Ever since the Robo-Signing scandal erupted in October 2010, banks slowly come to realize that their practices were under ever increasing scrutiny. (I know that’s a Duh! observation for most people, but these are bankers we are discussing).

By early 2011, many of the major money center banks had slowed down their normal foreclosure machinery in a belated attempt to figure out just WTF they were doing internally. There was an attempt to identify the normal processing of defaulted mortgages and see if there was any illegal chicanery going on.

They should have asked the question in the opposite way, as in “Are we doing anything legally?”

As it turned out, an army of outside law firms and 3rd party vendors had by and large run roughshod over the existing laws and legal practices. This did not insulate the banks from the fraud; subcontracting business to felons does not insulate your organization from their illegal behavior.

Regardless, I suspect when some smart bank executive somewhere learned how rampant illegal foreclosures had become, they decided to halt the foreclosure machines altogether to clean up their own house. Contrary to appearances, not every banker is an idiot. As it turns out, its mostly the ones in positions of authority.

Fast forward to the national robo-signer giveaway settlement. With that now behind them, the voluntary foreclosure abatements have come to an end. Thee was an 18 month period where banks had stopped actively processing these properties. That ended earlier this year. As the creaky, wheezy, inadequate machinery of processing defaulted mortgages rumbles back to life, you would expect to see signs of increasing foreclosures and distressed sales begin any day now.

Cue the RealtyTrac report:

Foreclosure filings — default notices, scheduled auctions and bank repossessions — were reported on 205,990 U.S. properties in May, an increase of 9 percent from April but still down 4 percent from May 2011.

The details:

-There have been an average of 1.6 million nationwide foreclosure starts per year for the past five years.

-Foreclosure activity rose back up above the 200,000 level in May after two consecutive months below 200,000.

-Foreclosure starts nationwide increased on an annual basis after 27 consecutive months of year-over-year declines.

-Bank repossessions are still down 18% year over year. Voluntary foreclosure freezes and increasing preforeclosure sales are the primary factors reasons.

-Judicial states combined posted a 26% year-over-year increase in overall foreclosure activity while non-judicial states combined posted a 20% year-over-year decrease in foreclosure activity.

-Foreclosure starts increased on a year-over-year basis in 17 of the 26 judicial states and in 16 of the 24 non-judicial states.

Banks seem to be getting religion about doing more distressed/short sales than outright foreclosures, as they generate higher priced sales — meaning a greater recovery for the lender, and less of a writedown:

-Higher percentages of new foreclosures are likely end up as short sales or auction sales to third parties (rather than bank repossessions).

-Pre-foreclosure sales have less of a negative impact on home values than bank-owned sales, they still represent a discounted sale where a distressed homeowner is losing his or her home

-Average price of a pre-foreclosure home was more than $27,000 higher than the average price of a bank-owned home.

One last surprising factoid:  Georgia now leads the nation with the highest state foreclosure rate (per capita) versus the next 4 states: Arizona, Florida, California and Nevada. Georgia’s foreclosure rate has not ranked highest in the country February 2006.

click for larger chart

more graphics after the jump


U.S. Foreclosure Activity Increases 9 Percent in May
RealtyTrac June 14, 2012



Category: Data Analysis, Foreclosures, Real Estate

Please use the comments to demonstrate your own ignorance, unfamiliarity with empirical data and lack of respect for scientific knowledge. Be sure to create straw men and argue against things I have neither said nor implied. If you could repeat previously discredited memes or steer the conversation into irrelevant, off topic discussions, it would be appreciated. Lastly, kindly forgo all civility in your discourse . . . you are, after all, anonymous.

19 Responses to “Foreclosure Machinery Creaks Back to Life”

  1. Chief Tomahawk says:

    BR, are you forecasting a 2nd leg down for housing? If so, will the 2nd trek bring the plunge below the long-term appreciation curve? Last, instead of free toasters, will the banks be offering free Zombie guns for new accounts?

  2. Mike in Nola says:

    While I agree there are plenty more foreclosures/short sales to be done, will the increase shown on the graph be be just a temporary bump up like that for home sales?

