August Foreclosure Preview

Posted on September 12th, 2008 in Daily Mortgage/Housing News - The Real Story, Mr Mortgage's Personal Opinions/Research

ForeclosureSput out an update earlier this week reporting that foreclosure starts (Notice of Defaults) had dropped on a national level from July.  This was amateurish on their part because NOD’s keep coming in through the first couple of weeks into the following month.  At the time they released this news, it would have been impossible to tell the count. Estimating is not a good thing in the data business, which is obviously what they did.

Then today, Realty Trac  put out data showing NOD’s were up, Notice of Trustee Sales had dropped and actual Foreclosure Sales were up. I don’t agree with them according to my data. Honestly, I don’t think they know how to tell the difference between the doc types. 

Throughout this whole process we have seen many false bottoms.  I believe we have one here with these two reports. I will have a full-blown foreclosure summary out Monday. Until then, here are my preliminary findings for the state of CA. As goes CA, so does the nation. CA represents about 35% of all foreclosure counts and 45% of the national dollar amount.

  • Notice-of-Defaults (NOD): Up approx 1.5% hanging well over 40k per month.
  • Notice-of-Trustee Sale (NTS): Down approx 10% but still at the second highest level on record.
  • Foreclosure Sales at Auction: Down approx 10% but at the second highest level on record.
  • Cancelled Auctions: Flattish at highest level on record.

We have seen these numbers gyrate 10% per month many times. The fact the NTS and Foreclosure Sales at auction dipped slighltly from the pervious month means nothing at all. Perhaps banks are putting off the second and third foreclosure stages hoping the new FHA bailout program will help these borrowers. Or, perhaps they are so overloaded with REO they extended things out.  I will drill down into it more next week.

What is important is that NOD’s have remained at the highest levels on record and cure rates from the NOD stage to the actual foreclosure stage have plummted because folks can’t refi or sell their way out of foreclosure any longer. Also, values are down so much, they just have no interest in saving their home. In addition, it is important to note that fewer subprime foreclosures are happening by far and the void is quickly being filled with Alt-A and Prime. That is a serious problem.

Finally, how foreclosures impact the housing market is relative to overall sales. Even is foreclosures lighten up but home sales fall and prices along with it, the housing market is not improving and values fall can spark defaults in higher paper grades due to the negative equity effect.

Please review last month’s Monthly Foreclosure and Home Sales reports if you have not done so already and I will be back at ya on Monday with the full report…have a great weekend.

  • July Home Sale Surge, But Market Worsens (Existing Home Sales Preview) (44)
  • Mr Mortgage: Breaking July CA Foreclosure Report – Foreclosures Unexpectedly Surge (17)
  • 25 Responses to “August Foreclosure Preview”

    1. We know some banks like Wells have extended their foreclosure grace periods … but we really have no idea how many or how long. I suspect that there is a huge shadow inventory that is starting to build – whether on purpose or just because they are overwhelmed – and that we cannot place too much faith in the NOD/NTS/Foreclosure stats.

    2. Mr. Mortgage, congratulations on a world class analysis! A true public service!!

      I have a question. I wonder if there was a typo in your post. Or is it just my failure to understand?

      You stated that:

      …cure rates from the NOD stage to the actual foreclosure stage have SOARED because folks can’t refi or sell their way out of foreclosure any longer.”

      Is this true? I was thinking that cure rates have PLUMMETED because people have failed to CURE the default and therefore more foreclosures are happening.

      Am I missing something? Is this a typo?

      Tony

    3. MM, you are the source for the inside info about this mess. Thanks!
      Having been in the RE business for years, I know you’re dead on! How long until all the banks take a page from F/F and dont call a loan “non-performing” until it’s been two years since the last payment?

    4. What would I do without you Buzan. Thanks!

      Peter – check this out…

      NEWS ALERT

      from The Wall Street Journal

      Sept. 12, 2008

      The Federal Reserve Bank of New York held an emergency meeting Friday night with top Wall Street executives to discuss the future of venerable firm Lehman Brothers and the parlous state of U.S. financial markets. In attendance were Treasury Secretary Henry Paulson, SEC Chairman Christopher Cox, Morgan Stanley Chief Executive John Mack and Merrill Lynch Chief Executive John Thain, among others.

