Foreclosures Still Piling Up

Submitted by Rich Toscano on June 16, 2010 - 7:44pm

Let's check in on San Diego foreclosure activity...



continue reading at voiceofsandiego.org

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Submitted by pencilneck on June 16, 2010 - 9:29pm.

Does anyone here know what the actual delinquency rate of home loans in San Diego is? From what I've read, there is a growing gap between delinquencies and default notices. I'd love to see the numbers.

Submitted by grepper on June 16, 2010 - 9:55pm.

another good stat would be the trend for those delinquent on property tax. a quick look at http://www.sdtreastax.com didnt yield anything. perhaps the data is somewhere

Submitted by SBcharo on June 16, 2010 - 11:14pm.

You can access this data from the San Diego County Assessor's Office, Foreclosure Radar, or Realty Trac. In a nutshull, NOD's are down 40% in San Diego County for the months January through May 2010 vs. the same time period in 2009. Trustee Deeds (Foreclosures) are up 10% for January through May 2010 vs. same time frame 2009 (and trending upward). Trustee Deeds compared to notice of defaults are 56.01% in 2010 vs. 30.75% in 2009 (means higher percentage of NOD's end up in foreclosure than in 2009). Total Trustee Deeds (foreclosures) as a percentage of total deeds recorded in SD County is 13.62% YTD 2010 vs 11.64% same time period in 2009.

Don't read too much positivity into the reduction in NOD's. Almost all large banks are focusing their distressed inventory into short sales. The real question is how much short sale activity is going on in San Diego?

Submitted by Sandi Egan on June 17, 2010 - 3:50am.

I don't think NOT/NOD ratio for a given month is meaningful. The NOTs lag by several months.

Submitted by pencilneck on June 17, 2010 - 8:37am.

Its the gap between the growing number of delinquencies and the shrinking number of NODs that I'm most curious about. Nationally, this is another potential pool of shadow inventory.

I assume the same holds true for San Diego. But I don't see the numbers to definitively justify this.

http://www.nuwireinvestor.com/articles/f...

"The rate of delinquencies hit a record 10.06% in the first quarter, according to the Mortgage Bankers Association. The rate has been moving steadily upward, more than one full point higher in the last year.

Ten states hold the highest number of loans in default, in the process of being foreclosed or already repossessed by lenders: Florida, Nevada, Mississippi, Arizona , Georgia, California, Illinois, New Jersey, Michigan and Rhode Island."

Submitted by pencilneck on June 17, 2010 - 1:54pm.

http://www.signonsandiego.com/news/2010/...

Found what I was looking for. The local delinquency rate has actually recently dipped modestly. However, there is still a huge (and growing) gap between delinquent loans and NODS.

Historically, NODS and NOTS have been a good way of measuring the health (or unhealth) of the market... This time its different. The local housing market is far sicker than these indicators suggest.

Edit: Using some high-tech analysis tools (ms paint)and the information above I added a rough delinquency line to Rich's chart.

http://img706.imageshack.us/img706/5965/...

Submitted by jpinpb on June 17, 2010 - 2:14pm.

As discussed many times on other threads, please keep in mind that there are many owners who are not paying their mortgage who have not received NODs. Don't know what you want to label them. Ultra-stealth. This is real and not just a few.

So if you're just looking at the NODs and they "appear" lower, there is a reason why. It's not necessarily b/c people are not defaulting, but that the banks aren't filing NODs. For whatever reason. About as transparent as a cement wall.

If one were to just look at the number of NODs, one would think maybe the market is improving. If that's all one has to go on, then you may conclude that all is well in the universe. But talking to people, neighbors, watching properties, reading blogs, the truth is somewhat hidden. The reality is that defaults continue in mass. The banks just aren't doing anything about it. And of course, why should they. They have bailout. They don't want the loss on the books. Extend and pretend.

Submitted by sdrealtor on June 17, 2010 - 4:50pm.

Absolutely but as long as the degree to which those non-payers with No NOD Filed (NPNNF)remains the same the trend stays in tact. If the NPNNF crowd is increasing the trend is worse. If the NPNNF crowd is decreasing the trend could be improving more than it appears.

Of course only the Shadow knows for sure and therein lies the question we dont and probably never will know.

