Thursday, April 9, 2009

The foreclosure question... answered

I will post this here in the hopes that it stops me from getting bombarded by people asking "where have all the foreclosures gone?" It seems that there are a lot of people worried they might miss their chance to buy. The shortage of REO properties has some folks worried.

RELAX! This can easily be explained.

Late last year a multitude of foreclosure related legislation was passed. It had the effect of seriously slowing the filings of NODs, the first stage in the foreclosure process. If you look at the NOD numbers, they crashed big time in Sept, Oct and Nov. They shot back up again in Dec once the lenders got the systems in place to deal with the new rules.

It usually takes a home about 6 months to go thru the NOD phase before the NOT is filed. The NOT takes another 1 to 2 months before the home is auctioned (usually back to the lender). So that process usually takes 7 to 8 months from the time the NOD is filed.

So why are there so few REO properties right now. Well, wind the clock back 7 months....... BINGO! Sept of last year. That's when the banks got whammied and the NOD numbers fell thru the floor. And that's why there are far fewer REOs hitting the market right now.

How long before we start seeing REOs hitting the market in numbers again? Looking at the data, the NODs picked back up to near record levels in Dec again. Unfortunately that means the pickings might be slim for another 3 or 4 months. But come August, Sept there should be a big uptick in the REO numbers.

If there are any smart lenders out there they should be trying to expidite the process. After all, interest rates are low, the spring selling season is in full swing and there are buyers out there. If I were a bank manager I would want everything I had on the market NOW. There's a good chance come late summer the inventory will shoot back up putting stronger downward pressure on those prices. Smart banks (oxy-moron) will get the stuff sold now.

If the numbers I saw were correct last month will set a new record for NODs filed at over 50,000. Don't be fooled by the headlines you might read this month. The falling numbers of foreclosures that will likely be reported is a direct result of the 3 months it took the banks to adjust to the new rules. With record numbers of NODs currently being filed it's just a matter of a few months before the false hope wears off.

I do now how some of you feel though. It's frustrating as all heck right now. There ain't squat hitting the market as of late.


Snail said...

Slowly but surely...SWEET

Marcsi said...

Thank you for your post. It gives me some hope:)

Allison said...

So true, in our search parameters our Realtor has only sent us ONE new listing in the past few months.

I checked listings last night and sure enough, same old stuff.

alex said...

Unfortunately, a few bankers are reporting that the banks are not proceeding from NOT to auction, but are instead letting the occupants squat without paying for months and months 'in limbo'.

One on CR a few weeks ago said that at his bank, many squatters had been 8 months or more post NOT and the auction was still not scheduled.

Do the banks not have the personnel? Or are they trying to not have there balance sheet look as 'impaired' as it really is?


Todd said...

There is a house in my neighborhood that went back to the bank last August. The occupants were living there until sometime in February. Now the bank seems pretty anxious to sell the place after letting the people who lost it live there rent free for 6 months.

The bank is currently asking $464,900 for this house (after starting at $529k and then dropping it to $479k) and it's pretty thrashed. They may have sold it for that price a year ago but not today.

Here is the listing:

Banks really need to get a clue. I see time and time again where they sit on a repo for months and then put it on the market for a lot more than what was owed on the place. Then it sits on the market for months and months with no buyers at their over inflated price.

Oldtimer said...

My guess is that people waiting for another big wave of foreclosures are gonna be as disappointed as Charlie Brown waiting for the great pumpkin.

The housing implosion in the IE is now mostly complete. Prices have fallen from $200-$300 per foot to around $100 per foot (way less in outlying areas). We are now dealing with the aftermath stage.

The "specuvestors" and the people that had no business buying homes are mostly washed out. They haven't made a mortgage payment in a long time (years for the "specuvestors").

What is left are mostly two groups: a) the people that owned homes for years, and can easily afford their housing costs; and b) the people that can afford a home but paid way more than they should have and more their homes are currently worth.

Most of that second group can handle a traditional mortgage on their current home value and then some.

Banks can either foreclose out these current homeowners (hoping they don't strip the joint, squatters don't set it, etc.) and find new qualified buyers, or they can cut a deal with the current homeowners.

Modifications in 2008 mostly tried to stick all of the lost value on the homeowners (you still owe me $600K on a $300K home, but I'll cut your rate). I expect that modifications in 2009 will be a lot more forgiving.

It is hard medicine to swallow, as you and I will pick up the tab, but it is the most cost effective way for banks to deal with thousands of law-abiding citizens who are seriously upside down on their mortgages.

golfer_X said...

The data just does not support that theory oldtimer. The notice of default filings have been at record highs since December and are climbing every month. Defaults on the recent loan mods are running at nearly 50%. The amount of homes being saved from a NOD is at record lows. Most homes with end up being foreclosed on. Factor in the job losses. I don't care how aggressive the loan mod is. A person with no income will not qualify.

I don't think prices will continue to fall at recent levels nor do I think they will fall much farther in the areas that have already fallen 50% to 60%. But I do believe there is a lot of pain still to come in the IE. And the data does back up that theory.

Oldtimer said...

I'd be careful with the data X. The change in CA foreclosure rules hit in September of last year. The result was that Sep, Oct, Nov, and Dec were way below average months in terms of foreclosures (many lenders declared moratoriums for PR and political purposes).

After the lull, you would expect a catch-up period where foreclosures run above-average. I believe that is what you are seeing now in terms of NODs.

Time will tell.

golfer_X said...

That's true, I did expect the numbers to balloon once the lenders got systems in place to deal with the new rules.

Problem is that the numbers are still hitting record levels in other states that did not have an AB1137 type bill, which would indicate the problems is still getting worse. Even on a national level the numbers are still rising.

Sara said...

Even some listing agents admit that another big wave of foreclosures is to hit the market soon. Several listing agents told us this at the open houses that we've been seeing in the past month. One actually showed us a 10-15 page list of countrywide houses in the Eastvale area alone that will be listed with her company. Granted that Eastvale is "foreclosure central," as Golfer calls it, the same must be true about other IE areas.
I also think that the 8000 tax credit will be extended beyond November, if not increased.

WunderPit said...

from my agent (Tarbell) today, saying the same:

"I think the flood gates will be opening very soon and the banks will be releasing a lot more properties. I did just find out from a couple of our agents here in the office that, although the bank is releasing the properties to the agents the agents are finding the properties occupied still and have to negotiate on behalf of the bank for what they call "Cash for Keys." The occupant leaves the property in broom clean-condition and they receive cash from the bank for the keys to the property. Once this occurs the agent can then prepare the property to put on the market for sale."

messed up.

Todd said...

I hope it's okay to post links to other blogs here. I found both of these posts today that agree with the consensus that another wave of foreclosures is going to hit the market.

golfer_X said...

Nice links, glad to see Mr. Mortgage is back again. His data and analysis of it are very good. That's dude's got some skillz.

I hope that they are correct because they are predicting the wave to hit sooner than I am anticipating. Mr. Mortgage thinks the foreclosures will start shooting up this month. So far I am not seeing any increase of homes hitting the market but then again it usually takes a few weeks for a home to list after it is foreclosed on. So even if the foreclosures climb back up in April those homes will not hit the market until May or June.