    After reducing bad loan reserves to increase earnings/bonuses, insolvent or nearly insolvent banks will have to reverse the process when they execute foreclosures/short sales, requiring writedowns that negatively impact bonuses. Seeing that there are still no mark-to-market accounting rules and how Jamie, et al, aren’t leaving the Fed board because “they have no conflicts”, I don’t see anything forcing immediate recognition of losses that can be put off. Waiting for more subsidies from the Federal government, the moguls could stretch this out til they retire. Maybe idiot Bove is right.

  3. StatArb says:

    This is a positive event

    Foreclosures need to be ramped up as quickly as possible to break the cycle of zombie banks and zombie borrowers

  4. AHodge says:

    Bank of America has never stopped threatening to foreclose on me except verbally by their agents . And now they are threatening again over $1275. So im reading their latest letter, exerpts are in my reply below

    Bank of America June 13, 2012
    Attention: Correspondence Unit
    PO Box 5170
    Simi Valley, CA 93062

    Ref: mortgage 875093611
    By fax (800) 520 5019 and registered mail

    I have your letter dated May 30 which is riddled with inaccuracies, falsehoods, and implied threats including “if my loan is in foreclosure.”

    You say “we previously sent me a notice informing me of the amount.” You state “the acceleration date of April 19, 2012…remains in effect” That amount was over $6 thousand . Later discussions in May 2012 including with your customer advocate ombudsman Bob Putnam and agents Monique and Tamika and others reduced your still wrongly claimed amount to $ 1,275.72 as noted in my earlier letter. Your agents have also told me repeatedly to ignore the letters threatening foreclosure. But you have in no way given me the all clear. To the contrary this is your last communication, and have now escalated to “if my loan is already in foreclosure”

    But you have not confirmed either that reduction in writing, or the statements of several of your agents I don’t owe anything further. As noted earlier I have been paying the regular monthly due as contracted. I refuse to pay anything extra for your clearly wrongful and probably illegal extra duplicative force place insurance.
    This insurance is already maintained and you have confirmed it has been in place all along.

    You state “ Bank of America will continue to report the past due status of your loan to the credit reporting agencies”
    1. I have been assured by your agents repeatedly that it is not past due.
    2. You have not notified me earlier of this credit black mark in any way.
    3. To the contrary you have verbally reassured in the past of this agonizing process you have not credit reported me.
    4. I had a fairly unpleasant discussion with my ex wife who’s credit rating you have wrongfully ruined. She is no longer part owner, and you refuse to take her off the mortgage.
    5. This confirms you wrecked my credit rating also. I have enough money not to care for now. I am refusing to pay your scam extra charges just because they are wrongful and probably illegal.

    Refer to my last letter where your customer service representative stated I was current and actually offered to mail me a check for excess. I have not seen that check, but I have confirmed that you at the same time disappeared one of my regular payments , so are saying I owe the difference. Which is likely what this May 30 letter is about. Shame on you, sirs. I am not paying a dime extra. And I will continue to report this to the New York Insurance Authorities, and the Florida Attorney General.
    Also, just for my own amusement and a warning that no one should ever deal with you, I post these on some popular blogs.

    I refuse to call the general system number you refer me to, including your latest email of yesterday about a “notice.” As I asked before, have someone educated and competent, also with knowledge of the case and my four prior letters, call me if you like. It would also be nice if your customer advocate representative Bob Putnam was reachable . The one who said “He was working for me.” He is not reachable or working for me.

  5. AHodge says:

    oops can you delete my mortgage #? thanks

  6. rktbrkr says:

    The boa constrictor is pooping after 18 months constipation.


  7. rktbrkr says:

    Local article about Miami area foreclosures increasing. Sixth consecutive year of increased foreclosures – now thats impressive!


  8. flocktard says:

    It is indeed ironic that Georgia leads the nation in foreclosures today. They were the only state that made a meaningful legislated attempt to stop predatory lending. This was stopped when Standard & Poor’s openly threatened the state that if the legislation passed, no mortgage paper securitized from the state would be rated by them, essentially freezing them out of the market.

