Foreclosures up, NOD's down

[deejayoh]

I've been following the foreclosure numbers for King and Snoho counties for a while now, and the trend seems to be getting pretty pronounced.
- Foreclosures keep rising
- NODs (aka "preforeclosures) have been falling for about a month

Given that it takes a few months for a foreclosure to work it's way through the pipe - it's logical to me that these could move against each other. But I also think that in 3 months, we are going to see foreclosures falling. I don't see how it works any other way. Can't foreclose if you aren't filing an NOD, right?

Seems to run counter to all the press I am reading about delinquencies - so perhaps Foreclosure.com isn't all that great as a source, but it does seem curious.

Any thoughts?

[sniglet]

I think it is mis-leading to look for a direct correlation between Notices of Default and actual foreclosures. Many NODs never make it to default because the owners are able to restructure, or become current in some way.

The real issue is what percentage of NODs make it to actual foreclosure. If increasing numbers of struggling home-owners are finding it harder to refinance, or sell for prices that cover their debts, then we could see the number of foreclosures increase even as the NODs decrease.

Another thing to consider is whether some lenders are getting more are getting better at mitigating issues before they even issue an NOD? Further, we could be seeing evidence that a growing number of struggling home-owners are losing faith in the market's ability to keep on appreciating and are bailing early (i.e. by selling fast while prices hold) rather than gambling that appreciation is going to make them rich in the months ahead. In fact, the fact that refinancing is become more difficult might be leading more home-owners just to cut their losses and sell now.

Lastly, I don't think it should be too surprising that foreclosures aren't consuming our local landscape seeing as how sales (and prices) are still brisk. As long as struggling home-owners are able to sell they will be able to mitigate their problems. Just watch what happens when sales (and appreciation) slow down even more. Then we could see the NODs/foreclosures rise a lot.

[mike2]

It seems to me that as banks get better at picking which homeowners to foreclose on, we may even see NOD's come close to a 1:1 ratio with foreclosures, while NOD's in general decline.

Banks generally don't want to foreclose, and apparently have quite a bit of lattitude in determining whether or not to go that route. It's an expensive process, so it's in their interest to avoid it unless it's really the cheapest option available.

[deejayoh]

So Mike -
My understanding of the process is that you can't foreclose w/o issuing a NOD. An NOD is step one of the foreclosure process - a legal filing, with the county. That's were Foreclosure.com and other sites pick up their data. So if lenders are getting better at "curing" foreclosures, as you are saying - then I would think you'd see the opposite trend of what you see today - namely that the ratio of Foreclosures:NOD would go down - like it was last year. When lenders are not good at "curing", or possibly agressively pursuing foreclosure because they don't want to drag it on - you see that ratio go up - like it is now.

Take a look over at , and I think you'll see what I mean. Foreclosure:NOD ratio for Phoenix is >100%!!! I 'm not sure that means the lenders are doing well...

Sniglet, re your comment - it is interesting that if borrowers have options, why has the foreclosure:NOD ratio been increasing? It could be that lenders are not giving borrowers much room to work it out - because they see the rest of the country dropping and so they figure in seattle they should be aggressive while they still can.

Anyway, note that of all the markets that are being tracked by BMIT, Seattle is the only one where NOD's are dropping.

[rose-colored-coolaid]

I don't know a lot about foreclosures, but here's a stab in the dark. The last couple months have been spring. If you are in foreclosure, you are just desperate to sell for at least what the mortgage is worth.

Could it be that pre-NOD homes are those which are priced to sell, and are stealing sales from other homes on the market?

This is pure speculation. I'm not even sure how to test this hypothesis, but if it is accurate, then NODs will begin to increase again when selling slows down in the fall. It'll be interesting to see what direction foreclosures go towards the end of 2008.

[mike2]

[deejayoh]

[Alan]

Does NOD == Notice of Delinquency? Is this different from the Notice of Trustee Sale records listed on the King County records site?

If a foreclosure is cancelled through a sale or by the owner becoming current, a Discountinuance of Trustee sale is filed.

There are three months between Notices and the actual sales. That is three months that the foreclosure percentage could be over 100%.

Are the graphs you are looking at the total number of outstanding foreclosures or just the new filings. One could use the Notice and Discontinuance records to keep a running total of active foreclosures.

[femto]

The number of ARMs resetting is accelerating, and with interest rates rising there's just no way that fewer people are falling delinquent, but the loan servicers may be focusing their energy on markets like So. Cal. or Las Vegas where prices are falling faster. Mostly I wouldn't read anything into short term trends. Some outside event like New Century's servicing platform falling apart can move those numbers for a few weeks. My personal theory is that servicers are just falling behind, and as delinquencies mount they are engaging in sort of a triage--perhaps instead of sending out an NOD at 60 they wait till 90, or they try routing them through a work-out program rather than foreclosure, etc.

[deejayoh]

Alan -
I got the data from foreclosure.com. They get it from the county recorder. I think it must be active, not new filings - because BMIT shows Phx with >100% PFC:FC ratio - as you point out is possible.

As far as I know...
NOD = Notice of Delinquency. They are filed at 90 days past due. They must be filed to start the foreclosure process. NOD=preforeclosure

Notice of Trustee Sale = Foreclosure.

I do find it kind of humorous how many rationalizations there are about what might be happening.

Another possibility... the numbers are what they are. I'd put money on foreclosures trending down in 60 days. Not saying they stay there, but I think I'd be taking your money.

[Alan]

I don't see and NOD's on the King County records site. I wonder what the equlivalence of that is.

The NOTS announces a sale at auction that is to occur in three months.

[deejayoh]

[Alan]

[deejayoh]

[deejayoh]

Check out the same graph as of today. I forgot to pull the data on my usual Friday. This data is from today (monday) but I doubt it makes that much of a difference as the trend of falling PreFC is pretty pronounced.

Foreclosure:Preforeclosure ratio is now 99.8%