Mr Mortgage: Be Careful – False Bottom in Defaults & Foreclosures Coming

Posted on September 15th, 2008 in Daily Mortgage/Housing News - The Real Story, Mr Mortgage's Personal Opinions/Research

The next few months will be interesting in the default and foreclosure reporting and tracking business. In my day job as Clark Kent, I provide independent research to funds on the default and foreclosure universes as a whole and by individual bank; research that is nearly impossible to find anywhere. From this, I bring my blog readers as much free information as I can, including very detailed monthly foreclosure and housing reports that get very granular, dissecting the sectors in ways others can’t.

That being said, we have some changes coming to the default and foreclosure universes in CA in particular, which is 35% of the total foreclosure count and 45% of the dollar volume of the nation. These changes will impact the numbers and likely show the market is improving quickly. This also may give the impression that the housing market is improving. I will be on this story like pump on Cramer in order to bring you the real story.

Be careful drawing any conclusions from the media headlines reporting declines in default and foreclosure activity until you have checked with me first. Even national reports may be impacted as CA represents such a large percentage of the national volume.

The reality is that laws such as this only delay the process, which I will be able to track in real time and bring you the results of my findings. Unless lenders radically change their position on loan modifications with massive principal balance reductions and new fixed rate loans to replace the toxic trash, it will likely have little impact other than a delay of the inevitable.

Now to pay the bills…for those funds who would like independent research to stay ahead of this dramatic change, please contact me via email. – Best, Mr Mortgage

Notice: Expect Pre-Foreclosure Volumes in California to Drop Significantly Over The Next Several Weeks

Background: On July 8, 2008, California Governor Schwarzenegger signed Senate Bill 1137 into law. Commonly known as the Mortgage Relief or Foreclosure Reform Bill, it addresses a variety of issues in an attempt to mend the current foreclosure “crisis”. The most significant part of the bill is the new requirement placed on the lenders, loan servicers, and/or their agents to prove that they have attempted to communicate directly with delinquent borrowers about their financial situation, and have considered potential arrangements to avoid foreclosure. The proof of this activity must be filed with the recorded documents – typically an affidavit attached to the Notice of Default (NOD) or Notice of Trustee’s Sale (NTS).

Issue: The bill went into effect with recordings on or after 9/8/2008. The CA foreclosure process is managed by a trustee, and they were already processing volumes well above their capacity. Many of them are now having a difficult time managing the changes and are scrambling around to set up the processes that support the bill. As a result, we have seen the recent volume of new ND and NT filings decline significantly. In the case of Los Angeles County alone, the previous combined ND/NT filing rate was around 600 – 700 per day. On Monday, 9/8/08, there were less than 100 filings

Message: There isn’t a data problem! This should be communicated more as an adjustment period for the industry and it will work itself through as required processes are established. This only affects California, but it certainly could have an influence on snapshot statistics of a national view

The bill itself can be found here.

Here is also a viewpoint of the bill from the industry.

Note from reader…after I put this story out a blog reader, Henry, sent a response I thought worthy of reposting. I absolutely agree.

Hello. We are receivers – court-appointed and private party.

Many financial institutions have simply stopped initiating single-asset foreclosure proceedings, in all states, because they are overwhelmed, because losses can no longer be hidden after foreclosure, and because wishful bailout-or-bottom thinking persists to this day.

The majority of failed subdivisions and condominium projects – tens of thousands of individual homes and condos – will never go through foreclosure, because lenders (banks, hedge funds, pension funds, insurance companies, etc.) want to avoid contingent liability.  Lenders, receivers, trustees, and sometimes, the developers themselves, are arranging asset sales that transfer title directly from the defaulting borrowers to the real estate equivalent of jobbers.

Henry

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    16 Responses to “Mr Mortgage: Be Careful – False Bottom in Defaults & Foreclosures Coming”

    1. MM, you’re doing very good work. Thanks.!!!! Even if there’s a massive mortgage modification, wont this essentially reprice the house at the new level of the loan? Kind of a quick price drop without benefit of the market process?