    Naturally, this IS the same S&P that did such wonderful due diligence on MBS paper during that time.

  9. krice2001 says:

    Well AHodge, I guess you’re one of those miserable cases we hear of. And when dealing with one of the TBTF’s, it’s a little hard to get a personal touch to work on your case. Clearly they have no mechanism for actually dealing with their mistakes…

    Several years back, I received notice from my nice suburban town’s tax collector that I had not paid real estate taxes for 6 months – something that I had been paying my Bank/Mortgage Holderto do for more than 3 years at the time. Why had they suddenly stopped paying my taxes? Who knows. But their mortgage customer service line was either busy or an endless queue – I would be on indefinate hold for more than 90 minutes before giving up. I tried repeatedly (more than 2 dozen times) to get through for over a month. It eventually got resolved when I use a retired relative to call on my behalf throughout the work day for about 2 weeks and they finally got through. That bank however was not TBTF. It is not longer in existence.

  10. BennyProfane says:

    A little off topic, but, after watching the Yankees sweep the Braves down in Atlanta this week, I’d say that everyone of those idiots who were doing that damn tomahawk chop thing in the Brave’s stadium deserved to be dragged out of their house and left on the sidewalk with all of their furniture. What is wrong with those people? It’s 2012!

  11. John Rothe says:

    The bigger issue here is that as the banks ramp up foreclosures, they are most likely going to start flooding the market with inventory. I think the banks are sitting on more properties than anyone realizes…

  12. rktbrkr says:

    I think the banks are sitting on more properties than anyone realizes…

    The banks are sitting on more properties than anyone ADMITS!

  13. [...] of the leading economic observers, Barry Ritholtz at The Big Picture, offers an interesting take on why foreclosures have slowed for the better part of two years [...]

  14. rktbrkr says:

    Silver lining dept…killer real estate deals in Europe! The deals will get a lot more killier if the Eurozone bursts.

    RE prices were up 400% in Dublin which means a 100K place became a 500K place and currents prices are off 50%, so is 250K a killer deal for a place that was 100K a decade age…not to mention double digit unemployment now. Falling out of the foreign currency zone won’t help RE prices. Will germans feel more comfortable or less buying property priced in pasetas than Euros? i don’t think so…


  15. Singmaster says:

    It appears that not everyone is being foreclosed on. Wonder why Chris Matthews or Anderson Cooper or one of their ilk are not covering this:
    From the article:
    There’s a lot we have yet to learn about the story of Sen. Mike Lee, Tea Party Republican of Utah, and America’s largest bank. But we already know something’s very, very wrong:
    Why is it that most Americans can’t get a principal reduction from Chase or any other bank, but JPMorgan Chase was so very flexible with a sitting member of the United States Senate?
    The hypocrisy from Sen. Lee and JPMorgan Chase CEO Jamie Dimon overfloweth. But does the Case of the Senator’s Short Sale rise to the level of full-blown corruption? We won’t know until we get some answers.

  16. tdotz says:

    And Today’s WTF Headline: Shortage of homes for sale creates fierce competition – LA Times

  17. formerlawyer says:

    It June – the traditional home buying “season” runs from March to mid July. Why? People moving want to keep their kids in the same school for the remainder of the school year if possible. For example, a neighbor of mine got hired by F####### in April in another state, bought a home last week – closing on June 30 and is keeping his kinds in the current school until then.

    Banks are looking at the underwater homes and are making a market based decision to capitalize now with the “rising prices” in various parts of the country. As StarArb said – this is a “good thing”. (sarc)

  18. dss says:

    Is there any connection to the draconian immigration laws put into place this past year in Georgia and these higher foreclosure numbers? Renters cannot pay their rent and the owner can’t rent to people who are no longer in country. Maybe some of the legal immigrants left because they were too scared of the immigration authorities and if their houses had no equity or were under water they had nothing to lose.

  19. [...] Foreclosure Machinery Creaks Back to Life (June 14th, 2012) PERMALINK Category: Real [...]