The quarterly report that Freddie Mac submitted with government regulators suggested that the alleged irregularities in foreclosure documents may have significantly increased the risk factors that could potentially hike up the costs and slow down the business.
It also stressed the fact that the integrity of the foreclosure process remains crucial in the growth of the housing market and could adversely affect the financial outlook of the entire industry.
As the Bank of America (BAC) and Ally and Wells Fargo (WFC) has recently both declared that they are re-filing thousands of foreclosure documents, serious doubts have emerged on the integrity of the entire foreclosure process.
But Freddie remains undaunted by the negative publicity that the housing industry has been getting lately from the press. Although there might have been claims of improprieties in processing foreclosure documents in the past, it notes that it is cooperating with loan servicers in identifying loopholes and problem areas in their procedures and standards.
Freddie also believes that ongoing investigations could unnecessary delay and forestalls foreclosures across the country and may hamper the liquidation of Real-Estate-owned (REO) properties.
But with the ballooning inventory of REO properties, which have already actually increased to 82% this quarter compared to the figures in the same period last year, the delay could cause the banks higher costs in the maintenance and repairs of these properties unless they are sold.
The potential costs of the expected lawsuits and litigations over the foreclosure fiasco could also raise questions on the repurchase demands brought about by improperly executed foreclosure documents. In sum, the entire issue is expected to be expensive, difficult and time consuming for all concerned parties.
The varying state laws governing foreclosures are not also helping alleviate the situation. The banks are still in the tedious process of determining the scope of the problem state by state and most of the time, they have no choice but to wait for the reports coming from their sellers and servicers in the area, before they could generate their own assessment.