New Normal for Foreclosures

Back in the old days there were 100-500 foreclosures per year in SD County:

Microsoft Word - A Brief History of Foreclosures

We’ve already had 1,504 properties get foreclosed in the first half of 2013, so historically we’re still at elevated levels.

But with the county averaging 3,000+ total sales per month, lenders will be able to sprinkle in a couple of hundred REOs each month without affecting values much.  In addition, flippers will keep doing their share; selling a similar amount of properties for retail-plus.

San Diego County Trustee-Sale Results

Lenders must be feeling comfortable at these levels, because the number of total notices were almost identical for the last two quarters. The Notices of Trustee Sale were down 52% Y-O-Y:

San Diego County Filings

Foreclosure Counts

Hat tip to Ken for sending in this article from Forbes:


An excerpt that suggests one reason why prices are going up:

In some cases banks are choosing to hold onto distressed assets longer, hoping to minimize losses on homes by artificially tamping down distressed inventory levels now. So when a home comes available in a foreclosure sale, the lender may choose to repossess it as a future REO than part with it during an auction.

In states like Arizona, that repossession is logged at the value of the mortgage — a “sales price” that may very well be higher than the actual market value of the property, according to Ingo Wizner, president of real estate research firm Local Market Monitor.

Around SD County, it appears that more borrowers have started making their payments.  The number of SD filings has dropped off almost by half, Y-O-Y:

San Diego County Filings

Last month had 69% fewer REOs, and 42% fewer 3rd-party sales, Y-O-Y:

San Diego County Trustee-Sale Results

Regardless whether the shortage of distressed properties is due to more borrowers now making their payments, increased legislature, or a deliberate shift in banking policy, the foreclosure spigot has slowed to a trickle.

San Diego’s Distressed Market

Thanks to daytrip for sending in this article about banks foreclosing on 11% more homes in May than in April:


They haven’t got the memo yet in San Diego though – there was a 6.6% drop in new filings, month-over-month:

San Diego County Filings

How is the “distressed” market, compared to previous years?

Here are the number of listings of SD County attached and detached homes from Jan 1 to May 31:

REO Listings
SS Listings
Reg Listings

The REO listings are down 64%, and short-sale listings have dropped 53%, compared to last year.  The banks are doing everything they can to keep people in their homes, so the “distressed” markets should quiet down further.

Blaming The CA HBR

Several readers have suggested that the CA Homeowners Bill of Rights has been the cause of the slowing foreclsoure activity – and now Barclays agrees.  From dsnews.com:

The California Homeowner Bill of Rights (HBR) is the main driving force behind the recent slowdown in foreclosure sales and short sales in the Golden State, according to a research report from Barclays. In addition to stalling the foreclosure process, provisions in the new bill, which took effect January 1, 2013, have also led to an increase in litigation risk for servicers, analyst at Barclays found.

According the report, short sale activity and foreclosure sales have been dwindling over the past few months, as indicated by foreclosure-to-REO and foreclosure-to-liquidation roll rates. At the same time, roll rates in other states appear to be steady.

As a result of the HBR, Barclays believes “servicers have become significantly more cautious when carrying out foreclosure sales” in the state.  While the bill offers several protections to homeowners, one particular provision that allows borrowers to sue servicers for “material violations” of HBR could result in additional costs for servicers.

Violations of the HBR include dual-tracking, failing to provide a single point-of-contact, and neglecting to deliver proper notice of loss mitigation options.

The report explained that prior to a foreclosure sale, homeowners can seek injunctive relief to halt the foreclosure process. If a homeowner secures an injunction, the borrower can pass all legal costs to the servicer through the HBR, even if no material violation of the HBR is proven later, the report explained.

“Our understanding is that securing an injunction may require only a declaration from the borrower that a material violation of the HBR has occurred and some reasonable justification for further investigation into the alleged breach. It is possible that multiple consumer rights attorneys will offer their services on a contingent basis to borrowers facing foreclosure, effectively providing the homeowner with a zero-cost option to pursue litigation,” the report stated.

banks working the systemIf the request for an injunction is granted, legal costs could easily rise to the thousands as the court looks into the allegations. The process could also add another 6-12 months to the foreclosure process, according to the report.

“Furthermore, borrowers are much more incentivized to demand a copy of the promissory note, the chain of mortgage assignments, and the borrower’s payment history to collect evidence that a breach of HBR occurred, further stalling the foreclosure process,” the report explained.

