The foreclosure wave is here — look beneath the headlines
- Notice-of-Trustee Sales are up 100% from Feb to May and subsequent foreclosures are up 75% from March to May.
- CA foreclosure activity outpaces total house sales by 100% – infinite supply
**We chose one of many weekly research reports and notes for this blog. For more information on our variety of absolutely unique research offerings please see the website.
In early April I was digging around my default and foreclosure database reviewing servicer and originator specific foreclosure numbers and noticed that a couple of the nation’s leading servicers were acting funny. At that point, most servicers had been ratcheting up Notice-of-Defaults for three months while scaling back sharply on filing new Notice-of-Trustee Sales. Subsequent foreclosures had been bouncing off of year and a half lows since October. Based upon the evidence from the two previously mentioned large-bank servicers, I then made the call about a wave of foreclosures about to hit.
The wave is here even though it did not show up in the aggregate numbers released by RealtyTrac yesterday morning. In their report, CA aggregate foreclosure activity was reported down 4.46%. That is not accurate.
There are three stages of foreclosure, which we track religiously every day. Because each stage is separated by a period of up to 4-months, the mix can change dramatically causing the aggregate to move in the opposite direction of present conditions. Additionally, back in 2008 most servicers all did things the same way at the same time. Now, each bank and servicer has their own agenda so the monthly numbers are much more volatile, which can lead to misinterpretation.
In May, aggregate foreclosure activity was not down 4.6%, rather up 13.5%. On a more granular level, the takeaways are that Notice-of-Trustee Sales are up 100% from Feb to May and subsequent foreclosures are up 75% from March to May – these are significant events. Especially when considering that the housing market at the low end has been benefiting in part by the lack of inventory caused by the Q4 2008 – Q1 2009 moratoria.
The Waves
The chart below shows aggregate foreclosure activity of all three foreclosure stages. The red and yellow lines — Notice-of-Trustee Sales (stage 2) and actual foreclosures (stage 3) respectively — are the wave. In the past three months NTS and foreclosures have surged, as evidenced by the red and yellow growing twice as large. Again, notice-of-Trustee Sales are up 100% from Feb to May and subsequent foreclosures are up 75% from March to May.
So, why aren’t foreclosures up 200% – 300% from March and back to all-time highs, as the March through May Notice-of-Trustee Sales surge would indicate? It’s because of capacity and timing.
We know for a fact the GSE’s and several servicers came off moratorium around the time that Obama made public the Home Affordable mod and refi programs at the end of March. From there the servicers had to make the decision to participate, integrate the new borrower modification and loan decisioning and slotting technology and train staff. If this took 6 weeks, which would be incredibly fast, then in the second week of May they would have started re-qualifying and contacting the back log of distressed borrowers with the new loan mod, workout and refi offers. Then they have to give the borrowers a reasonable time to accept or deny. It is only June 11th — there simply has not been enough time. But early foreclosure numbers for June show the foreclosure ramp remains intact.
The chart below breaks out only the Notice-of-Trustee Sales and actual foreclosures, stages two and three. When viewing it this way, the surge in NTS and foreclosures since Feb and March respectively is obvious – each stage up 100%!
The Notice-of-Trustee Sales and foreclosures will continue to come. Notice-of-Defaults — the first stage of foreclosure and the earliest leading indicator of everything mortgage, housing and balance sheet related — have been hitting record highs since December.
The past 6-month NOD average is 45k…the 6-month average for the worst time in the summer of 2008 was only 43,500.
The subsequent foreclosures that come from this latest 6-month NOD surge will hit about the same time a mortgage mod re-default surge from the 2008 NOD surge does. At this point if new NOD’s have leveled out or even fallen by 50%, the re-defaults from bad loan mods made when mods were new and even more reckless than today will keep foreclosures as headlines through next Spring at least.
The following chart is of monthly Notice-of-Trustee Sales (second stage) showing the bleed over from the Notice-of-Defaults in the previous chart. NTS are back at all-time highs. Holding back all of these foreclosures will be an impossible task through modifications alone. This is the wave.
The chart below is of actual foreclosures. Foreclosures follow the NTS stage by 14-60 days. From the March lows to May, foreclosures have almost doubled. This highlights the bleed over from NTS that will continue. Early June results already show a 10-month high foreclosure run-rate of in the low 20k’s.
Lastly, the following shows total CA house sales vs. total CA foreclosure activity. The blue lines reflect total foreclosure activity and red lines, total sales. This chart clearly highlights how much of a supply problem that foreclosures are and why there is such a push to kick the can down the road through moratoriums and by modifying America.
