-April Foreclosure Action — Preview of Market-Moving Headlines This Week
-Potential False Bottom as Servicers Game the System in March
-Nearly Half of the Decrease in April NOD’s was caused by Chase Gaming the System
-Mortgage-Mod Recidivism Update — We Can’t Modify Our Way Out of This
-Loan Mod Re-Default Rates at 80% at Countrywide and WaMu
-Large Bank Origination Default & Foreclosure Performance
-Large Servicer Action
Food for thought on housing: 50% of buyers in the bubble states are first timers buying at the low end of the market, vacating a rental. The majority of the remaining buyers are investors tripping all over themselves trying to get a deal — just like they have done all the way down — in hopes of renting the property to the very same renters (first time buyers) buying the low end properties. DOH!
Nowhere to be found are move-up buyers at the mid-to-upper end that is experiencing a default crisis identical to the beginning stages of the Subprime crisis with respect to supply/demand fundamentals. As the surge of for-sale listing of mid-to-upper end properties hits for the busy season and the major mid-to-upper end default wave — that began in earnest in Dec — turns into REO supply, an exact repeat of the beginning of the housing crash that began in 2007 with the Subprime sector and its housing supply will occur.
Most assume that because the low end is stabilizing after a 50%+ price drop that the mid-to-upper is also stabilizing. The fact is they are not connected and will bottom independently. The crisis yet to befall the mid-to-upper end will take its participants — the mid-to-upper end earners — through the same painful housing led de-leveraging as their Subprime counterparts. The macro economy can’t handle the sequels…Subprime Returns, The Son of Subprime and Subprime vs. Alt-Zilla.
Total April Foreclosure Activity Down M-O-M as Servicers Game the System in March, but Actual Foreclosures Rise
The April, market-moving popular foreclosure reports from RealtyTrac and others will be out this week and do much to confuse people — especially in CA. This, as new laws are planned for, moratoriums ceased, Administration plans kick into gear and banks and servicers continue to spin out of control managing the volume. Needless to say, getting a handle on what is really happening is difficult even if you have all of the data.
The West will see an aggregate drop in total foreclosure activity but only because in March we saw an artificial spike in Notice of Defaults due to a new law hitting the books July 8th dubbed ‘The CA Foreclosure Prevention Act”. This new law essentially stretches out the foreclosure timeline by adding three months between the NOD and NTS stages.
Because of the present timelines servicers had until the end of March to stuff the mailboxes with new NODs in order to get the NTS out under the July 8th law enactment wire. I estimate that about 15% of March’s total NOD count surge was due to front-running the new law.
Still, when all is said and done April’s NOD counts will be roughly 44k, down only 11k from March’s all time high of 55k and in-line with 2008 and 2009 highs.
April Notice-of-Trustee Sale counts also fell but less sharply than NODs — down only about 15%. This is because NTS are not constrained by the new law time line and are simply a function of how many properties servicers plan to take to the courthouse for sale. With no new laws or regulations in place since Obama rolled out his plan, there is little reason to fill the mailboxes with NTS unless the borrower does not qualify or does not want saving. The past two-month spike in NTS should be a fairly accurate near-term leading indicator of what is to come with respect to CA foreclosures.
The wave of foreclosures that I keep harping about is coming to shore — we saw signs of that in April as actual CA foreclosures jumped about 40% over March. Similar stats were seen in other significant foreclosure states. Expect to see actual foreclosures to continue to rise — likely sharply in May — going into the summer just in time for the busy real estate season. What a coincidence.
Drop in Notice-of-Default & Trustee Sale Counts Caused by Only Four Servicers – Chase (WaMu) Accounts for Nearly Half as They Game the Calendar
The chart below shows the monthly NOD counts for each top servicer that showed a significant month-over-month decrease. The four below account for the total 11k month-over-month decrease with Chase pulling a fast one.
In the month of March, Chase fired up the NOD machine at WaMu servicing for one month only in order to get more borrowers on record ahead of the new CA Foreclosure Prevention Act to be enacted on July 8th. The new law effectively stretches out the CA foreclosure process by 90-days. Borrowers that were not on NOD-record by the end of March could benefit by the new law.
When adding Chase and WaMu together, Chase now holds the record for the most NODs ever filed by a single company at nearly 12k in the month of March.
Mortgage-Mod Recidivism Update — We can’t Modify Our Way Out of This
Yesterday, FHFA director Lockhart was on CNBC talking about how they have to get even more aggressive with mortgage modifications. He shot down Bill Ackman’s GSE plan and scoffed at him within 30 seconds of laying out his plan — you should watch the clip.
How much more aggressive should they get with such terrible results attempting to re-lever homeowners? It is proving painfully obvious that mortgage mods are more exotic than the actual loans that put the homeowner in default in the first place and their effectiveness even at the margin questionable at best.
The Obama-mod does the same as most other mods — it turns the homeowner into an underwater, over-levered renter for life unable to sell, re-buy or refi. Modifications with combined loan to values of 150% to 200% are not uncommon. Many borrowers would be better off walking away today because their credit will be hurt for a shorter period of time than they will be underwater in their home. As a note — I think the Obama 105% GSE refi is a good thing but doubt many will fit into the tight box especially in the regions that need the most help.
Wide scale mortgage modifications will ensure that housing remains a dead asset class for years — every time a homeowner gets a mod they are taken out of the mortgage and housing economic equation indefinitely.
Below is a great chart taken out of a very interesting Barclay’s Securitized Products Weekly. This shows just how bad mortgage mods are even for borrowers that go into a mod current on their payments.