Even though California is not a judicial state, analysts suspect the increase in litigation risks and the extended foreclosure timelines might cause servicers to pursue more judicial foreclosures, which are exempt from the HBR’s provisions.


More Deadbeats

defaultersIf banks aren’t going to at least threaten to foreclose on the non-payers, then no surprise that more are testing the system – from HW:

Mortgage defaults increased nationwide in the fourth quarter as more Americans began to default on all types of consumer debt.

The S&P Dow Jones/Experian credit default indices made this alarming trend more transparent in data released Tuesday.

The indices national composite, which measures all consumer defaults, increased for three consecutive months in a row, reaching a 1.72% default rate in December. This compares to a default rate of 1.64% in November and a much lower rate of 1.55% in October.

The first-mortgage default rate followed the same pattern, increasing from 1.47% in October to 1.58% in November, and then edging up again to 1.68% last month.

“The national composite rate was 1.72% in December, eight basis points above the November rate and 26 basis points above September’s post-recession low,” said David M. Blitzer, managing director and chairman of the index committee for S&P Dow Jones Indices.  “It was primarily driven by the first mortgage rate at 1.68% in December, ten basis points above the previous month’s rate and 32 basis points above September’s post-recession low.”

From its historic low of 0.62% posted last month, the second-mortgage default rate reached 0.69% in December.

The surge in mortgage default rates mirrors a trend already occuring in the national composite of all consumer defaults. While all five cities covered by the report showed increases in their overall default rates in December, all five cities also remain below default rates posted a year ago in December 2011, said Blitzer.

‘Mission Accomplished’

With the strategy of not-foreclosing working so well for the banks, you can probably say that REO and short-sale listings are winding down.  How did we do?

While it is likely that REO and short-sale listings will continue for years, the media keeps touting how the distressed-property numbers are in decline.  Lenders should be pursuing defaulters and liquidating their portfolios while the market is hot, but don’t be surprised if you see them do what most regular sellers are doing – waiting for prices go higher.

Here are the grand totals of NSDCC detached-home sales since 2008, when the MLS first started marking the REO and short sales separately:

Town or Area REOs# $/sf Shorts# $/sf Non-REOSS# $/sf Non % of Total
La Jolla
Carmel Vly
Del Mar/SB

We really didn’t get hit like the subprime-loan areas did, and NSDCC could withstand further foreclosure activity – in fact, homebuyers would welcome it!

Comparing the average $/sf of REO vs. short-sales helps to debunk the myth that short sales are better for the lenders than foreclosures.

Foreclosures Rising?

Our friends at Dr Housing Bubble Blog noted that foreclosure notices were rising last month – for those hoping for more inventory, it would be a welcome relief to see the banks on the move.  If a surge of REO listings hit the market right after the Super Bowl, it could ignite more frenzy!

In September, the San Diego County notices of trustee sales did increase 23% month-over-month, and were higher Y-O-Y too, so who knows – maybe the lenders are gearing up?

San Diego County Filings

Rock Solid CV

I’m not sure if this displayed previously, but it was researched by one of the big data gatherers (initials C-L) about the Carmel Valley zip code 92130:

  • Total number of homes in that zip code: 14,331
  • Total number of Neg Am loans: 282
  • Total number of SFRs with neg-am: 170

No wonder we haven’t seen many foreclosures around CV!

There have only been 15 detached REO listings close this year in the 92130, and only one was over $1,000,000 – the one we saw in Collins Ranch for $1,061,000.  This is a zip code whose average sales price this year is $1,023,763, and 132 of the 373 sales (35%) have closed over $1,000,000.

Trustee-Sale Competition

The number of SD properties foreclosed in 3Q12 were less than half of the number of foreclosures in 3Q10, but the ratio of third-party buys compared to those going back to the beneficiary has been changing.

San Diego County Trustee-Sale Results

Two years ago, 76% of the trustee sales went back-to-bene, but in the most recent quarter that number was only 57%.  The quantity of third-party buys has remaining fairly constant, and would probably be higher if the banks put more properties out for sale.  There appears to be quite an appetite:

Winning Bids of Trustee Sales

Third-party bidding looks intense – rising 16% from the opening bid, and ending up within 9% of current value. Wow!  Doesn’t that have to be putting pressure on retail pricing to rise?

If so, where are the future foreclosures that might feel some upward pricing pressure from flippers?  The lower-end neighborhoods, where it’s so competitive that flippers could get away with adding a little extra mustard to their list price:

SD County Defaults by Est. Value

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