Foreclosures About to Soar Near-Term — Easily Back to All-Time Highs
Are you ready to see the future? Ten’s of thousands of foreclosures are only 1-5 months away from hitting that will take total foreclosure counts back to all-time highs. This will flood an already beaten-bloody real estate market with even more supply just in time for the Spring/Summer home selling season – great timing!
For months prior to March, banks/servicers were on and off of foreclosure moratoria with many on a complete hold awaiting Pres. Obama’s plan to save the housing market and homeowners. We track each foreclosure start through the entire foreclosure process individually and in aggregate — also by originator and servicer — and as soon as the Obama plan was made known, banks/servicers shifted their Notice-of-Default and Notice-of-Trustee Sale machines into overdrive.
Foreclosure start (NOD) and Trustee Sale (NTS) notices are going out at levels not seen since mid 2008. Once an NTS goes out, the property is taken to the courthouse and auctioned within 21-45 days.
NOTE – actual March foreclosures reported next week by the popular foreclosure services like RealtyTrac will show a sizable drop vs. Feb because foreclosures lag notices. Foreclosures in March are a result of NTS’s when many banks/servicers were on hold in Jan/Feb. But in March NTS’s surged — I will have a preliminary report out this week on the total statewide and national counts. BE CAREFUL – the popular reports released next week will also show a large increase in total foreclosure notices so total foreclosure activity may be relatively flat. Market reaction will be dependent upon how this is reported in the press.
The bottom line is that there is a massive wave of actual foreclosures that will hit beginning in April that can’t be stopped without a national moratorium — this wave is so big I would not put it past them trying it.
CA foreclosure background – in mid-2008 the foreclosure wave was building was artificially held back as a result of the CA law SB1137 enacted in Sept 2008. This also kept NOD’s and NTS’s at much lower levels than the actual defaults that were occurring. Other bubble states and several banks/servicers also went on random moratoria and the foreclosure wave was held back for the past six months. But just like so many other intervention and moratoria in the past, the problem just comes out the other side even more violent than if they would have done nothing. Adding insult to injury, the GSE’s announced this week that they were coming off moratorium, which could increase foreclosures by 20-25% alone.
The headlines in the near future will read:
- Circa April 12th – “March Foreclosures Drop Sharply but Foreclosure Starts at Record Highs”
- Circa May 12th- “April Foreclosures Surge 200% and Foreclosure Starts Remain at Record Highs”
Two months from now, the foreclosure crisis will be top of the news once again catching everyone off guard because of the past six months ‘intervention’. Thanks Washington.
The chart below highlights the top servicers in the nation and their monthly NOD, NTS and REO counts. As you can see, they all have gone through various foreclosure moratoria in one or more foreclosure stages in the past year but since the Obama plan was made known, volume has soared.
Note - the NOD phase is 5-7 months away from foreclosure and the NTS phase 21-45 days away. The REO column will grow significantly in near-term months due to the surge in NTS in March and coming in April.
The counts below are servicer stats and in no way represent the number of loan defaults a insti might be experiencing on balance sheet – I have other charts for that!
For those of you that are curious as to total counts of new loan defaults bearing down on the state, the following is a 2-year chart of new NOD’s. March brought the first 50k+ count ever. From here the banks and servicers will try anything they can to get borrowers into mortgage mods before the Notice-of-Trustee Sale in filed 4-5 months down the road but ultimately most will make it to foreclosure sooner or later.
But this time around the mix has changed. Mid-to-upper end loans — and homes attached to them — are going into the foreclosure process at the greatest rate ever. The following chart shows defaults on loans over $750k. This is trouble because the demand in the segment of the market is outpaced by foreclosure supply alone – where does that leave Ma and Pay Homeowner?
Lastly, the following NTS chart shows properties within 30-days of going to the actual courthouse for foreclosure sale. This massive jump from Feb is likely the beginning of the wave I have been awaiting that will carry foreclosure back to all-time highs within three months.
