Wednesday, October 28, 2009

Strategic Non-Foreclosure

Just saw this! Pretty strong affirmation of my post "Lifecycle of Bad Mortgages Surprisingly Uncorrelated"

Strategic Non-Foreclosure: "

This morning, we discussed Strategic Mortgage Default. This afternoon, let’s look at Strategic Non-Foreclosure.

Data via LPS‘ Monthly Mortgage Monitor shows a growing disparity between delinquencies and foreclosure starts. In other words, as more people fall behind on their mortgages, banks are becoming increasingly leery of putting them into foreclosure.

LPS calls this “Shadow Foreclosure Inventory” – The number of loans deteriorating further into delinquent status is more than twice the volume of foreclosure starts.

Why would they wait? Some of it is voluntary foreclosure abatement, some mortgage mod delays. Yet the chart below implies something beyond that. Perhaps its strategic.

Consider: The bank may have other (more expensive?) local properties that would be effected by a foreclosure. They may be waiting for a more advantageous time of year to put the homes up for sale. But I suspect the biggest reason are costs: Until foreclosure, the nominal owner remains liable for all state, real estate and local school taxes. Plus, some localities require regular maintenance (mow yard, clean street, shovel sidewalk, etc.)

Hence, not foreclosing not only gives the owner time to get current, but may also prevent the bank from accruing expenses . . .

Here is LPS chart:


click for larger graph

Shadow Foreclosure Inventory

Data as of September 30, 2009 Month-end


As Annaly Salvos notes:

“As the graph illustrates, delinquencies are rising, but foreclosure starts are not. As of September 2009, 90+deterioration more than doubled actual foreclosure starts. LPS has dubbed this “shadow foreclosure inventory.” Higher unemployment begets delinquencies and defaults, but foreclosures aren’t flowing through due to modification efforts and various moratoria. Depending on the success of programs like HAMP, more than a few of these loans are still destined for foreclosure.”

Good stuff.


Hat tip Scott F!


September 2009 Mortgage Performance Observations

LPS Mortgage Monitor, October 15, 2009

Who Knows What Evil Lurks In The Hearts of Men?

Annaly Salvos

October 27th, 2009


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