Submitted by Blogstar on June 17, 2010 - 5:07pm.

The trough as shown in the graph a few posts down correlates pretty nicely with the date that NOT started trending around 1200, as seen in the graph on this post. At that point prices started going up. It looks to me some parties did a pretty good job of massaging this market to life by finding a sweet spot that pairs well with the incentives provided to boost buying. "Extending and pretending" longer might do the trick ,more or less, from here on out. Just guessing that if it worked in a the past year, it could work in the next and the one after that.

Submitted by davelj on June 18, 2010 - 10:37am.

jpinpb wrote:
The banks just aren't doing anything about it.

Shouldn't we use the terms "lenders" instead of "banks" here (the term "lenders" would encompass banks as well, of course)? Or, actually, more accurately, "the servicers working on behalf of the lenders"? Just to be technically correct? Fannie/Freddie insure 60% of the mortgages in this country (and that number's growing). They're not banks. Foreigners own a bunch of this crap directly. I'd say that about 30% (or less) of all unsecuritized mortgages actually reside on the balance sheets of US banks. And many of these aren't even serviced by the bank that holds it.

We throw this term "bank" around a lot and I wonder if folks actually understand the structure of the mortgage industry. "Lender" is probably a better term to use. Just a quibble (but I see this all the time).

Submitted by pencilneck on June 19, 2010 - 2:46pm.

I'm going to repost an earlier chart as I didn't explain it very well.

As a preamble, I am in total agreement with Rich's premise that foreclosures are piling up. The little bit that can not be over-emphasized, in my opinion, is that foreclosures are still high by historic standards AND lenders are taking action on fewer troubled loans (as a percentage) than ever. This combination is troubling, to say the least.

About the chart: Assuming that there was a strong correlation between troubled loans and NODs until 2008, the black line shows approximately where NODs would be at this time if lenders were still filing NODs at their prior rate.

The only evidence I have that there is a strong correlation between troubled loans and NODs is that it correlates pretty well from 2007 to early 2008. If someone has data going back further I'd love to see it.

Herein one facet of the mystery of shadow inventory is revealed.

Submitted by CA renter on June 19, 2010 - 10:04pm.

You are absolutely right, pencilneck, and this is also what jpinpb is referring to as well.

Would it be possible for you and Rich to aggregate and double-check this info to see if it's on target? I think this (spread between troubled loans and officially-recorded NODs) is where the nuclear bomb is hidden.

Submitted by davelj on June 20, 2010 - 10:27am.

pencilneck wrote:

Herein one facet of the mystery of shadow inventory is revealed.

I don't think this is particularly mysterious. Current MLS inventory in SD County is about 14,000 units. Add in your 5,000 units of shadow inventory and we're at 19,000 units. I don't know how other folks have been thinking about it, but I've been assuming that shadow inventory would boost MLS inventory by at LEAST 50% (and I've discussed it here at the Pigg). So, your number kind of makes sense. But I think a lot of folks are already aware of this.

Submitted by jpinpb on June 20, 2010 - 10:35am.

pencilneck - nice graph. NODs off the chart.

I'm robbing a line from a post in a different thread, but appropriate here. By not filing any NODs (intentional or not) it is like covering up cat poop in a litter box. At a certain point, you can only do so much pretending. I mean, pretend was great when you're 5 years old.

And another line I liked from a different thread:

Buddha said: “Three things cannot be long hidden: the sun, the moon, the truth.”

I think we'll have to amend the "bring data" line. If you don't have all the information, then it's just not accurate.

I don't know about anyone else, but I'm frustrated b/c when there's a problem, I like to resolve it. Never have I been of the belief that ignoring a problem will make it magically go away. In fact, if anything, the situation usually exacerbates into a bigger problem.

I also am not the type of person that likes to procrastinate. Not that I never do it, but I try to avoid it. Putting things off doesn't mean it won't have to be taken care of eventually. I'd just as soon take care of it and get it over with.

Now where did I put those crazy pills.

Submitted by garysears on June 25, 2010 - 7:17pm.

Pencilneck's graph does NOT imply a 5000 home shadow. That is only the estimate of the number that would/should have been filed in the most recent MONTH had NODs been filed at the prior rate given the same ratio of NODs to delinquency. You have to add the whole area under the curve to estimate total shadow inventory due to underfiling of NODs. There are about 25 months where pencilneck's estimate of NODs significantly diverges.

