New Foreclosure Wave is Coming: Olick

There is an anticipation that more homeowners that can pay their mortgage will simply default, because they have negative equity in their house.  This report sort of confirming this prediction.

"November’s numbers suggest a new set of incoming foreclosure waves, many of which may roll into the market as REOs [bank repossessions] or short sales sometime early next year,” said James Saccacio, co-founder of RealtyTrac. “Overall foreclosure activity is down 14 percent from a year ago, the smallest annual decrease over the past 12 months, and some bellwether states such as California, Arizona and Massachusetts actually posted year-over-year increases in foreclosure activity in November.

Also, there some states that are having major delays.

Other states, like New York and New Jersey, are still seeing huge delays in the foreclosure process--986 and 984 days respectively, says RealtyTrac, but they too are starting to ramp up, as various moratoria have been lifted and judges have made rulings that will kick-start the process. That will mean more distressed properties surging into an already troubled housing market. Foreclosure starts outnumber sales by three to one, and 45 percent of foreclosure starts in October were repeat foreclosures, according to Lender Processing Services.

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Fitch: Properties average eight months in REO

The Federal Housing Finance Agency is working on new ways to sell these homes. Fannie Mae and Freddie Mac currently own around half of them, according to Fitch. Analysts said bulk sales would be "a key part" of the housing market for the next two years.

If they want to sell them fast, why don't they just sell them a auctions instead of making them REO's?

A typical foreclosed home will spend eight months in REO before being resold, Fitch Ratings analysts said.

More than 2 million of these properties are somewhere in the foreclosure process, Lender Processing Services (LPS: 17.77 -3.69%) estimates, and more are coming. The majority of the backlog could take as long as two years to clear, according to Fitch as the current foreclosure timeline can last more than 12 months, before the time the property will spend in REO.

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S&P: 45 months to clear shadow inventory

So are we talking 4 years now to clear inventory?

After reviewing third quarter default and liquidation rates, the agency noted signs of improvement. S&P estimates it will take 45 months to clear the excess stock.

However, with constant changes to the foreclosure process, the number appears ever-shifting. Three months ago, for example, S&P said it would take 47 months to clear the shadow inventory, those properties not yet on market, but facing eventual resale.

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California default notices increase 17% in October

“The October foreclosure numbers continue to show strong signs that foreclosure activity is coming out of the rain delay we’ve been in for the past year as lenders corrected foreclosure paperwork and processing problems,” said James Saccacio, chief executive officer of RealtyTrac. “However, recent state court rulings and new state laws keep changing the rules of the foreclosure game on the fly, creating more uncertainty in the housing market and threatening to prolong the road to a robust real estate recovery.”

And for California.

California default notices increased 17 percent from the previous month to a 13-month high, helping the state post the nation’s second highest foreclosure rate: one in every 243 housing units with a foreclosure filing in October. A total of 29,240 default notices were reported in California in October, a 1 percent increase from October 2010 — the first year-over-year increase in defaults in California since November 2009.

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Mortgage delinquency rate edges up for first time in two years

And just coming off the negative equity news this morning.

The national delinquency rate for borrowers who are 60 days or more past due on their mortgages rose for the first time in two years during the recent third quarter, TransUnion said Tuesday.

The delinquency rate for seriously past due loans edged up to 5.88% in 3Q, TransUnion reported.

"Until this quarter, we had seen six straight quarters where progressively more people were able to make their mortgage payments on time," said Tim Martin, group vice president of U.S. Housing in TransUnion's financial services business unit. "We expected that trend to continue given recent, relatively more conservative lending policies and the apparent stabilization of both home values and unemployment."

Martin said the six quarters of relative stability were disrupted by unanticipated shocks to the American economy in the third quarter. Those shocks included the European debt crisis, high unemployment, falling home values and low consumer confidence.

"All of this affects a borrower's net worth and desire, or ability, to continue making house payments — especially if they are facing negative equity in their homes due to price depreciation," said Martin.

