Bank of America Stalls Foreclosure Process - Analyst Blog

On Friday, Bank of America Corporation (BAC) announced that it is holding up foreclosures in 23 states to examine whether some of its former executives rushed through documents of homeowners without properly evaluating the authenticity of the information.

The verification includes the accuracy of the loan information, including who owns the mortgage. The 23 states including Connecticut, Florida, New Jersey, New York and Pennsylvania – are those where foreclosures have to be approved by the court.

Thus, BofA joins JPMorgan Chase & Co. (JPM) and General Motors Acceptance Corporation ("GMAC") Mortgage LCC, which have taken similar actions in the last two weeks. Also in an advance step, BofA has decided to revise all the affidavits pertaining to the foreclosure cases where the court has not given its verdict. JPMorgan and GMAC Mortgage had instead announced that they would amend only those documents that they thought had been improperly done.

GMAC is an indirect wholly-owned subsidiary of Ally Financial, one of the largest financial services companies in the world. Ally Financial is the official preferred source of financing for General Motors Corporation (MTLQQ), Chrysler, Saab and Thor Industries Inc. (THO).

In the case of BofA, there could be tens of thousands of cases to be checked, which could take months or even years to resolve. The company did not come up with any exact figure regarding the number of cases where it has stopped foreclosures. GMAC has also refrained from stating any figures. However, JPMorgan had declared that it is stopping nearly 56,000 foreclosures.

On September 21, BofA declared that since January 2008 it has provided mortgage modifications to more than 680,000 homeowners, making it the leader in the sector.

BofA may have been in a hurry to process thousands of loan modifications and foreclosures, and could have failed to verify the papers related to foreclosures properly in a bid to quickly get those properties on the market.

Apart from BofA and JPMorgan, many other financial institutions including Citigroup Inc. (C), Wells Fargo & Company (WFC), Ocwen Financial Corp. (OCN) and Marshall & Ilsley Corporation (MI) provide foreclosure to the homeowners.

Following such lapses by biggies, Citigroup has stated that it continuously reviews its document verification processes and provides proper training to its staff. Similarly, Wells Fargo has affirmed that at present it stands by its affidavits and has assured appropriate action in case of any oversight.

Rating agency Moody's Investors Service placed the servicer ratings of GMAC and JPMorgan on review for a possible downgrade as a result of these disclosures.

Though a halt of foreclosures will have a negligible impact on BofA's profitability, it could mar investors' sentiments to a great extent. The company is otherwise poised to benefit from its large scale operations, strong capital position and balance sheet restructuring, offset by concerns related to inconsistent credit quality and the impact of tighter regulations of the new financial reform law.

BofA currently retains its Zacks #3 Rank (short-term 'Hold' rating), implying that the stock is expected to perform in line with the broader U.S. equity market in the near term.

 
BANK OF AMER CP (BAC): Free Stock Analysis Report
 
CITIGROUP INC (C): Free Stock Analysis Report
 
JPMORGAN CHASE (JPM): Free Stock Analysis Report
 
MOODYS CORP (MCO): Free Stock Analysis Report
 
MARSHALL&ILSLEY (MI): Free Stock Analysis Report
 
MOTORS LIQUIDAT (MTLQQ): Free Stock Analysis Report
 
OCWEN FINL CORP (OCN): Free Stock Analysis Report
 
THOR INDS INC (THO): Free Stock Analysis Report
 
WELLS FARGO-NEW (WFC): Free Stock Analysis Report
 
Zacks Investment Research