In the midst of today’s report about another consecutive record for foreclosures with California ranked third in the nation behind Nevada and Florida, some encouraging news was released showing that an indicator of future foreclosures actually dropped in April. Home mortgage defaults in California, which had risen in each of the first three months of the year, dropped in April, according to a report just released by ForeclosureRadar, an online seller of California default data. The decrease in defaults led to a drop of 18% in the filings of Notices of Default (NOD’s) from March to April.
An NOD is filed when a borrower falls behind in payments by several months. The actual number of payments a borrower can miss before receiving an NOD varies from lender to lender. If a loan modification is not initiated, or if some kind of agreement cannot reached between the borrower and lender over the default, a foreclosure process is initiated. If the home is foreclosed it is then put up for auction, typically for the amount of the outstanding mortgage.
The April record for foreclosure filings was preceded by a record month for NOD’s in March as state and self-imposed moratoriums on foreclosures expired. Many of the self imposed moratoriums were allowed to expire once the details from the Obama administration’s “Making Home Affordable” plan regarding refinancing and loan modifications were announced. With the plan’s guidelines in place to determine the highest foreclosure risks, the lenders could determine which homeowners could or could not make a modified payment. It’s likely that many of the first foreclosures focused on the situations where foreclosures were most likely, even under the most generous scenarios of a loan modification under the new plan.
The number of people buying homes at the foreclosure auctions also jumped. In most cases, bids are rare on the properties at the auctions and banks take them over afterward. With an opening bid that’s usually set at the amount of the outstanding mortgage the demand at auction is usually muted.
When no bidders emerge, the lender takes the property at auction and puts it for sale on the open market, often for less than the mortgage amount.
Last month, however, saw a jump in third-party bidders buying foreclosed homes at auctions, setting a record as 1,634 were purchased. It was a 52% increase over March. The total number of homes going to auction was up 35% over March, to 13,550. Analysts noted that one month’s statistics do not make a trend but were guardedly optimistic.
Housing market watchers have lately noted a growing backlog of foreclosures – defaults had been rising, but, at least for the month of April, the number of homes actually foreclosed dropped. It’s unclear whether lenders simply could not process the volume of foreclosures, or were deliberately delaying foreclosures to either allow loan modifications to be put in place or were trying to keep from further flooding the market with foreclosed homes for sale. The record number of filings in April could be the start of movement on that backlog. The issue going forward is how much more backlog appears and whether it can be liquidated in an orderly fashion.
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