Jun082013

Reporting on Cloud Inventory goes mainstream again

Current housing news has been mostly the double digit increases in home values with the CoreLogic and Case-Shiller indexes are the prime example.  This home value news is initiating further review into different aspects of the housing market and older subjects are coming into the news cycle  Remember way back at the start of the housing bubble the main focus on the news was the shadow inventory.  Shadow Inventory are homes that have mortgage values greater than market values. The greater the negative equity on the house the more likely it would cause the homeowners to walk away and default their mortgages.   Shadow inventory is also classified as homes with adjustable rate mortgages, negative amortization loans, or option ARMS that were going to reset or recast to a much higher payment cause the homeowner to default and the much higher payment usually these home underwater too.  Everyone on was bracing for the big meltdown in home prices as these homes would flood the market.

This event didn’t occur because of the intervention from the Big Banks, the US Government, and Federal Reserve.  The Federal Reserve lowered interest rates to 0.00% and and started to print money to further push mortgage rates to all time lows.  The US Government through Fannie and Freddie started loan modification programs to defaults on the affordability loan products or the home owners that were defaulting.  This also had the affect of pushing the default risk to the tax payer. Finally, the banks slowed the foreclosure and short sale process to prevent a flood of home from hitting the market to push prices lower.  The manipulation wasn’t limited to these three actions, there were numerous other programs, tax incentives, and loan modification assistance programs that have also contributed the recent increases in home values.   Very few people ever predicted that there would be this unprecedented manipulation to halt home values from falling.  In fact, it’s worked so well it actually pushed home values, that’s why the double digit price increases are a shock.  The shadow inventory has become forgotten, as planned, and it’s now cloud inventory.

This is the usual recent news articles on shadow inventory and it’s mostly just raw numbers.  These types of stories are almost pronouncing shadow as concept that is no longer relevant.

Report: Foreclosure Inventory Falls 24% from Year Ago

Foreclosure inventory continued to shrink in April, with the number of homes in some stage of the foreclosure process down 24 percent year-over-year, according to data from CoreLogic.

About 1.1 million homes sat in foreclosure inventory in April compared to 1.5 million properties a year ago, CoreLogic reported. Foreclosure inventory also dipped month-over-month, falling 2 percent from March to April.

At the same time, the overall share of mortgaged homes in foreclosure inventory declined to 2.8 percent in April from 3.5 percent in March.

The data provider also reported the number of homes lost to foreclosure decreased 16 percent year-over-year in April to 52,000. Compared to March, the number of homes lost to foreclosure remained unchanged.

However, there is a new look into this shadow inventory.  It goes deeper into the reason why the number of foreclosures are decreasing. The answer is more like inventory management then an improving economic situation.

3 big banks nearly halt foreclosure sales after U.S. tweaks orders

May 19, 2013, 12:04 p.m

Sales of homes in foreclosure by Wells Fargo & Co., JPMorgan Chase & Co. and Citigroup Inc. ground nearly to a halt after regulators revised their orders on treatment of troubled borrowers during the 60 days before they lose their homes.

The banks said they paused the sales on May 6 to make sure that their late-stage foreclosure procedures were in accordance with the guidelines. The banks wouldn’t say exactly which issues had been under scrutiny.

Bank of America Corp., by contrast, continued foreclosure sales at a normal pace, apparently confident its procedures met the revised restrictions.

“We manage our mortgage servicing operations in compliance with all laws, regulations and standards for sound business practices,” BofA said Friday in a statement.

The halted foreclosures are the latest complication stemming from a settlement between 13 large mortgage servicers and their federal overseers. Banks and regulators also have struggled to distribute billions of dollars in aid to borrowers equitably as required under the settlement.

Chase resumed a normal volume of foreclosure sales last week, saying its practices complied with the latest bulletin from the Treasury Department agency that regulates national banks, the Office of the Comptroller of the Currency, or OCC.

“In response to the OCC guidance and in an abundance of caution, we temporarily halted foreclosure sales where we could to validate that our process covered the guidance,” Chase said in a statement. “We have since resumed sales.”

Wells and Citi were still on hold as of Friday, according to PropertyRadar.com, which tracks foreclosure filings in California, Nevada, Arizona, Oregon and Washington.

“We are in the process of complying and following the directive set forth in the OCC guidance,” Citigroup said.

Wells, saying the latest OCC bulletin had “slight changes from the previous,” declared that it “wanted to be absolutely sure that our interpretation of the language was the same as our regulators.”

“We simply needed to take the time to assure that we can validate and document our compliance,” the San Francisco bank said in a statement.

The bulletin, which changed the timing of certain measures aimed at preventing wrongful foreclosures, listed 13 issues for the banks to address — “minimum guidelines” beginning with: “Is the loan’s default status accurate?”

The issues touched on a laundry list of the legal and procedural problem areas in which errors and short-cutting, including the “robo-signing” of court affidavits, were common during the wave of foreclosures that struck in 2009 and 2010.

American Banker, which first reported on the pause in foreclosure sales, called the hiatus “an echo of the 2010 foreclosure halt that kicked off several years of wrenching procedural scrutiny of the mortgage servicing industry.”

At Wells, the biggest mortgage servicer, foreclosure sales in the five Western states fell to 17 for the week beginning Monday, May 6, from 298 the previous week, the PropertyRadar data showed.

A bank official predicted Wells would soon resume selling the houses of defaulted borrowers. “It won’t be long,” Wells mortgage spokewoman Vickee J. Adams said, although she declined to say exactly when.

In addition to the banks trying to slow the foreclosure process, good doer state and local agencies are also trying and have been successful in passing new foreclosures law  I don’t think they understand the long term impact of their foreclosures laws in a future with normal housing supply.   If it’s more difficult foreclose in the future, then lenders will charge more to do business in those states.

Massachusetts foreclosures decline 79% as local laws stall the process

Massachusetts foreclosure petitions fell a dramatic 79% annually in April as more banks found alternative solutions to default or simply slowed down the process to comply with new state rules.

The Warren Group, a Massachusetts-based research and publishing firm, made this conclusion after tracking real estate trends in the New England state.

The most recent data shows only 370 foreclosure petitions filed in Massachusetts during the month of April, down from 1,750 petitions a year earlier.

While some of the drop is inevitably tied to improving real estate trends with median home prices in the state up 11% in 2013, The Warren Group also attributes the excessive decline to foreclosure legislation passed in 2012.

The new rules require banks to inform borrowers of their legal right to a loan modification before a foreclosure can be processed.

I think the cloud inventory has been so successfully managed that you won’t see flood hit the market, even if mortgage rates do continue their recent increases. First, the application into the loan modification program is almost automatic.  It also takes the 90 a day delinquency before you are enrolled, so it stretches out these times lines.  Second, the recognition of the 90 days by the bank will probably occur more like 180 days.  Then when house enters the foreclosure stage it will either have to go through judicial review, which is backlog over a year in some places.  Or, state and local foreclosure laws become affective for trust deed states which will also greatly delay the process.  Again, banks like this delay because it’s a dam holding back the flood and they don’t have recognize the loss on the mortgage until the house is sold at the auction sale.

The only interesting shadow inventory is the recent investment purchases, those are only a small fraction of the market.  The truly big investors in the housing market are the banks themselves.  They have most to win by keeping home values high and transferring mortgage losses to the taxpayer.

 Mike