ForeclosureRadar.com reports that outstanding foreclosure auction notices in Orange County rose to 8,895 at the end of September, the highest in this housing downturn and probably the highest ever.
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September’s total was up 5% from August and 90% from a year ago. The chart (click for larger image) shows outstanding auction notices going back to January 2007. Auction notices, also known as notices of trustee’s sale, are a warning that a property will be offered for sale, usually at a local courthouse.
ForeclosureRadar calculates outstanding auction notices by adding up notices issued and subtracting those that have been canceled or have completed foreclosure. Auction notices are usually good for up to a year.
Sean O’Toole, president and founder of ForeclosureRadar, said in past downturns auction notices did not stack up nearly as much.
But this time around lenders face intense political pressure not to foreclose. O’Toole said If foreclosures do rise again, politicians will stop them, possibly granting bankruptcy judges the power to slash outstanding debt on properties to current market value.
Lenders know this and are responding by keeping a lid on foreclosures, he said. (I’ll add that readers of this blog have argued lenders are intentionally delaying foreclosure to avoid flooding markets or recognizing losses on their balance sheets.)
So lenders are using foreclosure filings as a threat to get borrowers to either start paying again or complete their loan workout paperwork in a timely manner, O’Toole said.
O’Toole also expects to see more alternatives to foreclosure, such as short sales, or when a bank agrees to accept less than debt owed.
“With the lack of inventory and REOs, Realtors will work harder to find inventory,” O’Toole said. “I think short sales will be a big part of the 2010 story.”
With all the government tinkering, including keeping interest rates low and giving homebuyers a tax credit O’Toole anticipates a modest market rebound. But he says it will be artificial with another correction right behind.
“I don’t know that blowing a little (housing) bubble right now is in the public’s best interest,” O’Toole.
ForeclosureRadar isn’t the only one noting a backlog of delinquent loans.
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Here again is the chart (click for larger image) I posted over the weekend showing the ratio of first mortgages in Orange County that are 90-days late, have a foreclosure filing or are REO, meaning they have been foreclosed and still held by the bank or related entity (meaning not sold to an investor at auction). Data comes from First American CoreLogic.
This chart shows that the ratio of borrowers having missed at least three monthly payments is at nearly 7% and has risen every month for more than three years.
It’s incredible that while so many mortgages are delinquent, banks are only holding 0.26% of first mortgages as REOs.
By these measures, there’s clearly a big backlog of bad loans to deal with.
Update: I should also mention that the Obama administration’s loan modification program is likely adding to the backlog of delinquent loans. It takes time for banks to see if people qualify. And borrowers start the program in a “trial” period, getting at least a temporary modification to the terms of their loan but still being classified as delinquent. Reuters reports that more than 650,000 modifications are active now but it is unclear how many are permanent. As of Sept. 1, there were only 1,711 permanent loan modifications.
And I’ll add that a reader notes some people are probably missing payments just to see if they can get a loan deal. That is what Sean O’Toole was referring to when he said banks are using foreclosure filings as a way to pressure people to start paying again.
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or owe just a few thousand.