Bottom Line — after seeing these latest figures I am more convinced than ever that the next step is wide-spread principal balance reductions that will reduce the massive negative equity burden in America and be a first-step to solving the mortgage and housing crisis once and for all.
Large Servicer Action
For those of you that are interested in tracking what the large servicers are doing, the data on several are below.
Bottom Line — Notice-of-Defaults for the past 5-months have been massive. NODs turn into NTS’s within 4-5 months so in the past 2-months NTS counts have seen a sharp spike. Actual foreclosures/REO have been negligible but based upon the recent surge in NTS, the foreclosures are coming. When viewing like this it is easy to see.
Notes on chart above
Countrywide: New Notice of Defaults in past 4 months have surged. New Notice of Trustee Sales are growing rapidly. REO taken back from the foreclosure courthouse sale almost nil. This wave will break shortly and result in a massive foreclosure spike at Countrywide.
IndyMac: Perhaps the most interesting and a leading indicator because the loans are not owned by a large commercial bank any longer. New Notice of Defaults in Dec through March surged as the new portfolio owners made up for all of the wasted time during the FDIC ownership and sale process. There were a couple of months in 2008 leading up to the sale when they sent out very few Notice of Defaults. Actual foreclosures are ramping up hard — this chart pattern is what you are likely to see across other large servicers beginning in May.
Chase: The top servicer with respect to total volume in the nation. On the past 6 months Notice of Defaults have surged and are working their way to foreclosure. This can be seen in the last 2 month surge in Notice of Trustee Sales. However, actual foreclosures/REO have been very low for the past few months as they have also been on a moratorium awaiting the new Administrations plans.
Wachovia: On near-full moratorium for all stages of foreclosure. If you have one of the $122 billion in Wachovia Pay Options you are in no eminent danger of losing your home to foreclosure. If you are a Wells Fargo shareholder, don’t look for loan losses on their portfolio either because they have to foreclose in order to rack up losses. That is of course unless they continue to give principal balance reduction modifications which they are doing now. But I am certain they are only giving principal balance reductions that are within the limits of their forecasted merger losses. Ultimately this will not have the desired effects on modification recidivism they are looking for because most homeowners will remain trapped even with the principal balance reduction.
WaMu: This is very interesting. The WaMu servicing platform is virtually out of business after the Chase buyout. However, in March we saw Notice of Default surge as Chase fired up WaMu’s NOD machine in order to front-run the new CA Foreclosure Prevention Act. This was a one month event that effectively doubled the amount of new Notice of Defaults that Chase sent out to homeowners.
Wells Fargo: Wells has never really conformed with respect to moratoriums or what their peers are doing. They do things their own way. However, in the past 6 months their NODs have soared, in the past two months their NTS counts have spiked meaning foreclosures will follow in the next couple of months.
**Financial Institutions: 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.
Mark@TheFieldCheckGroup.com
Analysis by Mark Hanson, Field Check Group Real Estate & Finance
Data provided by ForeclosureRadar.com
May 13th, 2009 at 9:04 am
>>I am more convinced than ever that the next step is wide-spread principal balance reductions
And who’s money is going to do that? Taxpayers will have the heads of their congress reps if they propose using their money to bail out others.
Actually, I’d like the government to subsidize my rent while we’re at it.
Why should I help people who likely lied on their loan app? I’m fine with loan help – as long as its proven there was no FELONY LOAN FRAUD.
Want a stimulous? Start investigating each loan mod attempt for fraud. That’d put a TON of people to work.
May 13th, 2009 at 9:27 am
Thanks, Mark. These posts are SO well-written and clear, very informative!
May 13th, 2009 at 9:47 am
Mr. Mortgage said: “I am more convinced than ever that the next step is wide-spread principal balance reductions.”
my comment: WHATCHOOTALKIN’BOUT Mr. Mortgage??!!
Punishing the prudent once again.
Any estimate of the cost to the taxpayer for this?
Still, thanks for another great post.
May 13th, 2009 at 9:53 am
>>I am more convinced than ever that the next step is wide-spread principal balance reductions
Who’s going to take the loss then? Banks? No, then they’ll be insolvent yet again. Treasury? Will it get approved in Congress? The fact of the matter is somebody has to take a loss, I think the most suitable people to bear the loss are the “homeowners” (it’s a shame I call them homeowners).
May 13th, 2009 at 10:27 am
>>I am more convinced than ever that the next step is wide-spread principal balance reductions
Do not worry, they will use the – how a foreclosure next door will affect your house value excuse. In effect they are bailing out the foreclosed upon neighbor to help YOU! So you had better be grateful for this help.
May 13th, 2009 at 10:44 am
MM: “With no new laws or regulations in place since Obama rolled out his plan, there is little reason to fill the mailboxes with NTS unless the borrower does not qualify or does not want saving”
I thought one had to be current on their payments to qualify for either of Obama’s plans? In which case, no NOD or NTS has been sent.
May 13th, 2009 at 10:47 am
The servicers have their head up their a**, or in the sand. Been trying to get Wachovia to refi my current SoCal upside down, underwater, negative equity, toxic option arm for over six months.
Everything current, but the cancer of this loan is spreading, and can’t be supported much longer. I am sure there are thousands like me who are trying to “shore” things up before the tsunami of foreclosures occur that Mr. M writes about.
I am tired every month to hear..”We haven’t gotten everything in place yet and still waiting on information (from who I don’t know)…please call back next month”?
Stall…stall…stall. I have heard this for six months.
Let’s all hide under the covers and maybe this big bad recession will go away.