**For more information in our default/foreclosure related research including real-time mortgage default, foreclosure and loss tracking across large-named publicly traded companies please email me at the address below. Looking ahead of the housing and mortgage market and into bank’s residential mortgage portfolios and balance sheets is now much clearer.
Best Regards,
Mark Hanson
Mark@TheFieldCheckGroup.com
Analysis by Mark Hanson, Field Check Group Real Estate & Finance
Data in partnership with ForeclosureRadar.com
April 9th, 2009 at 1:35 pm
Thanks for the imput Mr. Mortgage.
How long do you expect this trend to occur??
April 9th, 2009 at 7:27 pm
Why do banks want to hold on to homes if they say they are not in the market for selling homes?
Don’t banks have to pay property tax on homes if they own them?
Therefore, if banks hold on to thousands of homes doesn’t that add up to a significant amount of property tax due?
I’m not a finance genius, but it doesn’t make financial sense to me to hold on to homes that do not bring in revenue.
April 9th, 2009 at 7:51 pm
You came back just in time to refute the huge housing has bottomed conspiracy. Welcome back thank you. I was worried you went the way of Hoffa…
April 9th, 2009 at 10:42 pm
Thank Jesus for Patrick.net that linked to your blog here. I, like thousands of others have been jonesin bad for a Mr. Mortgage fix ever since the great BPcafe articles. In light of the media’s constant lies and half-truths, it is so comforting to have someone explain the truth so clearly and then show all the data used to arrive at that truth. You are the next best thing to a crystal ball. Thanks.
April 10th, 2009 at 1:14 am
Great to have you back!
April 10th, 2009 at 7:14 am
What I have noticed and don’t understand, maybe you do. When a bank foreclosed and the note was say $600K that would be what the bank
would buy the note for. Now I see a $600K note but the foreclosure price
is say $250K or near what the selling price will be when and “if” they list it. Where did that loss go?
Reltors are selling REO’s out the backdoor to investors, never listed on MLS. I found a house on Zillow foreclosed by Wachovia, wrote them a letter. Found it listed AFTER it was sold. I wrote to the CEO of Wachovia and got a letter back basically admitting that they did sign off on the house before listing it. The town is awash in rentals now, this is not good for neighborhoods. All that is listed is junk, so I gave up.
April 10th, 2009 at 8:02 am
THANK YOU.
PLEASE INCLUDE INFORMATION FOR FLORIDA/SOUTH FLORIDA.
THANK YOU.
PASTOR TOM.
April 10th, 2009 at 8:04 am
Foreclosures are going to soar, but as long as banks keep hiding their REOS in their back pockets, it won’t impact prices.
Prices are determined by months supply. If every house on the market is an REO but I have a 1 month supply, prices will go up.
If every house is a normal listing, but I have a 20 month supply, prices will crash.
Banks have been hiding these REOs for a year now. They are giving them to realtors, but not giving permission to list them yet. Until the listing agents get authorization to list, they are frustrated too – their commissions are going way down, because they are not allowed to sell these homes. I know a guy who had a listing for 8 months from Countrywide, before they gave him a price and permission to list.
I think the banks are waiting for the government bailout. Sell the home as part of the toxic asset program.
Mark – sales always go down in January from December. Seasonality. So I wouldn’t read anything into that.
The high end is going to get crushed, and the mid end too.
The low end is going through a temporary bounce. Just wait, the low end is going to fall another 30% in a couple years.
Yes, I’m a realtor, but don’t kill the messenger. I argued with my broker for 6 months, and had to admit on my website I am wrong: I missed the turnaround at the low end last October. Prices are going up on most homes under $250K. Bidding wars of 20-25 offers are the norm.
April 10th, 2009 at 8:35 am
We don’t know exactly how the geithner toxic plan will work or even if it will get off the ground but with only 7.5% skin in the game these fast money vultures won’t wait long to pull the trigger and sell homes that miss payments, it will be quick, easy & profitable. This could totally demolish RE values in many regions.
