Thursday, April 9, 2009

California Foreclosures About To Soar

In light of the market moving preannouncement by WFC, which as David Faber points out may have used some "leeway" with the marks on the company's mortgage related assets, it makes sense to present some California foreclosure data to show just how hot the refi market really is. We grab the following data and charts from the excellent Field Check Group blog.

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 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.

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 Pa Homeowner?

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John said...

T & C,

This wave may be a result of the temporary foreclosure freeze that Citi, JPM and others put in place back in late Feb., early March.

I don't think that article reveals all of the details and it was written Feb 14th days before it was actually put in place.


Anonymous said...

"Leeway" is an understatement. $500 million credit hedge funds can't get their positions marked much less their NAVs finalized 6 days after quarter-end. Are we to believe WFC can mark their monstrous balance sheet in 6 days? Of course not. They took advantage of the mark to market suspension and took a flyer on their loan marks. This is new government policy....suspension of disbelief. We'll see how it works out.

Anonymous said...

Excellent insight! Thanks TD.

Anonymous said...

i spoke with a person who handles fnm/fre foreclosure sales in AZ,and his words echoed this article.They are frozen like a deer in headlights with an unbelievable backlog of homes as a result of the recently lifted foreclosure moratorium.In excess of 25% of current inventory seems likely

Anonymous said...

Wells reportedly has ~ $130 bil in second mortgages. With their big footprint in CA, a big chunk of that $130b is in CA. Many of those were done behind neg am Option ARMs. My back-of-the-napkin guess is that they'll lose ~ $30bil. What I don't know is whether that would make them insolvent.

Anonymous said...

Does the TARP or TALF program support any of these losses?

SectorInvest said...

So let me see if I understand this correctly...

There has been a moratorium on foreclosures thanks to our wonderful political leadership in Sacramento...The moratorium is now coming off?

This moratorium has created a backlog of 'shadow inventory' houses. Is this inventory reflected on the balance sheets of the big banks?

Recently, I am getting daily NOD from RealtyTrac in my upscale community ? Kinda concerned about that.

Banks have been holding off valuing the realistic market value of homes and commercial real estate until they got adjustments to "mark to market" rules. Which from my understanding they are now allowed to modify value in "certain economic enviorments" and are doing so....

There is a bank REO down the block that is back on the market..HUMM wonder what that means!

This site is sooooo...much more informing than the 'big media'..I must pay more attention..!

Title Metrics said...

This should confirm the forecast offered in this Post.

I consult a handful of National Title Insurance Companies offering Title Insurance and Settlement services for a massive pool of Bank Owned Property in California; these companies insure the REO sale from the Bank to an end buyer.

For background: There are typically 2 Title orders placed when Banks foreclose on Real Property in States that allow Non-Judicial foreclosure. The 1st Title order is the TSG (Trustee's Sale Guaranty) which is placed when a borrower enters default; the 2nd Title order is the REO Sale which is placed around the time the foreclosure sale occurs.

Current month to date REO order inventory is up 1400% over the same period last month (March), and new order openings are up 4100% for the same period last year. Current TSG new order inventory has increased only 300% (month over month). Shadow inventory is real and will likely have a negative affect on the next three years due to oversaturation of real property for sale.

A burst of additional REO inventory hitting Southern California will continue to erode any hope of stabilizing one of the Country's most valuable property markets.

If it truly has to get worse before it gets better...we're all skrewed for the foreseeable future.

Austin Realtor said...

< This is trouble because the demand in the segment of the market is outpaced by foreclosure supply alone - where does that leave Ma and Pa Homeowner?

Most likely, homes in that price segment will depart that price range and move down to the next lowest range. Or investors will buy them and rent them. I'd think that somewhere below (perhaps far below, but there nonetheless) the actual construction/replacement cost is the price point that will bring buyers back.

ivforeclosures said...

Walk Away From Your Home Without F'ing Up Your Credit!

When the Loan Mod Fails, Think Short Sale...again, Loan Mod Fail Think Short Sale.

Don't let the "F-word" (Foreclosure) sting your credit history, SELL your home with a short sale and save your credit from getting the F-word.

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Anonymous said...

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Anonymous said...

While loan modifications are typically better for banks compared to foreclosures, it has become apparent that some lenders are moving forward with auctioning homes while a short sale or loan modification is in process. Why? Net Present Value test. There is a hidden formula that all lenders utilize to see what the most cost effective option is, sometimes it actually is foreclosure. Take Indymac for example (now One West Bank). After Indymac failed, the FDIC took over the lender and its assets then eventually sold the former Indymac portfolio of loans to a private equity group called IMB (mostly Chinese investors) for the equivalent of 37 cents on the dollar. In most instances of foreclosure, a lender will recover approximately 60% of their investment. What does this mean for a homeowner? If the bank owns your note at about 37% and they can recover about 60% through foreclosure, they DON'T lose any money! Actually they want to foreclose as they will make more money since they can tag on late penalties and attorney fees, not to mention giving the bank additional liquidity to reinvest and not have to deal with a risky homeowner. Now let's look at how the foreclosure process works in California which is advantageous for lenders since it is a Trustee state.
In a Judicial state (New York, Florida, etc) a judge will review the legality of the foreclosure proceedings that lender has filed to protect the rights of homeowners. There are many articles that show how lenders are improperly and illegally foreclosing on homeowners to expedite the process to recoup their investment faster (if you haven't learned by now, the only thing lenders care about is the money). But in a Trustee state, the "3rd party" Trustee is paid by the bank to facilitate the foreclosure process to ensure proper actions are taken and is lightly monitored by government agencies. In California, lenders are rushing this process and recklessly filing the foreclosure to push the Trustee to auction the home as quickly as possible, in the meantime, the homeowner is unaware of the legality of what is happening. Virtually all attorneys cannot even tell you if the foreclosure is being processed properly due to the complex and convoluted laws in place which benefit the lender.
So who is looking out for the homeowner in the foreclosure process in California? We are. ASND Inc. is a company that researches the legality of the foreclosure action taken by the lender at the trustee level, raising issues that will delay the Notice of Sale date for up to 36 months, buying you time to figure out your next step in life, whether it be a loan mod, short sale, regular sale or just rather live in your home than rent (Trustee states only). Over 95% of our clients still own their home after 12 months in our program and no client has had their home auctioned in the first 6 months. This is not accomplished through a loan mod, short sale, bankruptcy filing, "produce the note" tactic or Temporary Restraining Order. A BK will only buy you about 60 days in most CA cases and then you have just ruined your credit for 4-7 years. The "produce the note" tactic only works in a smaller percentage of cases where the loan has been sold many times and is difficult to find but most large lenders (like Countrywide where I had worked for a number of years) has every document scanned and imaged into a database to be readily available as required by law. In the circumstance where your lender has already foreclosed, we can delay your eviction for up to 12 months as well. For more information go to our website or call me at 949-333-4012 to see if we can help you delay your sale date.