    2. I Look at the default and trustte sale listings from the central valley of ca every week. And in confirmation of your article, The numbers in the past few weeks are suddenly only about 50-60% of what they were previously.Defaults in Stanislaus county alone were in the neighborhood of 400 per week. Last weeks list is only showing around 164,I couldnt understand why ntill this morning. also of interest On these list from the central valley is roughly only one in ten names is of caucasian heritage.

    3. Hi D Miller – you are right. They fell off of a cliff. Now, keep in mind the holiday does strange things to Notice data, which is not totally visable for 10-days or so after the fact but I suspect we are already seeing this hit hard.

    4. Those that think Houdini has died need only look to our legislature! So… they create a delay process in the law which puts a hold on foreclosures… then everyone says “look! foreclosures are down!”

      Unbelieveable!

      Mr. Mortgage… you are right on target… smoke and mirrors at work… even Greenspan is now saying things are very very bad. Can’t wait to see what things look like in the market come January and February.

    5. Forgive my ignorance,, but what is a “jobber”?
      Who will benefit from this?

    6. Hi od –

      A jobber is a middleman who buys excess goods from one business and sells it to another at a big discount.

    7. I know too many people (with college degrees) who think the bottom is near. They don’t read into numbers or other facts. They just go with the general feeling of “it can’t be bad forever.”

      I explain to them that I do look at all the numbers I can from various sources and it’s an easy conclusion that the bottom isn’t near.

      At least none are in a rush to get into anything.

    8. Out of the Peak — you hit a chord today.

      I find that I am continually “at a loss” to try and describe to many of my friends (who don’t continually read these blogs) why the bottom is nowhere near. The movie “Babel” comes to mind.

      I have friends that are actually closing on houses in the next few weeks. Condos, even. Here in the Orange County / Irvine area.

      “Rates are fantastic. And the market’s picking up. The last 5 properties we bid on turned into bidding wars with investors! And I’m getting a super deal!”

      A few are even convinced that they will see significant appreciation in these properties within a year or two!

      Like you said, they’re not looking at the real, underlying fundamentals…..just on the immediate-term stuff that realtors will use to sell the idea of a bottomed-out market.

      I know they’re delusional, but how do you get someone to see the light???

      I remember the phrase, something along the lines of “A man can’t be made to hear the truth, if his conviction that he will make a lot of money hinges upon him not hearing it.” JP Morgan?

      Seriously —- this thing is SO BIG, requiring such a fundamental “paradigm shift” in people’s perceptions, that it simply may be more than most are capable of grasping. Or want to grasp. The mass media does not help the case, that’s for sure!

      And so I try to warn them, but end up instead, sitting and watching my friends happily board and sail on the Titanic into the next group of icebergs…….!

      What do you do?

      Take care of yourselves!!!!

    9. Lenders, receivers, trustees, and sometimes, the developers themselves, are arranging asset sales that transfer title directly from the defaulting borrowers to the real estate equivalent of jobbers.

      OK this threw me for a loop. Is Henry saying the lenders et al. are bypassing the foreclosure process somehow and selling assets out from under the borrower? Am I reading that correctly? Is that legal? So is the borrower staying in the home (I assume we’re talking about houses here?) or getting evicted?

    10. I am in the Antioch, Brentwood section of Contra Costa County in the Bay Area. I noticed this lack of NOD’s about 4 weeks ago and could not understand it either. Thank you for the enlightenment.

      BTW, I do mortgage loan audits by hand for attorneys and clients in order to get lenders to cooperate with loan mods. Business is absolutely nuts for me.

    11. MM,

      Could you please provide further info/explanation in regards to Henry’s comment?

      Thnx in advance

    12. I Look at the default and trustte sale listings from the central valley of ca every week. And in confirmation of your article, The numbers in the past few weeks are suddenly only about 50-60% of what they were previously.Defaults in Stanislaus county alone were in the neighborhood of 400 per week.OK this threw me for a loop. Is Henry saying the lenders et al. are bypassing the foreclosure process somehow and selling assets out from under the borrower? Am I reading that correctly? Is that legal? So is the borrower staying in the home (I assume we’re talking about houses here?) or getting evicted?

