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Foreclosures up, NOD's down

deejayohdeejayoh
edited July 2007 in Seattle Real Estate
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?

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Comments

  • snigletsniglet
    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.
  • mike2mike2
    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.
  • deejayohdeejayoh
    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 BMIT, 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-coolaidrose-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.
  • mike2mike2
    deejayoh wrote:
    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 -

    What I'm getting at is the bank has no financial interest in starting something it can't/won't complete.

    I'm no expert, but it appears banks have some flexibility in sending out NOD's - and how quickly they persue a foreclosure after the NOD.

    If the estimated foreclosure value on a home is low, or the odds of a workout are high - why even bother initiating foreclosure in the first place? It's money thrown away.

    My hunch is that with banks already holding a glut of foreclosed homes, they don't want any more unprofitable foreclosures on their books.

    The real kicker is if banks start holding increasing quantities of "zombie loans" the way Japanese banks did in the 90's. There's already some speculation that this is happening along with similar "loan modifications". We'll see.

    All it comes down to is the link between NOD's and foreclosures isn't necessarily a reliable performance indicator if the process is being circumvented.
  • deejayohdeejayoh
    My hunch is that with banks already holding a glut of foreclosed homes, they don't want any more unprofitable foreclosures on their books.

    I think we are far, far, far away from that situation today. The foreclosure rate is climbing, but it is still pretty low around here.

    I think what you are seeing is exactly the opposite situation. The lenders are being very aggressive in pursuing foreclosure because if/when the downturn comes, they want to get out ahead of it.
  • AlanAlan
    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.
  • femtofemto
    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.
  • deejayohdeejayoh
    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.
  • AlanAlan
    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.
  • deejayohdeejayoh
    Alan -
    here are the definitions from foreclosure.com for the "Deed Categories" they report. Preforeclosures appear to include NOD + NOT + LP. I think the NTS/Notice of Sale starts the ~30 day period before they sell the house out from under you or take it back as a REO. Foreclosures on the site appear to be at auction or REOs
    DC
    This is the abbreviation for the deed category (Deed Cat), which includes terms such as:

    NOD - Notice of Default
    A formal written notice to a borrower that a default has occurred and that legal action may be taken.

    NOT - Notice of Trustee
    A written document that contains the name and contact information of the trustee in a foreclosure action.

    LP - Lis Pendens
    A Latin phrase that means "pending legal action." In a judicial foreclosure action, a lis pendens is filed with the clerk contemporaneously with the filing of the foreclosure complaint to allow third parties to know that there is a pending legal action that affects the property.

    PF - Petition for Foreclosure
    Filed with the local court clerk, this document is the lender's application to the court to initiate foreclosure proceedings. It names all parties having any interest of record in the property that were discovered in the title search.

    NFS - Notice of Foreclosure Sale (Final Judgment of foreclosure)
    A variation of a notice of sale that indicates the time, date, and other particulars for a proposed foreclosure sale. This notice will generally be part of the statutory notice requirements necessary before a foreclosure sale can occur.

    NTS - Notice of Trustee Sale
    A written document that announces the time, date, and other particulars of the trustee's sale. It often describes the property to be sold and gives an estimate of the unpaid debt. This announcement must usually be published in the local newspaper and displayed in public view (i.e. the courthouse) a certain number of days prior to the sale, depending on the laws of the county in which the property is located.
  • AlanAlan
    From http://www.usa-foreclosure.com/state.aspx?s=WA&sN=Washington
    Washington allows both non-judicial and judicial real property foreclosures, but non-judicial foreclosure is far more common. The foreclosure period is no less than 120 days, and starts with the mailing to the Borrower of the Notice of Default. The Borrower then has 30 days to pay the loan current. If it is not paid current, then the Foreclosure Trustee may record a Notice of Trustee's Sale. The typical default is failure to pay for real estate. The Beneficiary is the person foreclosing, who uses a Foreclosure Trustee to perform the foreclosure. Sales are typically held at courthouses in the County where the property is located, and always held on Fridays. There is no right of redemption with a non-judicial foreclosure.

    I do not think that the Notice of Defaults are filed with the county. Or at least, they are not accessible online if they are. If foreclosure.com is gettin that data then they must have a special arrangement with lenders.

    I've always thought that preforeclosures were houses that had not yet been auctioned. After the auction, the house is sold or the bank takes possession and that is a foreclosure. The NOTS is still part of the preforeclosure.

    Foreclosure.com says that NOD are sometimes printed in the paper. That seems odd.
  • deejayohdeejayoh
    Since we are well in to uber-nerdedness on this thread already - this piece from Calculated Risk on how potential foreclosures are valued into mortgage pools is a good read

    Delinquencies and Defaults for UberNerds

    Key statement IMHO
    It is particularly annoying when we see people throwing around delinquency numbers as if they were loss percentages, and then applying that number to the total outstanding balance of all subprime securitizations to come up with some scary-looking number in the billions, without taking into account, among other things, the original expected loss on the pools. Not even the meanest (sane) critic of the rating agencies accuses them of having predicted no losses at all when these deals were originally rated. If that were so, there'd be no OC or excess spread and all bonds would be AAA. I think a few folks are getting worked up over the failure of the rating agencies to downgrade some of these pools that have what look like high delinquency rates, without questioning the extent to which those rates are or are not in excess of the original projections. Looking at the example pool above, for instance, you see a projected loss after 18 months, but what you don't see is what the original projection was. Without that, there's no way to conclude that this pool deserves a downgrade.
  • deejayohdeejayoh
    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%

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  • CKTCKT
    deejayoh wrote:
    Foreclosure:Preforeclosure ratio is now 99.8%

    Ha! That's great. I can't wait till we break 100%. Will that mean the apocalypse is upon us? Human sacrifice, dogs and cats living together - mass hysteria!

    But to reminisce, I remember when you were dumbfounded that you would need to change the "ratio" axis to accommodate +50%. Now we're pushing 100%. crazy...

    I still think it's amazing that FC are still climbing while PreFC continue to fall. Are our local banks tired of getting saddled with houses they can't sell? I kinda doubt that there are fewer people now-a-days that don't qualify for preFC as compared to just a few months back...
  • bilirubenbiliruben
    This just makes me skeptical of the data source.
  • deejayohdeejayoh
    biliruben wrote:
    This just makes me skeptical of the data source.

    Not sure that's the only logical conclusion. Since it takes 90 days for NOD to go through the pipe to turn into a foreclosure; and I am not sure how long foreclosures stay "active" on the list - in the interim the lines could cross.

    Could be they've changed their methodology too, but BMIT shows the same phenom going on in other markets.
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