Currently there are a plethora of distressed properties on the market listed as foreclosures and short sales, which provides exceptional foreclosure investing opportunities for everyone from first time homebuyers to seasoned investors.

With all of the government foreclosures (and bank foreclosures) on the market, home prices have significantly declined over the last few years. Although there has been some progress in the real estate market over the last few months, full recovery is not expected until 2015. But how, exactly, did we get to this point?

A (Very) Brief History Leading to the Collapse

Home prices escalated dramatically – far beyond their true value - reaching a peak in 2006. In addition, up until 2006 (and beyond 2006 for a certain period of time), many lenders were providing home loans to homebuyers who should have been deemed unqualified due to insufficient income for expected mortgage payments  Plus, the national economy took a hit and the stock market crashed, all while the unemployment rate skyrocketed.

These factors (and several others) led to a deflated real estate market with many underwater mortgages and unemployment homeowners who were unable to pay their mortgage payment.

A Quick Look at Lender Involvement

Due to negligence (and a surplus of foreclosure filings), many lenders participated in robo-signing and other faulty foreclosure processes that further dampened the real estate market. As a result, state representatives and major lenders participated in negotiation talks which inevitably led to a $25 billion agreement that many argue will be less effective than desirable. Although these major lenders received punishment (albeit less than deserved) for their actions and inactions, many lenders got off scot free—until now.

Fed Targets Smaller Lenders

Although the 5 major lenders (JPMorgan Chase, Citibank, Bank of America, Ally Financial, and Wells Fargo) were part of the bank settlement talks, many other smaller lenders participated in unethical foreclosure processes but have yet to receive repercussions. However, with the settlement talks ending apparently the Feds have more time to turn their attention to smaller lenders.

Despite the fact that the settlement agreement with the 5 major lenders included a majority of the cases of faulty foreclosure process, approximately 40-45% was not included in this settlement. As a result, 8 smaller lenders have been targeted by the Feds, including SunTrust Bank, U.S. Bancorp, Goldman Sachs, EverBank, HSBC’s U.S. bank division, PNC Financial Services, MetLife, and OneWest. Now, these smaller lenders will face repercussions for everything from robo-signing to presenting faulty documentation for thousands of foreclosure properties.