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I was enjoying a nice lunch with some friendly title company representatives and we were talking about foreclosure numbers and the massive build-up of the “NOD [Notice of Default] list” that title companies prepare for lenders each and every week. A few years ago the “NOD list” in Orange County was maybe one or two homes a week, and sometimes you wouldn’t see a new NOD listing for a month. No longer the case - the NOD list has been growing as foreclosures have doubled year-over-year.
As we were talking about the NOD list we started trading some stories about people we know that are in foreclosure (and there are a lot of folks in the mortgage and real estate industries who drank the kool aid and bought at the top - who now can’t make their house payment) who are going on 6 months with out making a mortgage payment and are NOT getting their Notice of Defaults.
Typically Notice of Defaults are issued between 90 and 120 days. After 3 missed payments when a fourth payment goes by unpaid the NOD is quick to follow. But in our clearly non-scientific survey, we were amazed at the number of people who were in their homes for 6 or more months, living for free, with out receiving the Notice of Default from their lender.
The easy answer is that with foreclosures doubling over the last two years lenders are simply overwhelmed by the sheer number of NOD’s they must process to begin the foreclosure process. No doubt, the only safe jobs in mortgage companies these days are in the loss mitigation and REO (Real Estate Owned) departments; and they are hiring there almost as fast as they are firing on the origination side.
The more interesting answer is that REO properties and Notice of Default filings are public information and bad publicity for mortgage lenders. Not just from a “I can’t believe the evil mortgage company is taking people’s homes” publicity angle but from the “We need to keep our portfolio default percentage low to keep our stock price up” angle. Is this too much of a conspiracy for you to swallow? Maybe so. But we know that each REO property on the lender’s books does two things: 1. it hurts their loan portfolio performance which threatens further downgrades from ratings agencies and 2. comes back on the company balance sheet, potentially requiring an increase in their loan loss reserve (and a drop in liquidity).
In the reactionary market that we have had in recent weeks news of downgrades or increases in loan loss provisions have sent plenty of mortgage stocks tumbling. It is not inconceivable that mortgage companies have decided to take a laggard approach to filing and reporting notice of defaults and taking on REO property to mitigate the losses commensurate with those filings.
What do you think? Too unlikely a scenario or just about right?
commiserate
to feel or express sympathy or compassion
commensurate
corresponding in size or degree or extent
Sorry, man, I had to do it.
Morgan - No conspiracy. There is alot going on behind the curtain that isn’t public information. NOD’s (or NOS’s) can be held if there’s a BK, or if there’s a forbearance agreement, or if the 2nd leinholder is playing a game of “foreclosure chicken” with the senior leinholder, among other reasons.
Absent one of those legit reasons, the lack of a NOD/NOS is probably more a function of overwhelmed foreclosure trustee companies than anything else. Every major CA foreclosure trustee company - every one of them - is swamped. And, it isn’t like folks who understand the CA default biz are just growing on trees. Most died on the vine with the RE boom, as there was no work for years. You’re having to train greenies whilst your workload is quadrupling. It is, quite frankly, a recipe for disaster.
I’m seeing trustee companies regularly blow the 15 day relation back window, which historically in our industry was viewed as nothing more than plain old sloppy work. Now, it is primarily due to overworked trustee companies (and MERS, but that’s another issue).
Anyways, cheers.
I work for CurrentForeclosures.com, a foreclosures site and have seen a huge increase in the number of foreclosures in the past 9 months. I believe it is a combination of not only sub-prime and ARM mortgages, but also the high number of people who have gotten loans with interest rates at an all time low… in addition to the rapid depreciation in some areas and the difficulty some are experiencing in selling their homes.
thanks bri - we don’t have a resident spelling and grammar ombudsman - feel free to take over the post!
Thanks Jeff - it makes the most sense; as the foreclosure tidal wave is one of epic proportions…
My totally unscientific happenstance: I have a short sael in the Houston area and the 2nd lienholder thinks they are the 3rd lienholder. I wonder how much bad title work is out thereand what does that foreshadow as distressed sellers try to work out their situations?
I can see it now- first lien holder gets the house on the courthouse steps and then the second lienholder realizes they just got wiped out. By the way, after a 2nd lien (20% leg) gets packaged into interest only and interest and principal CDO tranches, who is the lienholder?
If not total conspiracy, many would be conveniently misunderstanding the rules of what is required of them.
May be someone can ask the banks (with a copy to SEC and thus force them to state the facts, whatever they may be) to officially state what reality is. If someone write to the bank’s officer, the bank will have to, at a minimum, take a official position to which we can hold them. As a publicly traded corporation, they must also file form 8K and mention any adverse conditions. If someone asks them, at least they will not be able to deny awareness later.
What I found interesting was after writing this I was reading the latest Economist and an article said that in the early 1990’s 75% of all homes that were 90-days late were in foreclosure. Today only 25% of all homes 90-days late are in the foreclosure process. What gives? Even with a lack of staff there seems to be a fundamental difference in process now.. any thoughts on that stat?
Morgan - The difference is probably largely due to the fact that servicers are putting more emphasis on loss mit work than in years past. As for their motives, I can only offer conjecture: concern over bad press if they don’t do all they can before referring to FCL; PSA’s requiring a certain level of loss mit before FCL; overt pressure from the OTS or other regulatory body pushing for a certain level of loss mit before referral to FCL.
My guess is that it is a combination of all the factors, no real driving one. The other major change: 120 is the new 90. Almost EVERYONE waits 120 days before referring to FCL now, again for various reasons; which was not the case back in the 1990s.
Cheers.