OK, we’ve made it through the first half of 2013. We now have six months’ of foreclosure statistics. I posted the first quarter stats for the year here. Now, armed with the second quarter, I’m prepared to prognosticate – for what it’s worth. [Actually, Q3 and Q4 will be the most interesting, as we move forward into a post-Niday foreclosure world, and SB 558, the mandatory resolution law, goes into effect. I predicted here, that the Niday and Brandrup decisions would have little impact on the Big Bank judicial foreclosures; the stats going into the end of 2013 will give us a peek of things to come.] Here is the link to the 2Q stats. What follows is a “back of the napkin” analysis – i.e. scribbled notes and scrambled thoughts. I could be all wrong. Time will tell.
Clearly, foreclosures are up significantly in Q2 over Q1, especially in the major metro areas. One has to ask: Why? We’re supposedly rounding the corner on the housing crisis, folks have moved on, or been foreclosed. Why is it that foreclosures are increasing, if negative equity is decreasing, employment numbers are inching up, and the stock market is hitting all-time highs? What’s up? Didn’t the Big Banks get Foreclosure Fever out of their system during the last five years, circa 2007 – 2012?
I suspect the answer is something a few of us have suspected; the banks have been holding back. There was no reason to foreclose every nonperforming loan while homes continued to lose value and couldn’t be quickly re-sold, post foreclosure. The Big Banks’ accounting systems [USPAP Light] permitted them to avoid mark-to-market accounting; they still carried their mortgage backed securities [which held billions of poorly underwritten loans] at original book value. [Do you believe that if you had gone to B of A in 2010 to refinance or your home, it would have permitted you to carry its value at what you paid during the peak of the market in 2007?]
Holding back did not necessarily harm the Big Banks’ balance sheet picture. Moreover, it allowed them to put off the day of reckoning when losses would have to be recognized, e.g. through foreclosure, deed-in-lieu, or short sale. Now that prices are trending up, and short sales and REO sales have gone gangbusters, the banks are going after many of the borrowers and homes they had previously ignored.
So for the first half of 2013, we are seeing exactly what some of us expected – the banks are going back to many of the loans that had been non-performing for years, and teeing them up for foreclosure in order to take advantage of the improving real estate market.
As an interesting aside, the second quarter stats confirm my second hypothesis – that the effect of the Niday and Brandrup decisions did not vindicate MERS. If it had, the Big Banks would have immediately gone back to non-judicial foreclosures, which are cheaper and faster than the slow-motion kabuke dance, also known as the judicial foreclosure process. They have not. MERS was a flawed idea from the start, and no amount CPR will bring it back to life in Oregon.