California Foreclosure Notices Fall 90% - Problem Solved? No Way

Alert! Big Spin coming to the foreclosure universe soon.

The chart below represents the dramatic fall in the number of Notice of Default (NOD) and Notice of Trustee Sale (NTS) in the state of CA due to the new law, SB 1137.  CA went fro3k to 4k notices per day to a few hundred…temporarily. Let me explain.

NOD is the first stage of foreclosure after a borrower misses three to four mortgage payments, depending on the state and lender. NTS is the second stage of foreclosure that gives the borrower notice their home will be sold at Trustee sale shortly thereafter.  A NTS comes about 120-150 days following the NOD or about 8-10 months after the borrower misses their first payment. From NTS the home is sold at Trustee Sale 14-days to two months following.

As you can see from the chart below, the week following Sept 6th when the new law was enacted NOD and NTS activity falls off of a cliff, down 90% from the week prior. (data in partnership with Foreclosure Radar)

Notice how the day before the law went into effect, how the banks sent out two times the number of notices…how sneaky. We see data anomalies like this all of the time, especially around end-of-quarter…BANKS!!!

This new law requires the foreclosing entity to perform significant due-diligence ahead of sending out foreclosure notices in the future. What this does, however, is simply postpone the problem a month or so.

This will have a positive effect on the September monthly foreclosure numbers when they are reported the second week of October by Realty Trac and other data providers.  Remember, CA makes up roughly 40% of all US foreclosure activity. However, it will make for a dramatic rise in the November numbers once they get caught up and in compliance.

Banks and servicers are doing all they can to quickly comply with the law and resume sending NOD’s and NTS’.  These notices are required by law before their take back their collateral so rest assured, they did not want to stop sending these out and being on record. When they begin to stream out again we will know in real time.

SB 1137 INFORMATION

Notice: Expect Pre-Foreclosure Volumes in California to Drop Significantly Over The Next Several Weeks

Background: On July 8, 2008, California Governor Schwarzenegger signed Senate Bill 1137 into law. Commonly known as the Mortgage Relief or Foreclosure Reform Bill, it addresses a variety of issues in an attempt to mend the current foreclosure “crisis”. The most significant part of the bill is the new requirement placed on the lenders, loan servicers, and/or their agents to prove that they have attempted to communicate directly withdelinquent borrowers about their financial situation, and have considered potential arrangements to avoid foreclosure. The proof of this activity must be filed with the recorded documents – typically an affidavit attached to the Notice of Default (NOD) or Notice of Trustee’s Sale (NTS).

Issue: The bill went into effect with recordings on or after 9/8/2008. The CA foreclosure process is managed by a trustee, and they were already processing volumes well above their capacity. Many of them are now having a difficult time managing the changes and are scrambling around to set up the processes that support the bill. As a result, we have seen the recent volume of new ND and NT filings decline significantly. In the case of Los Angeles County alone, the previous combined ND/NT filing rate was around 600 – 700 per day. On Monday, 9/8/08, there were less than 100 filings

Message: There isn’t a data problem! This should be communicated more as an adjustment period for the industry and it will work itself through as required processes are established. This only affects California, but it certainly could have an influence on snapshot statistics of a national view

The bill itself can be found here. In addition, here is also a viewpoint of the bill from the industry.

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