The Foreclosure Balancing Act
Foreclosed homes make up 25 percent of all home sales today, and the nation's supply of foreclosed properties is likely to remain high in the months ahead given the current pace of the economic recovery. This inventory needs to move through the system before we can begin to see a sustainable housing recovery.
But now, four years into the housing crisis, the foreclosure process is being called into question in Florida and a number of other states. Recent reports of faulty documentation and "robo-signing" – where employees allegedly signed affidavits without properly reviewing them – have raised serious concerns about the integrity of the foreclosure process.
Why are these paperwork issues happening now? The unprecedented volume of foreclosures has clearly placed a tremendous burden on servicers and foreclosure counsel. However, at Freddie Mac, we require our servicers and designated foreclosure counsel to follow our guidelines and manage the foreclosure process in a legal, ethical, and efficient manner.
To preserve public confidence, Freddie Mac instructed our nearly 2,000 servicers to review their practices and procedures and ensure they meet all our guidelines and applicable laws. When we learned of documentation concerns at the Law Offices of David J. Stern, an outside law firm that specializes in foreclosures, we took swift action by suspending it from working on Freddie Mac loans until we completed our own investigation. Last week, we terminated our relationship with the firm and retrieved our loan files so we can transfer them to other counsel.
As the nation's second largest funder of home loans, Freddie Mac has a lot at stake here. Obviously, we expect borrowers to pay their monthly mortgage on time. But if they're facing financial hardship, we'll do everything we can – from forbearance to loan modifications – to try and keep them in their homes. In fact, since 2009 we have helped nearly 370,000 families avoid foreclosure.
We do this because foreclosures can be devastating for neighborhoods as well as families, and costly for our company. Only as a last resort will we initiate foreclosure to minimize financial risk to the taxpayers and try to recoup some of the costs we've already extended.
As an industry, we must move aggressively to fix what is broken in the foreclosure process. We must safeguard borrowers' rights by ensuring that servicers follow the law and avoid shortcuts. But we should not prevent legitimate foreclosures from going forward across the board, because the underlying rationale for foreclosing – a borrower falling irreparably behind on mortgage payments – is unlikely to change even when documentation problems are resolved.
Meeting this challenge requires a delicate balancing act by the industry. It's essential that servicers with process problems take a step back and get this right. Only then will the public regain confidence in the integrity of the foreclosure process. And only then can we take the major strides we need toward a true housing recovery.
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