New foreclosure rules

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There are signs the housing industry is improving and much of the foreclosure debacle of 2010 is receding into history.

It is now time to count the many ways in which banks can shoot themselves in the foot regarding the relatively commonplace transaction of loaning people money to buy a house.

First of all, the banking industry abandoned its own standards to write as many mortgages as possible prior to 2007, when the financial system suddenly became top-heavy with loans that were not being repaid.

In the painful market recovery, banks then hired so-called "foreclosure mills," which turned the somber process of foreclosure into a legal windfall for prosecutors. So shoddy were foreclosures handled that five major banks ended up agreeing to pay $26 billion to settle claims of foreclosure abuse.

That was in April 2012. More recently, 10 banks agreed to an $8.5 billion settlement to put to rest similar concerns and on Wednesday Morgan Stanley and Goldman Sachs agreed to a $557 million settlement, swatting, metaphorically, at the same house fly.

Online foreclosure marketplace RealtyTrac said Thursday foreclosure filings had fallen 3 percent from 2011 to 2012 and had declined by 36 percent from a peak of 2.9 million properties in 2010.

Foreclosures rose by 55 percent in New Jersey in 2012 and dropped 57 percent in Nevada, the difference being that the Garden State represents the 25 states where foreclosures rose last year, 20 of which require foreclosures be handled with a judicial review. Nevada, conversely, represents the states where foreclosures declined, 19 of which do not require a judicial review.

The long and the short is that states requiring a judicial process will invariably catch up with the rest of the country and, barring unforeseen circumstances, foreclosures will return to normal levels soon.

Into this drawn-out opera steps the Consumer Financial Protection Bureau, the agency created by the Dodd-Frank financial overhaul bill.

Morning reports said the CFPB will announce rules for foreclosures on Thursday. In about as simple and predictable as a regulator can get, one of the rules involves requiring banks to keep accurate and accessible records on mortgages, including information on payments.

Secondly, loan services will be no longer be allowed to begin the foreclosure process until options for loan modifications have been properly handled.

When a homeowner falls behind on some bills, including the mortgage payment, said homeowner becomes reluctant to open the mail, especially if it comes from a loan servicer. The new rules put more responsibility on lenders to make sure loan modification options are addressed.

To one analyst, the rules are reminiscent of asking a liquor company to make sure customers don't drink too much.

"The servicers are being asked to split their loyalties a little bit," attorney Jennifer Dioguari told The New York Times.

But the assumption is that mortgages and loan modifications are difficult to understand and the risks involved affect the homeowner, the community and the overall economy. Servicers that handle these issues every day should have a larger share of the responsibility for making sure borrowers understand all the options.

In international markets Thursday, the Nikkei 225 index in Japan rose 0.09 percent while the Shanghai composite index in China slipped 1.06 percent. The Hang Seng index in Hong Kong lost 0.07 percent while the Sensex in India added 0.74 percent.

The S&P/ASX 200 in Australia climbed 0.38 percent.

In midday trading in Europe, the FTSE 100 index in Britain gained 0.44 percent while the DAX 30 in Germany rose 0.78 percent. The CAC 40 in France added 1.05 percent while the Stoxx Europe 600 gained 0.46 percent.