**We chose one of many weekly research reports and notes for this blog. For more information on our variety of absolutely unique research offerings please see the website.
Best Regards,
Mark Hanson
Mark@TheFieldCheckGroup.com
Data provided to Field Check Group Real Estate & Finance by ForeclosureRadar.com
June 14th, 2009 at 9:23 am
MM,
You’ve got 20 years experience in the mortgage industry.. what was your role? How many bad loans did you make? Why weren’t you screaming this in 2003..to prevent today’s situation? In any situation, thanks for your “dramatic” picture of the situation today(against government’s efforts to change perception) to bring prices back to a normal level!
June 14th, 2009 at 10:12 am
MM,
1. thanks as always.
2. I had a productive week, asking Mish to put you on his blogroll.
3. Just saw the DataQuick by county and CA city medians showing serious continuing meltdown.
4. I believe Case/Shiller futures is predicting further 10-15% drop to 2001 prices in 2011.
5. Nice piece on Ticker, Hedgie, have you considered getting blogtalkradio?
June 14th, 2009 at 11:07 am
California imposes 90-day foreclosure moratorium to begin Monday June 15, 2009
June 14th, 2009 at 2:52 pm
Fantastic analysis, as always.
Thanks for what you do Mark!
June 14th, 2009 at 4:07 pm
Thanks!
It is such a joy to read these clearly written articles stuffed with charts and facts.
Mark, do you have a comment on the new moratorium?
Does it prevent all 3 stages or only the final foreclosure?
How will banks survive with people not bothering to pay on their mortgages?
June 14th, 2009 at 5:45 pm
On the last graph, where “The blue lines reflect total foreclosure activity and red lines, total sales. ” …I don’t see a red line.. is that a mistake?, or no sales? Appears you may have missed a bar!
June 14th, 2009 at 5:47 pm
I would like to hear your opinion on the new moratorium also. Thanks.
June 14th, 2009 at 5:50 pm
Also, I don’t see the “The red and yellow lines” in the first graph. Thanks for these posts, they are awesome.
June 14th, 2009 at 5:54 pm
Hi Mark, I think we’d all appreciate your insight into how the 90 day moritorium impacts the 3 stages.
June 14th, 2009 at 5:56 pm
Mark,
Disturbing trend in some counties in CA (I’m from Orange County): banks are moving forward by an average of 25 days the first foreclosure letters. Some of the larger banks in OC are sending out first notices if they have not received that month’s mortgage payment. One of my banking friends say that they (the banks) would rather take the “hit” while their balance sheets still contain toxic assets (CDO tranches, etc.), with the hope that writedowns can take place as soon as possible.
June 14th, 2009 at 8:02 pm
Great work as always MM!!
June 14th, 2009 at 8:06 pm
Mark,
I am one of the few “true” forensic auditors out there, doing real things. Just a couple of comments on what I am seeing.
Lenders are definitely not cooperating in trying to get mods done. They are using every tactic in the book to try and delay the mods, until they can foreclose.
Principal reductions are still almost non-existent.
Probably 20-30% of the Notice of Defaults are actually unlawful under CA law, and my attorneys are now attacking lenders on that basis.
A disturbing new tactic is that Greenpoint and other servicers will “sell” the servicing rights to Countrywide just before the NOTS is filed. The resulting transfer in paperwork delays any ability of the borrower to work on a loan mod during that time, usually 2 weeks in duration. This results in borrowers usually losing the home at the Trustee Sale.
The new moritorium will have little effect. There is a provision that if the lender has already gotten a loan mod plan in place, then they can get an “exemption” to the regulation from DFI. ( I am sure that most lenders already have that in place.)
Also, if a borrower is working on a mod through a loan mod company or an attorney, then they do not qualify for the moritorium.
June 14th, 2009 at 8:59 pm
kim and patrick, can you go more into the new moratorium? How is this one different to the previous moratorium?
June 14th, 2009 at 9:18 pm
Some things
1. If the borrower has a first and second mortgage, the second must be willing to subordinate to the first again.
2. Full Income Documentation
3. Borrower is cannot be working with any company or law firm to modify at time of default.
4. Debt ratio of 38% for Housing. 55% Total Debt Ratio.
5. Only needs to include two “features”.
6. Not required to modify if it breaches the Pooling and Servicing Agreements.
7. The law applies to those servicers who do not have a comprehensive loan mod program and have applied for and received an order from DFI exempting them from the regulations.
Bet about every servicer already has that exemption. If I were a servicer, I would have gotten it.
Let’s be honest. Does anyone really think that the CA government has any real intention of helping the people out?
I can drive a truck through all the loopholes in this law.