    13. I would assume then we should see a greater drop off in existing home sales then seasonality would suggest. It has been widely publicised that 40% of existing home sales in CA are short or foreclosed sales. If those sales decrease by 80%, that suggests a ‘non-seasonal’ drop off of 32%. Would you agree?

    14. Sharkie:

      What we need is a graph of appreciation over the last 30 years (3-4%) graphed though the years of 2000-present against the actual increase and decreas in home prices over the same period also against average wages during that period and it will become evident that we have a long way to go. Here in FL we had 15-20% app over 4-5 years. So lets say 100%+ during that time. In reality over 5 years at 3% we should have moved only 15%. Combine all that with a full doc world prices are going to crash. Un-verified income is the only reason we are in this mess. If we were proving income over the last 5 years how little everyone actually makes, prices would have stayed stable.

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    16. 2. Dear Senator’s
      3.
      4. I have been a mortgage broker for approx. 17 years. I live in a small town and see my client’s across my desk. I do not buy leads and have never offered an opt-arm (neg-am) loan in all my years of origination. I have done allot of 2 year fixed rate loans for people that could not qualify for a 30 year conventional mortgage. When I wrote these loans I counseled my clients on paying their bills on time and for me to pull their credit approx. 2 months before their loans adjust so I can take them out of it and into a 30 year fixed. I was very stern in telling them I can’t help you if you don’t keep your bills paid on time esp. their mortgage. Now, for me to help my repeat clients I need an FHA license. In order to get that you have to have 63,000.00 net worth with 12,500.00 liquid. 2 years ago I had that!! Now I don’t, however I still have a 776 mid credit score and current corp. tax returns (and I pay my taxes on time) as I am Inc. Why can’t the feds come into my office do an audit of my files (as they would see I don’t rip people and price my loans with no more than maybe a .50 ysp on my loans. Our association doesn’t help I quit paying dues 2 years ago as I don’t believe they represent the small broker shops. So, now they want all the small broker shops to sign up under a net branch (cause bigger offices have the net worth) they want the now loan officer, with little or no liability and the net branch manager is in another state just collecting their 10% of every loan you originate and for the loan officer (was a broker) now will not want to take a cut in pay just so they can write FHA and have to give 10% of every loan they write and also collect a $450.00 admin fee on every file. HELP. . . WHO IS PAYING FOR THIS FHA LIC.??? OH NO!!! IT’S THE CONSUMER ONCE AGAIN. . . AND THE LOAN OFFICER IS NOT BEING SUPERVISED!!!! Is this helping our industry?? I have seen LO’s make allot of money on FHA. . why don’t they restrict how much LO’s get paid on these loans. . ??? I still believe you should restrict LO’s from ripping clients by limiting the ysp on every loan!!! Also, let me state. . did you know that when I pull credit for real estate loans purposes the Credit Bureaus within 30 minutes have sold my clients info to a lead company and they are now harassing my client.. Oh and by the way I just spent 2 hours on a Sat. talking to them about their family and their kids sports and where they grew up . . and now some guy in a telemarketing room is calling them now to say “I really care about you and your family”. . you know the one that never shows up at the closing table . . #1 He is out of state and #2 that rate is higher and the fees are too. . and the person at the title company can’t get a hold of the loan officer. . ??????? Can we stop the bureaus from selling trigger leads. . why do I have to lock up my files behind closed doors, in a drawer. . where if you want to see you have to have my clients authorization. Please make the bureaus quit selling my clients info. for profit. . . I educate my clients and they don’t want to be bothered. . yes I know about opt out.. it takes time to take effect. . and in the meantime they can’t even put their phone down to eat dinner. . .!!
      Also,, , now with the fed’s taking over fannie and freddie. . does this mean now that all loans are going to FHA. . and the FHA lic. requirement??? Regards, Angela
      By Angela Adams Ceo/Broker The Mortgage House Inc, 541-229-0339

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