a growing furor, including investigations by a half-dozen state attorneys general and a federal investigation.
Friday’s action by Bank of America imposes the freeze in several of the states where foreclosures are the highest, including Arizona, California and Nevada.
“Our ongoing assessment shows the basis for foreclosure decisions is accurate,” the lender said in a statement.
The foreclosure crisis comes at a particularly vulnerable moment for the housing market. Sales slumped this summer, despite the lowest mortgage rates in decades. Most economists expected housing prices to start falling again this winter, continuing a decline that had pushed
Distressed sales, including foreclosures, make up about a quarter of the market. If those deals do not happen, the market could suffer its own freeze.
“The impact could very well be a decline in housing prices,” said Anthony Sanders, a professor of real estate finance at George Mason University. “Halting foreclosure sales limits the inventory coming back on the market, but uncertainty about future housing prices usually results in a decline. More households will stay out of the housing market.”
On Thursday, the White House said that President Obama would not sign a bill that critics suggested could facilitate foreclosure fraud. His pocket veto effectively kills the measure since lawmakers, who are out of town until after the Nov. 2 midterm elections, are not in position to override his decision with a two-thirds vote of the House and Senate.
The bill would have mandated that notarizations of mortgages and other financial documents done in one state, including those done electronically, be recognized in other states. By the time the bill arrived at Mr. Obama’s desk, however, it was caught in the controversy over major institutions’ acknowledgment of problems in processing documents for tens of thousands of foreclosures.