I eyeball the chart to be implying as many as 50,000 properties are in this part of the shadow. You would have to apply current cure rates to estimate the number that should come on as foreclosures or short sales. Then you have to subtract the number of these properties that sell as short sales without ever having a NOD filed despite significant delinquency. This assumes all NOTs listed on the MLS and were sold or are part of the current inventory. If not, the shadow grows some more.

Is it possible this shadow is at least twice the current MLS inventory?

Submitted by davelj on June 28, 2010 - 3:40pm.

I agree with your logic, garysears. I was not interpreting pencilneck's graphic correctly. However...

Here's part of the problem. The article from which pencil's pulling stats I believe notes mortgages that are 60-days delinquent (correct me if I'm wrong). Lots of mortgages get "cured" between 60 and 90 days because after 60 days, the servicer sends out a "30-day notice of intent" to file a notice of default once the owner's 90-days delinquent. Lots of owners get religion when they receive the 30-day notice of intent (admittedly, less so these days). So, what we really need is the 90-day delinquency figures because this is the point at which the servicer is *supposed* to send out the NOD.

My question, and I'll try to get the answer to this myself is... why wouldn't the servicers be sending out NODs when they're supposed to? This doesn't make sense at all. This has little to do with foreclosure - which is an action with real consequences. An NOD is just a notice and I would think that most servicers have their process for sending out NODs - as opposed to foreclosure notifications - completely automated. I can't think of any good reason for a servicer not to send out an NOD when it's supposed to go out. On the contrary, I'd think that a standard servicing agreement would stipulate exactly when that's supposed to happen (again, as juxtaposed against a foreclosure notification, which is a different beast altogether). (Recall that in the vast majority of instances the servicer and the lender are two separate entities.)

Anyhow, I think recreating pencil's graphs using 90-days delinquent, instead of 60-days, will get us a better idea - albeit far from perfect - idea of how much shadow inventory is out there. And I'll try to find out why servicers wouldn't be sending out NODs... that's pretty baffling if it's going on.

Submitted by jpinpb on June 28, 2010 - 4:13pm.

dave - I would love to know why the servicer/lenders (I didn't use "banks" :) are not sending out NODs. I only have access to NODs and I thought that would be a good indication of what's happening out there. I thought it would help me be aware of particular properties that may come up down the road as SS or REO. But instead of that transparency, the servicers/lenders are not sending out NODs. I mean it's not just a few months. The realtor friend of mine is looking at a year and no NOD yet. I would think it would be automated.

Submitted by garysears on June 28, 2010 - 10:11pm.

Dave, I've been hearing that not filing NODs is recently becoming quite common, but that could be internet myth. I'm hearing of people living without paying for over a year in California without getting a NOD. The only reason I can think would be an effort to hide the problem. I want to assume that the delinquency rates cannot be hidden, that it would be a material fact required to be disclosed. But not much seems above board in finance to me.

Calculated Risk reported last August that the Fannie Mae cure rate for all delinquent loans was just 6.6%, down from 45% from a few years prior when people had equity. I was certain I saw some recent figures there that showed almost zero difference in cure rate between 60 and 90 days delinquent. Basically, the story was once loans hit 2 months delinquent, there is almost no hope for recovery. If this is true it could explain why banks have given up even filing NODs. That kick in the pants just may not be having any effect.

I believe it is part of a widespread effort to misrepresent the scope of the problem. Another uneducated guess might be if banks have to apply loan loss reserves against the 90 day bucket or something. Is it possible they are avoiding having to apply terrible cure rate assumptions in setting loss reserves?

Full Disclosure: I spend most of my internet time on the Calculated Risk comments section.

Submitted by jpinpb on June 28, 2010 - 10:54pm.

gary - thanks for sharing time here also. Your post resonates w/my thoughts. It's ugly out there when you look behind the curtain. I feel like I'm in the Wizard of Oz. The presentation to the people is all is well and beautiful. And now prices are back to 2005 levels. I can't get my head around this.

Submitted by CA renter on June 29, 2010 - 3:04am.

