An oft-heard theory regarding the foreclosure situation goes something like this: the overabundance of risky mortgages may cause a lot of defaults, but lenders won’t be able to afford to foreclose on too many borrowers. Therefore, lenders will be more flexible than they have been in housing busts past, allowing delinquent borrowers more time or easier loan terms to help them get back on track.
We can test this theory fairly well using available data. But first, a terminology refresher. A Notice of Default (NOD) is a letter sent to a delinquent borrower saying, in effect, "pay up or else." A Notice of Trustee Sale (NOT) is filed upon the occurrence of the "or else" — when the lender takes back the home. The law dictates that the lenders can’t take back the home and file the NOT until three months after the sending of the NOD.
That three-month delay is not by any means set in stone, but it seems to be a fairly typical timeline between an NOD and the ensuing NOT. Thus, by dividing the number of NOTs filed in a given month by the number of NODs filed three months earlier, we can get a rough idea of how many lenders are actually going through with the foreclosures they’ve threatened against delinquent borrowers.