All but 10 U.S. states and the District of Columbia experienced a jump in mortgage delinquency rates when comparing the third quarter to the second, TransUnion said

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Rising foreclosure rates to impact home prices, Fitch says

Rising foreclosure start rates will add to the distressed property inventory and drive home prices further down, according to a report from Fitch Ratings, reflecting the impact of last year's robo-signing scandal.

More than 10% of severely delinquent loans in private-label residential mortgage-backed securities are now moving into foreclosure each month, the ratings agency said. That's nearly double the rate from a year ago when the moratoria instituted by lenders and servicers in the wake of the robo-signing debacle were in place. It's also edging closer to the 14% rate seen between 2000 and 2010.

And....

"Rising foreclosure start rates are likely a sign that servicers are playing catch-up on actions that have been delayed over the past year," Fitch Managing Director Diane Pendley said in the report. "Mortgage servicers now generally feel they have implemented the corrective actions that they determined were needed."

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Sharga: Several more years with nearly 1M foreclosures per year

Sharga said based on lender behavior, he doesn't see a spike happening, rather a slow, steady burn in order to spare home prices from further reductions. Today, roughly 4 million homes sell per year. If 1.5 million REO sold, that would be almost 40% of the market, which would be double the current market share of these properties.

"I think it’s less likely that we’re going to see a 'peak' year in REO sales that looks dramatically different than what we’ve been seeing over the past few years. This is partly due to relatively weak demand, partly due to what I’d call 'inventory control' being executed by the lenders and servicers, and partly due to the fact that foreclosure processing, evictions and redemption periods have all become extended, and often appear to be in a state of flux," Sharga said.

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Zillow: Case-Shiller likely fell 3.8% in August

Two key indices of home prices likely fell in August, suggesting large numbers of foreclosures and continued high joblessness are acting as a drag on the market, according to a new forecast.

The Case-Shiller 20-city composite home price index, scheduled to be released on Tuesday, likely fell 3.8% in August from a year earlier and 0.3% from July on a seasonally adjusted basis, said a forecast from Zillow Inc. (Z: 26.58 -1.66%) chief economist Stan Humphries. The downward trend will continue through the end of the year, he predicts.

"We expect to see continued home value depreciation as unemployment and negative equity remain high," said Humphries. "The large foreclosure pipeline will produce relatively low priced REOs in the market, putting downward pressure on prices going forward, and we do expect the pace at which homes exit this pipeline to pick up in the near-term."

The Case-Shiller 10-City composite index is expected to register a seasonally adjusted decline of 3.5% in August from the previous year, and 0.2% compared to July.

"After showing monthly appreciation earlier this year and building some momentum, recent weak economic data is starting to be reflected in home values," Humphries said. "Existing home sales have been disappointing, with September sales down 3% from August."

Humphries is bearish on the overall housing market for at least the next year.

A survey of more than 100 economists by Pulsenomics shows the median expectation for that group is a decline in the Case-Shiller 20-city index of 2.8% in the fourth quarter from the final three months of 2010. Zillow, on the other hand, is projected a 4.5% decline, and then another 2.5% drop from the fourth quarter of 2011 to 2012.

Zillow has a strong track record of accurately forecasting changes in these Case-Shiller indices. Zillow's July forecast for the non-seasonally adjusted 20-city index was off by just 0.1 percentage point, coming in at 4.0% compared to the actual number of 4.1%.

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More than 20,000 foreclosures in 2006 took 4 years to resell: CoreLogic

Analysts studied the destinations of more 355,000 properties that hit foreclosure auctions in 2006. Investors bought about one-third of them at the courthouse steps, and the remaining 233,000 went back onto lenders' books as real estate owned.

Of those, 90%, or 210,000 homes, sold as REO to third-party buyers. Of these, half took six months to sell and 21% took more than one year to unload.