Agree 100% with your assumptions, gary. NODs are officially filled and are publicly recorded, AFAIK, so by not filing, they can better "hide" the problems.

Submitted by davelj on June 29, 2010 - 8:59am.

garysears wrote:
Dave, I've been hearing that not filing NODs is recently becoming quite common, but that could be internet myth. I'm hearing of people living without paying for over a year in California without getting a NOD. The only reason I can think would be an effort to hide the problem. I want to assume that the delinquency rates cannot be hidden, that it would be a material fact required to be disclosed. But not much seems above board in finance to me.

Calculated Risk reported last August that the Fannie Mae cure rate for all delinquent loans was just 6.6%, down from 45% from a few years prior when people had equity. I was certain I saw some recent figures there that showed almost zero difference in cure rate between 60 and 90 days delinquent. Basically, the story was once loans hit 2 months delinquent, there is almost no hope for recovery. If this is true it could explain why banks have given up even filing NODs. That kick in the pants just may not be having any effect.

I believe it is part of a widespread effort to misrepresent the scope of the problem. Another uneducated guess might be if banks have to apply loan loss reserves against the 90 day bucket or something. Is it possible they are avoiding having to apply terrible cure rate assumptions in setting loss reserves?

This is possible, but... again, the problem with this view is it doesn't make a lot of sense when looking at the structure of the industry. (But, clearly, just because it doesn't make sense doesn't mean it's not widespread.)

Something like 60% of all mortgages are insured by Fannie&Freddie, and none of F&F's numerous servicers should give a rat's ass about whether or not they send out an NOD. They're just doing their jobs... and it's likely automated. Then another huge chunk of mortgages is either in a private-label MBS (and serviced by a third party) or on a bank's actual balance sheet (and serviced by a third party). Finally, the smallest piece is those mortgages held on balance sheet by a bank and also serviced by that same institution. I can understand why this latter group *might* defer the filing of NODs (although, in reality, from a regulatory perspective, the same additional reserve will have to be applied against loans that are 90+ days delinquent regardless of whether or not an NOD has been filed - so, the NOD itself is irrelevant from a provisioning standpoint)... but that's that smallest chunk of the industry.

So, if servicers aren't filing NODs then, almost by definition, there must be some directive from F&F not to do so. Which, of course, is possible... I just can't think of why that would be the case. F&F, after all, don't face any "business pressures" because We The People own these monstrosities. Again, forebearance regarding foreclosure I understand - I don't condone it, but I understand why it's happening and why the stats are skewed. But NODs... doesn't make any sense. I'll get to the bottom of this, but it might take a little time.

Submitted by jpinpb on June 29, 2010 - 9:27am.

Thanks, dave. If you can find out why, inquiry minds would love to know.

Submitted by davelj on June 29, 2010 - 10:47am.

jpinpb wrote:
Thanks, dave. If you can find out why, inquiry minds would love to know.

I've put this question out to folks who will be able to find the answer, but as I was doing so I thought of a couple of things that might explain the apparent discrepancies.

The figure from the article shows mortgages that are delinquent 60 days OR MORE. Therefore, a mortgage within this classification also includes mortgages that are 90 days, 120 days, 360 days, etc. delinquent. Each delinquent loan, however, is only going to receive 1 NOD. Consequently, it's quite possible that pencil's graph is incorrect because he's double-, triple- and quadruple-counting deliquencies relative to NODs filed. The right way to look at this - I believe (and correct me if I'm wrong) - is to look at CURRENT mortgages that are 90+ days delinquent versus the CUMULATIVE number of NODs filed over a pretty long period of time. My point here is that as the foreclosure process expands (in months) - as it has in recent years - the difference between the total number of mortgages reported as 90+ days delinquent and NODs filed will expand, by definition. So, for example, three years ago, a loan that was 90+ days delinquent received an NOD and was probably foreclosed on within 3-4 months or so. So, for 3-4 months after the NOD was filed, it still showed up in the 90+ days delinquent bucket. No big deal. Today, however, that same mortgagor received an NOD after 90+ days delinquent and it's STILL in that bucket after 1-2 YEARS. I think THAT's where the problem is... not with the servicers avoiding sending out NODs en masse (although this might be happening in specific circumstances). As the time between NOD filings and foreclosures expands, the relationship between "delinquencies" (which are cumulative) and NODs filed (a single event) breaks down (completely), which I think is the problem with pencil's graph (it assumes the relationship is constant). But I'll post again when I've got more info.

