"You can't control what you can't measure"*

By way of Calculated Risk comes a story from the Atlanta Journal-Constitution on just how widely reported foreclosure numbers vary:

When the most frequently quoted source of foreclosure information [RealtyTrac] released its April statistics, it estimated that 3,746 properties in metro Atlanta’s five core counties had been slapped with foreclosure sale notices. But a review of local legal advertisements – the only official source of Georgia foreclosure information – suggested a decidedly different number for April, with 7,462 properties slated for auction on the courthouse steps.

How can governments determine if any of their foreclosure prevention measures are working if they don't know how many are happening to begin with? The answer is they can't, and I agree with CR that this data would be extremely valuable. Read the rest of the article for some good quotes from researchers and officials on the issue.


*Title of this post is a famous quote in the software development world, originating with Tom DeMarco's seminal work Controlling Software Projects: Management, Measurement and Estimation.

What's in a headline?

Consider these two headlines out of Massachusetts today:

• Foreclosures in Mass. plummet 58.6% in May - Boston Globe
  
• New foreclosure proceedings jump in May - SouthCoastToday.com
  

Hurray! Oh noes! Surprised to learn they're reporting the same story? The Boston Herald takes a more balanced approach:

• Massachusetts foreclosures fall, but actions to seize homes rise - Boston Herald

In any event the drop in foreclosures seems significant, and the rise in proceedings seems in part to be a reflection of an artificially low number last year. From the Herald:

Timothy Warren, CEO of the Warren Group, noted that foreclosure petitions were “artificially depressed” in May 2008 by a state law that required lenders intending to foreclose to give delinquent borrowers 90 days to catch up on missed mortgage payments. ... In May, 582 foreclosure deeds - the number of homes that were actually foreclosed upon - posted a dramatic 59 percent drop from 1,405 in May 2008. Experts said the dropoff shows that lenders are modifying troubled loans with better terms.

Clogged Pipes

From ForeclosureRadar by way of L.A. Land comes the observation that only a very small percentage of potential foreclosures are getting all the way through the process:

ForeclosureRadar has more evidence of a foreclosure backlog in its monthly data, released today: In May, a record 111,824 California homes were scheduled for foreclosure sales, but just 16% were auctioned. By comparison, last May, sales were held for 49% of homes slated for foreclosure. Of last month's postponed foreclosures, 40% were delayed at the request of the lender; an additional 33% were postponed by agreement between the lender and borrower.

As mentioned in an earlier post, the foreclosure pipeline is clogged and cannot handle the flow. I'll keep an eye out for any more color on why a lender would request a delay without an agreement with the borrower (other than the obvious reason of not having time to adequately prepare for the auction).

CA announces 3 months free rent for defaulters

No they didn't actually word it that way, but that's what the new law will amount to in most cases where it applies. From the Sacramento Bee:

After more than 365,000 California foreclosures since early 2007, the state's long-awaited 90-day foreclosure moratorium law goes into effect Monday. But it doesn't mean foreclosures will stop. The law goes into effect as lenders are ramping up repossessions following expiration of earlier moratoriums, according to housing trackers.

Lenders can exempt themselves from the delay by complying with the Making Home Affordable Program a loan modification program that includes the eligibility requirement "You have income sufficient to support the new mortgage payments", so it's unlikely to benefit anyone who has either lost a job or relied on an unrealistic stated income to qualify for the original mortgage.

Foreclosure filings surpass 300K for the third straight month

From Bloomberg, May down a tad from April but still up substantially year over year. Amid the numbers I found this remark interesting:

"The foreclosure bucket is filling faster than it’s emptying," Jay Brinkmann, chief economist of the Washington- based Mortgage Bankers Association, said in an interview. "It will continue through next quarter at least."

This is important to keep in mind. The problem is so large its overwhelming the existing institutions and processes. About half of all real estate transactions in California right now are foreclosures, yet banks are still foreclosing faster than they can sell the houses and debtors are still defaulting faster than banks can foreclose. Not only will it continue through next quarter, at least in some parts of the country it will reach true crisis levels, and you may see the $1 house phenomenon spread beyond Detroid.

Not the upper middle class!

The foreclosure crisis is creeping its way up, and in the end I think this will be the real story. And now that it's not just the unwashed subprime masses even Business Week is showing empathy for the affected:

Consider the plight of Stephanie and Bob Walker, who bought a $799,000, three-bedroom home in Los Angeles with a view of the Hollywood sign in 2006 but are losing it because last year Bob stopped getting computer consulting work that used to pull in about $240,000 a year. Bob eventually landed a job paying $60,000, and Stephanie found work as a $13-an-hour temp, but it wasn't enough to cover their mortgage and credit-card debt, which was swelled by about $130,000 worth of home renovations.

So I actually work in the "computer consulting" industry, and can assure you no one is pulling in $240,000 net a year on a consistent basis, especially not anyone with a $60K/year fundamental skill set. $20K gross in a month is definitely doable but that's rarely repeatable so I expect this was a stated income loan and doubt if the Walkers were regularly claiming $240K on their income tax returns. But the nonreality of the specifics aside BW makes a salient point:

Unemployment is exacerbating the problems at the top of the market. The jobless rate for adults with a bachelor's degree or more [is] more than double the rate of 2% a year earlier. And many families in that segment of the population built their finances on the assumption of continuous full employment, so they can't cover the mortgage when even one spouse is out of work.

Even couples that didn't use exotic financing regularly pushed their debt-to-income ratios to the absolute limit to be able to compete with people who did. And that leaves no slack, both people must stay fully employed or they can't afford the home. This source of foreclosure may currently be quite small relative to 0 down Alt-A/subprime nonsense or speculative investors, but in the end it will be the kind that hurts the most, and leaves the most lasting scars on our national psyche: families torn away from their dream homes after pouring everything they made into them for years.

72% year over year growth, that's good, right?!

Here in Washington state we're a bit behind the curve as seen in California but the overall pattern seems similar. By way of The Tim at Seattle Bubble:

Notice of Trustee Sale summary for April 2009
King: 938 NTS, up 72% YOY
Snohomish: 483 NTS, up 90% YOY
Pierce: 652 NTS, up 48% YOY

In an upcoming post I'll get into exactly what a Notice of Trustee's Sale is.

From the half-baked-silver-lining department

From the Associated Press, FEMA may put storm victims in foreclosed homes:

The idea is still being developed, but FEMA would likely contact banks, other mortgage holders and their representatives to compile a list of available homes. The evacuees would then be assigned homes close to their own and FEMA would use a contractor, acting as its agent, to pay rent directly to whoever owns the home, said Jon Arno, FEMA's individual assistance branch director for Florida.

I suppose we can all just hope we never need to discover just how impractical this is. It also seems as if an unused prison would be more on point:

"When you have a diaspora that leaves the state it's very hard to get those guys back. You really want to prevent them from leaving the state," said Jeff Bryant, the Federal Emergency Management Agency's federal coordinating officer for Florida.

"every 13 seconds"

Foreclosure snark has reached New England, from boston.com:

Here are some foreclosure stats to brighten up your day.

There have been 1 million new foreclosure filings across the country – all since January.

And that number is expected to more than double by year’s end, according to a depressing new report released by the Center for Responsible Lending.

That’s a new foreclosure filing every 13 seconds.