But 23,200 sat unsold for four years, CoreLogic found. These are properties that entered the foreclosure process before the system surpassed its maximum capacity in many states. REO sales have yet to peak, meaning the time banks and the U.S. government will have to hold these homes could go even longer.

And....

Such stagnant pools of inventory have crippled any recovery in home prices. Most analysts predict even more depreciation in 2012. Billions in government initiatives such as the Neighborhood Stabilization Program and the Hardest Hit Fund went to help states and nonprofits resell vacant and abandoned foreclosures even as Republicans in the House moved to cut these programs.

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California Foreclosure Activity Back Up

After dropping to a three-year low in the second quarter of this year, the number of California homeowners being pulled into the foreclosure process snapped back to prior levels over the last three months, a real estate information service reported.

A total of 71,275 Notices of Default (NoDs) were recorded at county recorders offices during the third quarter. That was up 25.9 percent from 56,633 for the prior three months, and down 14.4 percent from 83,261 in third-quarter 2010, according to San Diego-based DataQuick.

Last quarter's 71,275 NoDs, which mark the first step in the formal foreclosure process, jumped back to levels seen earlier this year and late last year. Lenders filed 68,239 NoDs during first-quarter 2011 and 69,799 in fourth-quarter 2010. NoDs peaked in first-quarter 2009 at 135,431.

Most of the loans going into default are still from the 2005-2007 period: the median origination quarter for defaulted loans is still third-quarter 2006. That has been the case for almost three years, indicating that weak underwriting standards peaked then.

The most active beneficiaries in the formal foreclosure process last quarter were Bank of America (14,325), Bank of New York (11,052), and Wells Fargo (9,740).

The most active trustees, companies doing the actual foreclosing, last quarter were ReconTrust Co (mostly for Bank of America and Bank of New York), Quality Loan Service Corp (Bank of America), California Reconveyance Co (JP Morgan Chase), Cal-Western Reconveyance Corp (Wells Fargo) and NDEx West (Wells Fargo).

Defaults by price segment show that distress is not spread evenly, with lower-cost neighborhoods bearing the brunt. Last quarter, zip codes with year-to-date median sale prices below $200,000 collectively saw 11.0 default notices filed per 1,000 homes. That compares with 8.1 NoDs filed per 1,000 homes for all zip codes statewide, and just 2.8 NoD filings per 1,000 homes in zips with medians above $800,000.

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Millions of homes lurk on bank inventories, casting doubts of rebound

Clustered mostly in hard-hit cities and states, there are more than 4.5 million homes either owned by lenders or headed for foreclosure. In Miami, for example, there are about 200,000 shadow homes, dwarfing the 30,000 properties that are listed on the active market. Even as prices in Miami have shown signs of stability this year, an impending wave of foreclosures threatens to keep real estate values deflated.

"A lot of people don't understand how much inventory is set to come on line in the next 18 to 24 months," said Jack McCabe, the CEO of McCabe Research & Consulting in Deerfield Beach, Fla. "When you compare what the Realtors show as inventory to what's out there, you realize we have a long way to go."

A McClatchy Newspapers analysis of four years of foreclosure data and thousands of property records found record-high levels of shadow inventory in several housing markets across the nation.

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Home prices could dip another 7%: Barclays

Home prices could fall up to 7% by the end of the 2012 first quarter, Barclays Capital said Friday in a report to clients

Barclays also noted the worst-case scenario for a further home price collapse, where property value falls another 15 to 20% from current levels, is low.

Fannie Mae's recent survey of a sample pool of Americans found that most of those surveyed believe home prices will fall another 1.1% over the next year.

Home prices recently experienced a minor decline.

In August, home prices decreased 0.4% on a month-over-month basis, the first monthly decline in four months, according to CoreLogic.

Meanwhile, Clear Capital expects another home price dip is on the way.

Home prices rose nationally 3.5% in the third quarter over the previous quarter, according to the latest home data index from Clear Capital.