In response I think the Federal government will eventually buy the banks non-performing mortgages and rent or refi mortgages at a “fair price”.
i think this nation is entering a period of unimaginable change.
April 10th, 2009 at 8:44 am
Mark,
Are there any reliable stats on abandoned homes in CA and how these will impact the REO numbers? Thanks
April 10th, 2009 at 8:59 am
Welcome back!! We missed you.
April 10th, 2009 at 10:04 am
Schahrzad Berkland, thank you for the informative post, I appreciate it. Some questions for you:
Banks are hanging onto REOs, probably hoping to get better prices for them. But does that benefit them financially because they have to pay expenses to maintain the unit. Some cities now are passing ordinances to fine owners/banks for units are not maintain. Also, it gets to me that owners often live there mortgage free for months if not years. Do you think banks will eventually had it and dump REOs as fast as they can to get out of the homeownership business?
Also, if REOs are part of the toxic asset mentioned in the bailout program, what will the government do after they bought them?
Lastly, after all is said and done, do you basically agree with Mark on his prediction? Higher and mid end houses will be crushed and after a temp bounce in the lower end, they too will fall again further?
Thank you
April 10th, 2009 at 10:05 am
Lets wait for stock market tanking, that will get it to be more interesting =)
April 10th, 2009 at 10:24 am
Wonderful to see you back Mr. M.!!!!!
Wells Fargo just said they made $3 billion, so don’t worry about not paying on your mortgage, the banks still make tons of $$$
This is everyone’s chance to make like a banker and “get yours”. If your house is worth less than you paid for it give it back to the bankers and let them suck on it. With everyone going into foreclosure they will be forced to forgive the bad mark on credit or have no one to sell their houses to.
After this settles out we will all get into houses for a sane, affordable 2x earnings. This time around we win, this will be our bailout!
April 10th, 2009 at 10:40 am
Great Article Mark. Just curious: Did you happen to see the interview on 60 Minutes with Hedge Fund Manager Whitney Tillson. His bottom line is that a second wave of defaults in coming from Alt-A. Are most of these upper-end homes tied to Alt-A loans? Thanks!
April 10th, 2009 at 11:13 am
Mark, MLS listings are not comparable to any other period because many mortgages are underwater and the listings have been pulled. People do not want realtors going through their home when they are underwater. In normal times a homeowner in distress would list his home hoping to try to sell it to protect his credit or capture a little equity. When there is no equity and the homeowner knows it; he pulls his listing. There are many homes that need to be sold that are not listed and it is much bigger than the estimated 700,000 bank owned non listed “shadow inventory”. Housing is not bottoming. There is too much distressed inventory and more coming at us through unemployment and the people hurt by the stock market. Many have bought too much home and now cannot afford it.
April 10th, 2009 at 11:15 am
How do you believe this will be affected by the 90-day partial moratorium signed into law in California that takes effect in late May (see SB2X-7 and AB2X-7)? Could we see a spike in April/May and then another trail-off, and then another spike in August?
April 10th, 2009 at 3:14 pm
Glad to see you’re back Mr Mortgage, got the link via option armageddon. Keep up the great work.
April 10th, 2009 at 6:15 pm
What is happening in the mid to high-end in San Diego? By my count, in the first quarter of ‘09 there were 56 closings in Mission Hills/Hillcrest, but only 4 of the 56 were for over $1 million. Now, by my count there are currently 59 listings with a list price of $1 million-plus in the same area. How long is it going to take to clear this inventory? Admittedly you shouldn’t extrapolate 1st quarter closings over the whole year as the 1st quarter is typically light on volume, so let’s just go ahead and double that number to 8 and then extrapolate over the full year – that’s 32 closings of $1 million-plus homes in that neighborhood, so we have about a 2 year supply of inventory in the high end. 2 YEARS. And my bet is that inventory added is going to outpace sales this year, so that by years’ end we will have an inventory of 2.5 to 3 years in these neighborhoods. Folks, prices are going to be coming waaaaay down in these types of neighborhoods over the next several years. This months’ $1.25 million listing is next years’ $899K listing is the following years’ $699K listing. Too much inventory, and its growing, and jobs are being lost, and more folks walking away. You can sit tight for 2 years and then scoop up a great home in a great neighborhood for 1/3 to 1/2 off today’s prices – not from peak, but from TODAY’S prices. It is going to be bloody out there. Just keep yourself employed.
