Is the wave here?

Mr Mortgage seems to think the newest foreclosure wave is finally starting to hit..

The wave is here even though it did not show up in the aggregate numbers released by RealtyTrac yesterday morning. In their report, CA aggregate foreclosure activity was reported down 4.46%. That is not accurate.

There are three stages of foreclosure, which we track religiously every day. Because each stage is separated by a period of up to 4-months, the mix can change dramatically causing the aggregate to move in the opposite direction of present conditions. Additionally, back in 2008 most servicers all did things the same way at the same time. Now, each bank and servicer has their own agenda so the monthly numbers are much more volatile, which can lead to misinterpretation.

In May, aggregate foreclosure activity was not down 4.6%, rather up 13.5%. On a more granular level, the takeaways are that Notice-of-Trustee Sales are up 100% from Feb to May and subsequent foreclosures are up 75% from March to May - these are significant events. Especially when considering that the housing market at the low end has been benefiting in part by the lack of inventory caused by the Q4 2008 - Q1 2009 moratoria.

So, why aren’t foreclosures up 200% - 300% from March and back to all-time highs, as the March through May Notice-of-Trustee Sales surge would indicate? It’s because of capacity and timing.

We know for a fact the GSE’s and several servicers came off moratorium around the time that Obama made public the Home Affordable mod and refi programs at the end of March. From there the servicers had to make the decision to participate, integrate the new borrower modification and loan decisioning and slotting technology and train staff. If this took 6 weeks, which would be incredibly fast, then in the second week of May they would have started re-qualifying and contacting the back log of distressed borrowers with the new loan mod, workout and refi offers. Then they have to give the borrowers a reasonable time to accept or deny. It is only June 11th — there simply has not been enough time. But early foreclosure numbers for June show the foreclosure ramp remains intact.

The Notice-of-Trustee Sales and foreclosures will continue to come. Notice-of-Defaults — the first stage of foreclosure and the earliest leading indicator of everything mortgage, housing and balance sheet related — have been hitting record highs since December.

The past 6-month NOD average is 45k…the 6-month average for the worst time in the summer of 2008 was only 43,500.

The subsequent foreclosures that come from this latest 6-month NOD surge will hit about the same time a mortgage mod re-default surge from the 2008 NOD surge does. At this point if new NOD’s have leveled out or even fallen by 50%, the re-defaults from bad loan mods made when mods were new and even more reckless than today will keep foreclosures as headlines through next Spring at least.

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So, is the next wave starting to hit? Only time will tell. I am still seeing a higher number of properties hitting the market in my target areas. That would seem to indicate the number of foreclosures are starting to increase. The inventory levels are still a little low and the better homes are still selling fast. The 4th quarter of the year should be very telling though.