      Talks about a sale of Lehman or many of its parts are taking place in other forums and will likely continue through the weekend.

      Go to: http://online.wsj.com?mod=djemalert

    5. Thanks. What a surprise!
      Maybe you’ve already seen this:

      http://www.loanperformance.com/infocenter/whitepaper/FARES_resets_whitepaper_021406.pdf

    6. Mr. Gage-

      Why call it a “August Foreclosure Preview” when it’s September? Shouldn’t it be a “Review”? Anyways, love your opinions – keep it up!

      -Jeff

    7. And now the Dems want Fannie/Freddie to extend grace periods. (Source: http://mobile.reuters.com/mobile/m/FullArticle/CPOL/npoliticsNews_uUSWAT01002720080911?p=3 Sorry, I don’t know how to link from here.) I know that Mr. M will be pleased at this extra impetus towards mortgage mods but it surely muddies up the monthly stats.

    8. Whew! Thanks Mr. Mortgage!

      A totally excusable error. Weird how just the smallest typo can change our meaning entirely, isn’t it?

      You and I both deal with MOUNTAINS of data and it’s so time-consuming to proofread everything we write five times!

      I was reading this piece, one of your finest (concise and slashing commentary) and all of a sudden I read that cure rates had “soared” and I thought wait a minute, this fellow Mr. Mortgage is not at ALL bullish, but that would be an extremely bullish sign (for cure rates to soar) and I was SURE you would have pointed it out if that key variable had reversed.

      So I figured it must have been a typo.

      Cheers,

      Your buddy Tony

    9. I find it odd that Paulson is asking the street to save Lehman. The Fed and Treasury have been saving everyone in sight, and now they choose to close up shop and threaten the street to do their dirty work moving forward. Was that a threat by dear old Hank that if the street doesn’t help they will be next? What kind of strange move is that? Has Hank helped his last buddy out for now and thinks he can bully the street into helping the rest that fail?

      I got news for you Mr. Paulson, when your “Bailing Out” your buddies on wall street with “Tax Payer” money it’s easy, but when asking the street to use their own money… well that is not so easy. If you truly understood that companies are in business to make money and not lose it you would understand why your idle threats will not work!!!

      Now go get some of that $800 Billion the Dem’s gave you in a blank check and get your ass over to Lehman. When your done head directly over to Washington Mutual and then back over to Fannie and Freddie. I realize there is not much time in a day when your rescuing the world from itself, but hey… YOU started it!!!

    10. Unfortunately, the outcome of the weekend’s negotiations will probably be a Bear Stearns like event. The reason is simple: the banks are broke. Yeah, their public balance sheets show reserves, but we all know that’s an illusion. Paulson will absorb the toxic waste and ‘give’ the cushy parts to a Wall St. buddy (at say $10 a share). There simply isn’t anybody who can afford to absorb more level 3 assets that are actually worthless.

      Again he’s trying let the air out of the balloon slowly, a pop would send us all to oblivion. By handing out solid assets to buddies, he can count on their help later (and they might be able to afford it). Above all he must allow the banks to avoid marking to market, which would surely show them all to be insolvent.

      So the toxic assets transfer from owner to the gov without being marked at all. It’s the only way to avoid speaking the truth. And speaking the truth will casue these “assets” to evaporate instantly, because the actual value is already gone.

      In a fractional reserve banking system, banks are always insolvent. It’s just that the gov asserts that their “ratios” are OK, and lets them continue operating. But when serious asset erosion occurs, they really are insolvent, and legally the government must shut them down. But when the erosion is systemic, like with today’s RE crisis, they ALL need to be shut down. However we can’t possibly afford to do that. So the gov slowly absobrs the toxic assets, and forces weaker players into the arms of the stronger.

      The balloon is hissing …

      For awesome description of fractional reserve banking see: Banks: Where the Money’s Not. ml-implode front page

    11. If Lehman goes “Pop!” Wall Street will go “Bang!” Monday morning. Once you agree to bail out Fan and Fred you’ve really agreed to bail out everything if not everybody. Stop doing that and everything goes to hell. Something has to be done with LEH this weekend and if the Feds need to participate they’d better. The Lehman that closed on Friday cannot open on Monday for the company is objectively, in the aggregate, worthless. All one can do is extract what value is left in some of the parts and discard the rest. I personally think it will trade below a dollar a share if it trades at all. It’s ruined.