April 11th, 2009 at 6:58 am
I’m surprised the Feds haven’t written a law allowing federal agencies recourse over non-recourse loans. It’s too easy for borrowers/homeowners in the non-recourse bubble states to walk away from deeply underwater homes and leave lenders with huge losses. Jingle mail is actually the rational course for these people but the taxpayers are going to absorb the losses of these banks when the dust settles. In addition to the various housing agencies the US government has ownership stakes in all the big banks and they could write the law broadly to cover those situations too. I’m not saying it would be fair or right but not much has been fair or right with the US financial system.
April 11th, 2009 at 9:06 am
We need laws to strengthen Bankrupcy and Foreclosure so they are not being taken advantage of. Extra taxes that are required, and if not paid then goes to wage garnishment.
I know of a few people (friends) that bought a house, never paid any mortgage, stayed in for a year. Racked up CC debt, right before foreclosure they filed and completed Bankrupcy (chpt 13 i believe) and then Foreclosed (meanwhile all the money saved was kept in cash to show low bank statements).
The gov should come back and hammer these people. Not only the standard sales tax on the foreclosure but penalty if their Incom to payment ratio was lower then 40%. They should also take assets which would help ease their pain..
It’s BS how it’s being taken advantage of and the gov isn’t doing anything about it.
April 11th, 2009 at 9:08 am
Beatty,
It will do nothing like the original moratorium. It’ll just delay the process another 90 days. So possibly another spike in foreclosures in Aug. They need to just leave it alone. People who are serious about saving their houses will do so on their own means.
People are being greedy and just wanting to get “something” out of the mess and living rent free.
April 11th, 2009 at 6:05 pm
People are being greedy and just wanting to get “something” out of the mess and living rent free.”
Lots of people put 20% down and have paid a ton of interest. This alone should entitle an owner to live “rent free” for 7 years. The ones getting something for nothing are the banks. If a little of that money trickles down to the debt serfs, so be it.
When you see people living “rent free” you are missing the money they have already fed into the system. I put my life savings into my home. My side of the contract was to feed the banksters’ kids for 30 years, or they would take the house and let somebody else pay. I accepted this because I was ignorant. I will stay here until they kick me out. Then the house will sit empty for a year. Then another sucker can come along and sign her life away for the “dream of home ownership”.
April 11th, 2009 at 9:53 pm
aaron – I’m sorry you feel that way. I understand; back in ‘93 after I bought my first house (in ‘90) at the top of the market and it lost 30% of it’s value. I never thought I should be able to live “rent free”. I just figured I would not be able to sell as soon as I would have liked. Of course, now it’s at about 1.5 of that value, I’ve paid the mortgage off, and now I’m starting to think about buying new home and renting my current home. (ps – wife is stay at home mom, 2 kids, have savings for college, always kept my cars at least 15 years(paid cash), always brown bag my lunch at work, still don’t have big screen tv…, you get the picture, I’m VERY cheap,
)
April 12th, 2009 at 3:58 pm
I would like to comment on Franz’s post. It does seem that house prices could fall to 1/3rd or 1/2 of its current price in couple of years but what I wonder is…. Would the interest rate be 4 in a couple of years?
What is the break even value here for the best possible interest rate and price in units of time frame?
Thanks,
Bb
April 12th, 2009 at 5:15 pm
BB makes a point about the inevitable skyrocketing of interest rates once the fed stops buying treasuries. I am also woried that this will offset the price gains made by waiting to buy. I comfort myself, though, by thinking that higher interest rates will make the payments out of reach for a larger number of people, causing the price to continue falling in order to find a buyer’s price-point. Furthermore, the interest rate can be refinanced in the future, but the price is cast in stone. And lastly, I think of the property tax. I beleive the property taxes are generally set at the purchase price and then compound off of that, so the property tax savings of buying very low will also offset some of the interest losses. Bb is right there has to be a “sweet-spot” though.