Submitted by davelj on June 29, 2010 - 11:37am.

pencilneck wrote:
I'm going to repost an earlier chart as I didn't explain it very well.

As a preamble, I am in total agreement with Rich's premise that foreclosures are piling up. The little bit that can not be over-emphasized, in my opinion, is that foreclosures are still high by historic standards AND lenders are taking action on fewer troubled loans (as a percentage) than ever. This combination is troubling, to say the least.

About the chart: Assuming that there was a strong correlation between troubled loans and NODs until 2008, the black line shows approximately where NODs would be at this time if lenders were still filing NODs at their prior rate.

The only evidence I have that there is a strong correlation between troubled loans and NODs is that it correlates pretty well from 2007 to early 2008. If someone has data going back further I'd love to see it.

Herein one facet of the mystery of shadow inventory is revealed.

OK, I spoke to a friend of a friend in the industry and he confirmed my logic (from the post immediately above). So, the flaw in pencil's graph is the assumption that there would CONTINUE to be "a strong correlation between troubled loans and NODs" AFTER 2008. What happened is that prior to 2008, the time between NOD and foreclosure was a matter of several months. After 2008 the time between NOD and foreclosure started to expand to where it is today, which is an average of over a year (and, as we know, much more in many cases). So, as the time between NOD and foreclosure expanded, so did the difference between troubled loans ("delinquencies" - a cumulative figure) and NODs (a one-time event).

This guy said he would be surprised if more than 20% of mortgagors that were supposed to receive NODs weren't receiving them. That is, it's happening, but it's not widespread. He said there's no way that F&F servicers aren't sending out NODs. But conceivably some individual lenders have instructed their servicers to delay sending out NODs, although he wasn't sure what that would accomplish. After all, if a loan's 90+ days past due, it's delinquent. Period. You gotta reserve against it regardless of whether an NOD has been sent out. ("90+ days past due" is a regulatory hurdle for provisioning and classification; a Notice of Default, on the other hand, is a legal document.)

So, there may be some instances of folks not receiving NODs (although some folks may be lying or unaware that they received it), but it doesn't appear to be widespread.

So, unfortunately, "one facet of the mystery of shadow inventory" was not revealed here.

Submitted by davelj on June 29, 2010 - 12:50pm.

I'll add a little math to the previous two posts to make the point more clear.

SD County has about 3 million people. Let's assume, for sake of simplicity, an average household size of 4, so there are 750,000 households. Let's further assume that 70% of these households are in homes that are owned. Let's further assume that 90% of this group have mortgages. So, that gives us 473,000 mortgages in SD County. Now, depending on which stats you believe, somewhere between 9.5% and 11% of all mortgages in SD County are 90+ days delinquent. So, if we use the higher number, that suggests that roughly 47,300 mortgages are 90+ days delinquent, but recall that that includes every loan that's over 90 days delinquent, including those that are 2 years delinquent. The increase in delinquencies on a monthly basis has been around 0.2% as of late, which would suggest about 950 NET additional NODs per month. But... we have to adjust for loans that are foreclosed and/or cured (that is, loans that fall out of the delinquency bucket for whatever reason). Foreclosures are running at about 1,200/month and it's hard to tell at what rate other loans are being cured. So, we should be looking at at least 2,000 NODs filed each month. And, in fact, we've been running at about 2,200 per month in 2010. There were a total of 38,000 NODs filed in 2009, or almost 3,200/month. While gross delinquencies have been rising, the rate of change in delinquencies has been falling, so this makes sense.

So, while there could be *some* issue with the filing of NODs, it doesn't appear to be a large one if it exists at all. Again, I've admittedly ballparked these numbers - but they're probably close enough to make the point.

Now, none of this is to suggest that there isn't a lot of shadow inventory out there. There is. Hell, there are 47,000+ distressed mortgages out there and a large portion of these will *eventually* hit the market - but over a period of time. So, just because there (likely) isn't a conspiracy regarding the filing of NODs doesn't mean that there isn't a lot of shadow inventory out there or that prices won't be under pressure for quite some time. But I think the NOD issue is a red herring.