    12. I closed my short on LEH because things are so irrational it might actually be over-valued when it trades next. The CEO might actually bargain for and get that. He’s one tough SOB. He’s actually got more leverage than Paulson does right now. But once the deal is struck he loses all his power. The deal is all he’ll have left.

    13. Brant, their is no way Lehman makes it through the weekend intact. Game over for them! Fed’s are meeting with all of the major players this weekend and they will figure this out. Lehman just isn’t going to be a part of it… Washington Mutual may also be gone come Monday as they are also being discussed in the same meetings. Should be an interesting evening on Sunday!!!

    14. I think they’ll deal with WM a little later. WM will also involve the FDIC, I think, not LEH. Not even the Feds can eat so much so fast. But I’ve been surprised before.

    15. I think the Feds are trying to play tough guy. Maybe for their survival or maybe just show boating for the MSM to gobble up. Either way the posturing will quickly come to an end before Monday bright and early. Lehman will not exist then and the symantics is all that is left now. How much do us “Tax Payers” put in this time? How much for WaMu? If they don’t close up shop as well then it is merely time being granted by the Feds for obvious reasons. Within the next few Fridays coming up they too will become part of history IMO.

      AIG is the one that scares me the most due to the reverberation in the overall financial industry as a result of their downfall. Were talking SCATTER when they close their doors. They truly are one of the “Too big to fail” companies!!! Keep an eye on that development because they are coming to a close as well pretty soon IMO…

    16. Stu-

      AIG is only regulated on the state level, not Federal. Could be a real calamity.

      Tony

    17. Tony, that IS the issue… What to do about their collapse. A whole new ballgame is about to emerge!!!

    18. Stu-

      Humpty Dumpty.

      Tony

    19. Now that the bank have stepped up their foreclosures compared to a year ago. The amount of houses sold in California could equal the foreclosures during the winter months. That will really jack up the inventory and lower prices for housing.

      Still waiting for the summer of 2009 for the option ARM to explode. Should be interesting for the next three years as the upper middle class get hit instead of the lower middle class the past three years.

    20. Tony, what happens next is the question? Collapse? Steady? Unruly? Total SPIN?

      WTF!!!

    21. You’re going to see NOD filings and foreclosures go down slightly as the market deteriorates significantly more. Huh, you ask?

      That’s right, because we’re offering extensions and anything else legally possible to delay the tsunami of defaults that are already occurring with many many more on the way. Ask any banker who will tell you the truth. It’s to create the false impression of a bottoming out for just enough time to unload more REO before the whole damn thing crashes.

    22. It’s possible AIG will briefly rally Monday depending on the news. Then it’s down unless the SEC reinstates the uptick rule on shorting. Then it’s down not so fast. It may be all down several points or even more.

    23. One of the good things about falling home prices could be that there are fewer divorces. Although I am cynical of such a thing but I wouldn’t be surprised at the shallowness of such a thing taking place.

      The research comes from the Telegraph in the UK http://www.telegraph.co.uk/money/main.jhtml?view=DETAILS&grid=&xml=/money/2008/09/02/bcnhouse102.xml

      “Homeowners may despair as turmoil in the property market slashes value off their houses, but new research shows they could have the weak economic climate to thank for helping them hang on to their spouse.

      Fallling house prices may be good for the divorce rate

      Data from the Office of National Statistics suggests that an unforseen consequence of falling house prices is a lower rate of divorce among married homeowners over the past 10 years.

      Researchers from property experts Savills analysed property market fluctuations and divorce rates, finding a “strong correlation” between high house prices and high divorce rates.”

    24. thats actually funny- however here ca. they don’t divorce, one of them ends up missing. Probably buried underneath the house they can’t afford.

    25. […] : “Too Big to Bail Out”Lehman, AIG, MER, CDS etc etc etc Watch…Updates Throughout the NightAugust Foreclosure PreviewCBO to Hank Paulson: You Want ‘Em, You Take ‘Em!Surprise Fed Rate Cut Coming?Note-Worthy, Swept […]

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