The hedgies got fired up this week over RealtyTrac’s report of California foreclosures rising 57% last month – the post is featured at the top of their front page, and has great comments: www.zerohedge.com.
At first glance, it would support my theory that banks deliberately turned off the foreclosure machine, and have merely started it up again:
Foreclosureradar.com’s California graph shows the same Y-O-Y increase:
But the CA Homeowners’ Bill of Rights had just been implemented in January, 2013, causing a drop in notices issued while servicers made adjustments. Last month’s number of California foreclosure notices is similar to every month since January 2013.
For locals, here are the San Diego County notices:
It’s likely that the banks/servicers have thrown every defaulter into some sort of loan modification – or if they didn’t fit, just let them lie. With a casual handling of defaulters, expect that borrowers will drift in and out of the foreclosure process as they enjoy a pay-if-you-feel-like-it policy.
Expect the foreclosure-notice data to be jumbled from now on, and not indictative of much really. What counts is the number of people actually getting foreclosed – here are the San Diego results of trustee sales for the last three years:
The number of properties actually foreclosed has dropped off the table in the last 12 months – in 4Q13 we averaged 150 foreclosed homes per month in a county of 3 million people. We will survive that – heck, in the previous fourth quarter (4Q12) we had triple the number of foreclosed properties, and the market took off in a frenzy!
Banks may have it right for a change. Why rush to kick someone out and dump it at a fire sale or have a non-performing asset sitting on the books (big no no). Just let them stay, the default interest rate and penalties just keep adding up. Then, in an orderly manner, take a reasonable number of them through the process. Who gets the benefit of the rising market, the bank. Sure they will probably still take a haircut, but not nearly as big as they were taking.
It all boils down to the cost of carry for the banks.
With the one 1 year Treasury barely above 0 (zero), the cost of money for banks is literally nil. As long they get those conditions on the funding side, banks have no rational reason whatsoever to foreclose on underwater properties.
They are much better off leaving the current ‘owners’ shoulder the cost of maintenance and property taxes while the house appreciates on an improving market.
Now, freeloading owners have to worry if the house appreciates above the real liability carried by the bank on the house. That day, the bank has every incentive to foreclose and to foreclose fast.