However, the  company also predicts another minor decline in home prices for the fourth quarter of 2011, and a continued slide through the end of the first quarter of 2012.

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Analysis: New wave of foreclosures to push prices lower

I would the say the inevitable increase in mortgage rates also.

And a fresh drop in home prices is likely to result. 

Banks have stepped up the pace of home seizures after a year-long slowdown brought on by the "robo-signing" scandal in which banks were accused of seizing properties without a proper review of loan documents.

The number of foreclosure filings -- which include default notices, scheduled auctions and bank repossessions -- edged up 0.3 percent in the third quarter, reversing a trend of three straight quarterly declines, according to real estate data firm RealtyTrac.

Look for more activity in 2012

RealtyTrac warns that as many as 1 million foreclosure actions that would have taken place this year will be pushed into 2012. 

The firm also says they do no expect to see home price appreciation until the housing market works through the backlog of distressed assets, and the overall malaise in the sector could continue for the next three to four years.

"Banks are beginning to process foreclosures again after taking the time to get their paperwork in order. They've done the diligence they needed to do," said RealtyTrac chief executive James Saccacio. "Now there's this wave coming back in and more defaults are being processed."

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Foreclosures increase California

After months of a foreclosure slowdown caused by investigations into improper practices, the nation's home-repossession machinery is beginning to move again — particularly in states such as California where courts don't oversee the process.

The number of homes entering the foreclosure process surged 19% in the third quarter compared with the previous quarter in states where foreclosures take place largely outside of the courtroom, according to RealtyTrac, an Irvine information firm. These nonjudicial states include California, Nevada, Arizona, Oregon and Washington.

The reason why in these states.

"[The banks] are generally working through more of these loans, but the places where they can file the most quickly are going to be the nonjudicial states," said Celia Chen, a housing economist with Moody's Analytics.

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Foreclosure backlog deepens

Once borrowers start missing payments, they spend an average of a year and nine months, or 611 days, in foreclosure before banks repossess their homes, according to LPS Mortgage Monitor. That's more than twice as long as three years ago, when the average was 251 days. Earlier his year, the average was 523 days.

"The number of defaults in the pipeline has been huge and we had more problem loans than ever before," said Herb Belcher, who supervises analytics for Lender Processing Services (LPS), which provides mortgage industry information and analytics to big banks.

With so many bad loans, servicers have had to prioritize which ones they can deal with and which ones to push aside.

"It's like your boat has all these holes in it and is taking in water. You have to plug up the worst holes first," said Belcher.

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Radar Logic survey shows home prices remained unchanged in July

Home prices remained relatively unchanged in July across the 25 markets surveyed by Radar Logic.

The research and analytics company's monthly housing report also showed real estate-owned inventories are expected to grow in the coming months as more foreclosures make it through the pipeline.

The average home price in July in the 25 markets surveyed inched up 0.9% to $187.24 per square foot from June and is 4.7% below a year earlier, according to Radar Logic.

Still, there remains a fundamental issue with supply rapidly outpacing demand, and "if nothing is done to prevent it, the problem is going to get worse in coming months," the company said.

The supply of homes for sale could grow in coming months if recent increases in foreclosure filings become a lasting trend.

Foreclosure filings, including default notices, scheduled auctions and bank repossessions, increased 33% from July to August, according to recent data released by RealtyTrac.

The company cites statistics from economist Tom Lawler who said there were about 548,000 REO properties on the books at the end of the second quarter. That figure includes properties held by Fannie Mae, Freddie Mac, the Federal Housing Administration, as well as trusts for private-label securities and non-FHA government agencies.

"The supply of homes for sale could grow in coming months if recent increases in foreclosure filings become a lasting trend," Radar Logic said.

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The New Face of Foreclosure: Strategic Defaults

As 30% of the homes with mortgages in California are underwater, strategic defaults will probably increase.

