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Monday Morning Cup of Coffee: BofA slowest to solve delinquent mortgages

A look at stories across HousingWire’s weekend desk, with more coverage to come on bigger issues:

Loans serviced by Bank of America (BAC) tend to remain in the 90-plus-delinquency state for significantly longer than loans serviced by other big banks, analysts at Barclays Capital find. The length of time that a loan is in the 90-plus delinquency bucket, they say, is driven by the credit quality of the borrower, its geographic location, and especially, by the servicer processing the loan.

A disproportionate share of BofA mortgages in the 90+ days delinquent bucket — 62% — are there for more than three years. That’s biggest among Too Big to Fails. 

“We believe that this is partly driven by the more intense media scrutiny and government pressure being applied to BofA with respect to its foreclosure practices, given its history of servicing lapses,” Barclays says.

Over the past few years, BofA has likely exhausted all other avenues of resolution (loan modifications, short sales, deeds-in-lieu of foreclosure, etc.) before proceeding with moving a borrower into foreclosure. The bank implemented a temporary foreclosure moratorium across the country in late 2010.

As of August, 90-plus delinquent subprime loans in non-judicial states serviced by BofA were 90-plus-delinquent for an average of 15 months, two months longer than comparable loans serviced by others (click chart below). Also, 90-plus delinquency timelines appear to be partly driven by whether the property is located in a judicial or a non-judicial state (scroll down for more information).

On Thursday, Richard Cordray, director of the Consumer Financial Protection Bureau, will deliver the semiannual report on the watchdog to the House Financial Services Committee.

Expect more partisan sparring with Cordray playing defense at his appearance, which comes one week after a similar visit to the Senate Banking Committee when he revealed that the bureau received nearly 72,300 complaints about mortgages, credit cards and other financial products as of Sept. 3. That’s up more than 30% from 55,300 reported through June. Nearly half of these complaints concern mortgages.

Since its inception, Democrats have defended the bureau against Republicans who are pushing to bring it under stricter oversight, arguing that that the bureau will bury businesses in onerous regulations. Democrats say it provides essential protections in the wake of the financial meltdown.

Freddie Mac Chief Economist Frank Nothaft tells HousingWire to “expect to see long term mortgage rates to remain at or near their all-time lows for the remainder of this year” after the Federal Open Market Committee announcement of an open-ended third round of quantitative easing.

The FOMC directed the Federal Reserve Bank of New York to buy $40 billion in agency mortgage bonds per month as part of so-called QE3 starting last Friday. The Fed will also increase its holdings of longer-term securities by $85 billion each month through the end of the year.

The latest stimulus may spur more home sales, just not to the intended buyers. The monthly purchases may force some institutional investors to substitute these assets for others. Investors would sell these bonds for riskier assets, and since the crisis struck in 2007, there’s plenty of risk in housing.

Washington, Alabama, and Mississippi are among the slowest states in processing delinquencies, while Iowa, New Mexico, and Minnesota are among the fastest, Barclays says. The five slowest states in processing delinquencies are all non-judicial foreclosure states, while four of the five fastest states are judicial foreclosure states.

“Servicers tend to process 90-plus delinquent loans more quickly in judicial states, potentially because they want to speed up the overall liquidation timeline as much as possible,” analysts say.

In terms of processing foreclosures, four of the five slowest states are judicial foreclosure states, and not surprisingly, New Jersey, New York, and Florida lead the country in foreclosure timelines. Meanwhile, the five states with the shortest foreclosure timelines are all non-judicial states: California, Arizona, Alabama, Missouri and Utah (click chart below).

Regulators shut down one bank over the weekend, raising the 2012 total to 42. This time last year, 71 had failed.

St. Louis-based Truman Bank was shut down. The Federal Deposit Insurance Corp. entered into a purchase and assumption agreement with Pine Bluff, Ark.-based Simmons First National Bank to assume all of Truman’s $282.3 million of assets and $245.7 million of deposits.

The FDIC and Simmons entered into a loss-share transaction on $117.8 million of Truman’s assets. The FDIC estimates the closure will cost the deposit insurance fund $34 million.

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