Submitted by jpinpb on June 29, 2010 - 3:07pm.

What about the people that own multiple properties? You know, the ones that went out on some crazy shopping spree thinking they were going to rent them out then flip them. Shouldn't we include them? I think there were quite a few of those. What about the investors that don't live in San Diego that bought here. You know, the ones that were from L.A. or S.F. or all those Europeans w/cash buying multiple properties. Should we exclude them?

I was having a hard time keeping track of NODs b/c they get mailed to the primary residences, not the property residence. So people that had condos, but lived elsewhere, the NOD would get sent to the other address. I had to dig further to get the address of the NOD.

Of course, now there's an issue on the NODs getting filed. So much for that.

Submitted by davelj on June 29, 2010 - 4:24pm.

jpinpb wrote:
What about the people that own multiple properties? You know, the ones that went out on some crazy shopping spree thinking they were going to rent them out then flip them. Shouldn't we include them? I think there were quite a few of those. What about the investors that don't live in San Diego that bought here. You know, the ones that were from L.A. or S.F. or all those Europeans w/cash buying multiple properties. Should we exclude them?

Perhaps, but... should we INCLUDE in shadow DEMAND all of the folks who bid on properties and don't get them? They're just going to move onto other properties, right? (I just bid on a condo and lost out with 17 other bidders.) My point is that a lot of these issues have offsetting factors in each direction. Personally, I think it's better just to focus on the delinquencies and assume that a large chunk of those will eventually come onto the market... and that's gonna depress prices.

Now, was the NOD issue addressed sufficiently?

Submitted by jpinpb on June 29, 2010 - 5:37pm.

Well, then, for that matter, we should include all all the organic sales of people wanting to sell, but don't bother to list b/c they will not get what they want.

Submitted by davelj on June 29, 2010 - 5:56pm.

jpinpb wrote:
Well, then, for that matter, we should include all all the organic sales of people wanting to sell, but don't bother to list b/c they will not get what they want.

Indeed. And on the other side of the ledger we should include all of the folks who want to buy and can afford to buy, but don't buy solely because they are worried about prices falling further (in fact, I believe a few Piggs fall into this category)... but at some point they will buy. And this could go back and forth... on and on and on and on and on and on...

We know there's a big shadow inventory number. But trying to pin down exactly what it is is a fool's errand in my view. There are too many considerations (and offsetting factors) to get to the "real" answer. And as we've seen in this thread, there are plenty of incorrect methods - disguised in plausibility - of attempting to get to a reasonable answer... which apparently many folks will accept without question because they've already made up their minds on the issue.

Submitted by CA renter on June 29, 2010 - 11:28pm.

davelj wrote:

This guy said he would be surprised if more than 20% of mortgagors that were supposed to receive NODs weren't receiving them. That is, it's happening, but it's not widespread. He said there's no way that F&F servicers aren't sending out NODs. But conceivably some individual lenders have instructed their servicers to delay sending out NODs, although he wasn't sure what that would accomplish. After all, if a loan's 90+ days past due, it's delinquent. Period. You gotta reserve against it regardless of whether an NOD has been sent out. ("90+ days past due" is a regulatory hurdle for provisioning and classification; a Notice of Default, on the other hand, is a legal document.)

So, there may be some instances of folks not receiving NODs (although some folks may be lying or unaware that they received it), but it doesn't appear to be widespread.

So, unfortunately, "one facet of the mystery of shadow inventory" was not revealed here.

Thanks for your insights, davelj.

Now, this might be an odd exception, but I know someone who had a mortgage from Freddie Mac that's being serviced by one of the big banks. They didn't make a mortgage payment for over six months before receiving a NOD.

Not sure if it means anything or not, but I think the govt took over F&F so they could artificially prop up the housing/mortgage market and so they could control the information better.

It's obvious that everyone from the President on down is trying to convince us that housing prices are going to go up, so it's not that far-fetched that they might be hiding numbers that would go against what they're trying to convince us of. Remember how much they were pounding on the notion that it's all about "consumer confidence"? The fact that people are broke, deep in debt, and don't have stable, well-paying jobs apparently doesn't fit into their theory.

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