April 12th, 2009 at 10:15 pm
I’ve noticed the MLS inventory in San Diego has decreased drastically. Could this be a sign we are at bottom? Is it possible that the banks now have government assistance and will re-work all the defaults and assist the homeowners w/NODs to do loan modifications, lower interest rates, reduced principle and as a conquence we will not see the NODs go to market, much less foreclosure?
April 13th, 2009 at 8:16 am
Anonymous:
No, did you read the article? The government expects about 8 – 10% of people to get assistence with their houses. Look at the number of NTS’s. Then look at the sidelined NOD’s..
People are also just walking away because the principle is lower. They have a mindset that they don’t want to pay more then what it’s worth (good thing we don’t have this mindset on cars or they’d always get repo’ed).
April 13th, 2009 at 11:12 am
Jorge,
Thanks for your reply. I concur.
PEOPLE,
What do you think would be the ideal “SWEET SPOT”?
Mr. Mortgage- could you advice on what you believe would be the best “Sweet Spot” for low end>300k or mid >500k?
Thanks for your inputs,
Bb
April 14th, 2009 at 9:24 pm
Bb, since my last posting, My fears about interest rates spiking have diminished a little. I’ve done LOTS of reading about historic mortgage interest rates during massive deflationary cycles or “spirals” like the one we are probably seeing right now. Apparently after both the Crash of 29 and Japan’s crash in the late 80’s, mortgage rates stayed low (very low, like 3% in Japan) for decades….and decades. Being 30 years old, and therefore having been brainwashed by the media into believing that certain things were just a “fact of life” (like high mortgage rates) I was shocked to find out that rates have predominantly and historically been below 5% in the US as well, in fact for the entire 30’s, 40’s and 50’s. Furthermore, some of the most trustworthy (to me) economists/bloggers, those who predicted the current collapse perfectly, have also stated: “this is not the late 70’s, the economic conditions are not even comparable” ….so that has helped remove some of my fears about a sudden, permanent jump in rates.
April 14th, 2009 at 9:56 pm
Hedgie back in da hizzie!
April 15th, 2009 at 6:21 am
First I would temper that with the fact that mortgages are round 4.5% or will be soon (what better time to release foreclosures than when rates are 4.5% ??)
I would think this will be a boon for those who deal with the banks and sell foreclosures, Big Big money to be made here ..
April 17th, 2009 at 11:07 am
4694 Wildwood Ct Fairfield, CA 94534
bought 2004 $425,000
down payment 110K
refinanced 450 2005
downpayment returned to her plus 25K
Line of credit 85K 2006
Has bilked the home for 105K
She still owns it so its a short sale!
She did all that and didn’t pay taxes on the 105K income, she got a tax write off.
Nightmare on Wildwood Ct
April 17th, 2009 at 10:08 pm
As always, insightful, accurate, and not afraid to reveal the truth.
April 23rd, 2009 at 10:06 pm
Mark, your back and I’m very happy to find your new web site
99% of what you say also applies in Canada.
We call your sub prime–0/40.(now changed to put the down on your credit card. We have give away rates lower than the U.S. I think it’s all about good paying jobs and not low rates that will make good things happen.
We are about a year behind your downturn but we are catching up fast. Vancouver is a mirror of Cali with over priced houses.
May 4th, 2009 at 10:08 am
Obviously this site is run by a shorter.
June 4th, 2009 at 8:08 am
A very well written article. Thanks for the good tips!
December 24th, 2009 at 9:59 pm
There are good companies out there actually trying to help people. But unfortunately there are also bad ones that are trying to take advantage of situations. I purchased 2 forclosures and have been happy with my purchases.
January 23rd, 2010 at 5:34 pm
Great job on this site. I like comming here to read your articles. Keep up the good work!
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