Seller Considerations – Shady Foreclosure Settlement’s Impact on Housing Prices

On Thursday, state and federal prosecutors reached an agreement to settle allegations of shady foreclosure practices against Citicorp, Bank of   America, Wells Fargo, Ally Financial, and JPMorgan Chase. The $25 Billion settlement represents a drop in the bucket of just $2,000 for each homeowner who lost their home due to fraudulent foreclosure practices which included fake signatures  to push through foreclosure proceedings. As part of the settlement, homeowners still struggling with bank financed mortgages not held by Fannie Mae or Freddie Mac, could see a reduction in their interest rate or a reduction in principle on their mortgage.

Although the settlement has no effect on 80% of mortgage holders whose mortgages are held by Fannie Mae and Freddie Mac, it’s still likely to have an immediate and direct impact on housing prices. Banks have been reluctant to proceed with foreclosure efforts until a settlement was reached because of concerns about how much liability they would have. This concern caused a lull in foreclosure activity, which is now likely to resume at an aggressive pace.

The lull in foreclosure activity may have caused some markets to experience an artificial improvement in real estate markets and housing prices. The release of foreclosed properties could reverse improving trends in housing. Prospective sellers who are in markets that will be impacted by a glut in housing inventory may see prices decline further and are advised to sell quickly where possible.