But Kessler isn't in financial trouble, and he could afford the monthly payments. He has no other debts and two pensions from former employers, as well as Social Security. He also has a woodworking hobby, and runs a small business selling the artisan lamps he makes in galleries. He's single now, and his two children are grown and gone.

"I was looking for a way to get back to a larger city, and this was the only way I could get out of this house," says Kessler, who paid $800 to YouWalkAway.com to help guide him through the process known as strategic default. He's anticipating a move to a warmer climate and a more active art and dating scene in Santa Fe, N.M.

New Attitudes

Attitudes toward default have also shifted, Maddux says. "Back in 2008 people were very emotional, very scared, in disbelief or denial," he says. "Now they are simply fed up. It's a very calculated, black-and-white business decision. People feel very relieved."

A more widespread understanding of the consequences of default may be a factor, says Brent White, a University of Arizona law professor and author of Underwater Home.

The conventional wisdom is you are ruined and are not going to recover," says White, who wrote a widely circulated discussion paper on the topic. But in so-called "non-recourse" states such as California, the bank can only foreclose on the property and resell it. If the price is less than the amount owed on the mortgage, the lender can't sue the homeowner to recoup the shortfall, says White. Even in recourse states, the bank is unlikely to go after the homeowner following foreclosure, he argues.

The dollar and cents calculation, sometimes it's just that simple.

White says underwater homeowners should figure out if they are paying substantially more to own a house on a monthly basis than they would pay to rent a similar property. "Even if you are thousands of dollars underwater, if you are paying the same as you would to rent, you don't gain that much financially by defaulting," he says. (The survey by YouWalkAway.com found a quarter of respondents saved 50% or more on housing expenses when they rented after their default.)

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Amherst to Senate: 10 million more mortgages set to default

Roughly 10.4 million mortgages, or one in five outstanding home loans in the U.S., would likely default if Congress refuses to implement new policy changes to prevent and sell more foreclosures, according to analyst Laurie Goodman from Amherst Securities Group.

At the end of the second quarter, more than 2.7 million long-delinquent loans, others in foreclosure and REO properties sat in the shadow inventory, more than double what it was in the first quarter of 2010 (Click to expand the chart below). With the market averaging roughly 90,000 loan liquidations per month, it would take 32 months, nearly three years, to move through the overhang.

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MBA supports large-scale REO disposition

"Today the nation faces a disproportionately large inventory of homes with additional 'shadow inventory' to come on line soon, in the face of a weak job market and weak housing demand," Stevens said. "Getting more REO properties into the hands of owner-occupiers would be the best option for stabilizing neighborhoods."

The MBA puts the shadow inventory of mortgages delinquent 90 days or more or already in the foreclosure process at about 4 million homes. With about 1 million to 1.2 million foreclosure sales and short sales a year, the MBA estimates it will take three and half to four years to move through this inventory overhang.

Some of the recommendations the trade group sent to the FHFA include a heightened focus on providing preferential financing to resident owners; expanding finance options and incentives for local investors; increasing protections for investors against fraud; and improving transparency.

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California foreclosures set to surge

"It wouldn't be a stretch to say that we might see NODs in the range of 30,000 per month in California for a few months, but it's difficult to predict that they'd get anywhere near the record levels we saw back in 2009," Sharga said.

From January 2010 through September 2010, California NODs averaged 28,000 per month. That dropped to 26,000 per month for the rest of 2010 after the robo-signing scandal broke in October, when servicers were found to be signing affidavits en masse and without a proper review of the loan files.

And the timing of this drop.

A restarted foreclosure process means prices in California are set for possibly more drops, but the effect will not be seen immediately, according to Michael Simonsen, co-founder and CEO of the data analytics firm Altos Research.

"The price implications for the foreclosure spike are further down the road," Simonsen said. "August prices did indeed lose their steam from the first half of the year, but it's largely seasonal."

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