Reader avgjoe took exception to the whole idea of foreclosures in this environment. Yesterday he said,
“There are still people around me getn a free ride after 5 years. The banks have limited inventory by not foreclosing on people hoping for a bigger payday. Lets get the truth to the readers.”
Everyone pointed to the CA Homeowners Bill of Rights as the cause for the drop in foreclosures. The new law made the foreclosure process more stringent on lenders, and it contained the provision of granting attorney fees to any homeowner who felt the need to sue, whether they won or not:
http://bubbleinfo.s020.wptstaging.space/2013/04/16/blaming-the-ca-hbr/
Whether it was actually the CA HBOR that caused the foreclosure process to screach to a halt, or just a handy excuse, we will probably never know. But lenders must be doing everything they can to keep people in their houses – the unemployment rate hasn’t changed much, and incomes aren’t rising.
How else can you explain why foreclosures have dropped off the table?
Third-Quarter Counts:
| 3Q-Year | |||
| 2009 | |||
| 2010 | |||
| 2011 | |||
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| 2013 |
The drop in short-sales looks like the smoking gun.
According to Zillow, 21% of San Diego homeowners who have a mortgage are underwater, and are over-encumbered by an average of 36.8%, or $124,526:
The 21% equals 97,422 homeowners in San Diego County who are underwater, and only 892 of them, or 0.1%, completed a short sale in 3Q13 with the end of debt-tax forgiveness barreling down on us??
I’m with avgjoe in thinking that the lenders have conveniently adapted a policy of non-foreclosure, and are hiding behind the CA HBOR. They are putting no pressure on deadbeats to pay, otherwise the short-sale counts would be much higher. Those who are the furthest underwater have the least reason to pay, and banks have the most to lose – no surprise that the banks want to limit their losses.
The CA HBOR was announced in summer of 2012, and has been a law for almost a year. The banks have had plenty time to adapt to the new law, and yet the foreclosure notices keep dropping – did most defaulters just go back to making their payments?
The banks own this country, and manipulating the system has become acceptable. Isn’t it a possibility that the market rebound has been so good that banks just decided to not adding more distressed inventory, and keep the good times rolling – at least for now?
I think that banks are in a tug-o-war with regulators in the light of recent big settlements and are quietly getting rid of potentially damaging mortgages. So they are selling not homes, but rather mortgage servicing rights. Foreclosure, or modification is delayed and then have to be started over, more delays… Read more on this here:
In case the link didn’t work:
http://www.salon.com/2013/06/28/new_bank_of_america_whistle_blower_emerges_more_customer_abuse/
Thanks Squatter, a good article!
An attorney sent this in:
Jim:
1. First, keep up the good work – you have a great and informative blog.
2. As to the HBOR, the working theory in the legal community is that the major lenders/servicers, etc. are shifting to the judicial foreclosure approach as this is exempt from the homeowner bill of rights. It will take a while for them to spool up the new systems, train people, etc.
3. You will likely see an increase in foreclosure activity after the first of the year as they test out the judicial foreclosure game.
Another delay-causing settlement just happened today:
Bank of America has reached a $404 million mortgage repurchase agreement on Monday with Freddie Mac that covers outstanding and potential residential mortgage claims through the end of 2009.
http://karcg.wordpress.com/2013/12/03/bofa-reaches-404m-mortgage-settlement-with-freddie-mac/
Of note:
Bank of America said it has now resolved virtually all outstanding and potential mortgage claims sold by Bank of America and Countrywide to both Fannie and Freddie.
We will find out what that means in a few months.
“Many homeowners remain too far underwater for reasonable price appreciation alone to help,” Humphries said.
Negative equity, he said, is simply the new normal.
http://www.latimes.com/business/money/la-fi-mo-homes-underwater-20131121,0,4734801.story#ixzz2mWC7M0mq
Jim, a simple question (simple to ask, may be not to answer).
How does the foreclosure landscape look like in other states not affected by HBOR?
My uneducated guess is “pretty much the same save for a few states with their own peculiarities”.
My broader guess is that, right now, low foreclosure rates don’t have much to do with local market conditions or laws but a lot more to do with Ben Bernanke and the Fed’s quantitative easing policy of repo’ing or buying outright long term securities, including private label mortgages-backed securities.
Simply put, banks and syndicators have no problem refinancing their assets at close to zero cost so no reason to realize them (which is what a foreclosure does). They can extend and pretend pretty much for ever, or at least for as long the Fed continues with this policy.
Actually, banks would be downright stupid to foreclose because it would force them to 1) recognize loses now when they can wait at near-zero cost for years while nominal prices catch up (and avoid the taint of write-offs) while the markets recover and inflation does its job and 2) incur real costs in the foreclosure and resale process, hard cold cash they would need to put up now.
Exactly, it is stupid for them to ramp up foreclosures and risk tanking the market. They have learned their lesson.
For the banks’ bottom line it is better to have deadbeats live for free. The banks don’t incur the property-tax liability, and maintenance is somebody else’s problem for now.
And yes, a very good point. The foreclosure counts are down everywhere, so apparently it’s not the CA HBOR that is causing it.
Jim, thanks for checking that out.
So it means foreclosure rates are most likely driven by financing conditions for the banks and other lenders.
Then, the picture will only change if either of two things happen, with radically different outcomes.
– A sharp rise of interest rates would force the banks to liquidate their assets, no matter what the state of the RE market is. And it would tank the market. It’s very unlikely unless consumer price inflation shoots up well above 2% and forces the Fed to tighten a lot, something which is very unlikely itself in the next few years.
– The real estate market recovers enough to allow banks to quietly unload their delinquent inventory at no nominal loss. It would have no discernible effect on the RE market, essentially a non-event (but it may have some effect on agents in terms of business opportunities).