December California Defaults up 100%

Mr Mortgage is a 20-year mortgage banking veteran, specializing in wholesale and correspondent sales and sales/operations management and bringing financial institutions into new lending markets. His primary focus was upon Agency, Jumbo, Alt-A and FHA insured residential mortgages.

Since 2006, his primary focus has been upon his work as an independent finance and real estate sector analyst, consultant and ‘risk enlightener’ to investment funds, banks, mortgage bankers, financial institutions, the public sector and the media.

His 20-years industry experience, extensive research and access to proprietary data few have available has led him to make an extraordinarily large number of early and accurate predictions about the ‘Great housing, mortgage and credit meltdown’ and company-specific events.

He owns and is the primary contributor to one of the leading online mortgage/housing internet properties called Mr Mortgage’s Guide to the Truth located at


Mr. Mortgage: Dec CA Foreclosure Report – Defaults up 100%

December CA Mortgage Defaults Up 100% month-over-month, nearly reach record high

It’s that time again…the monthly foreclosure reports will soon come pouring out and confuse everyone. Later this week, the popular reports from RealtyTrac will come out and show that activity increased, but few will be able to tell you why. Well, here’s the explanation.

By the way, try not to pay attention to anything that is written by anyone other than Diana Olick at CNBC. She does a great job and is one of the few in the mainstream media that live on the same planet as the rest of us.

The mortgage Notice-of-Default (first stage of foreclosure) problem is worsening without doubt. Even with Countrywide and a few others in nearly full moratorium, most banks doing whatever they can to modify pre-existing mortgages and Dec being shortened by the holidays, defaults were still near record highs.

CA’s default jump was so strong that it will lift the national report significantly when it comes out next week.

Monthly Loan Default and Foreclosure Report

The chart below shows monthly aggregate default (NOD) activity from January 2007. This is the first stage of foreclosure. The drop in Sept and Oct was due to CA law SB1137 enacted on Sept 5. It essentially kicked the can down the road 60-days, like all foreclosure moratoria do.

In Dec, NOD’s reached near 42k (up 100%), despite the factors mentioned in the previous paragraph. This does not play well for January, especially if Countrywide and others come out of moratorium.

The chart above shows that Countrywide remains on an NOD moratorium. Add their summer month totals of 6k per month and total CA NOD’s would have been at a record high in the Holiday shortened month of December.

The NOD chart below is the same as above, but by dollar amount. In CA alone, there were $15 BILLION in NOD’s, an increase of more that 90% over the preceding month. This translates into roughly $35 billion nationally. No second mortgages are included here. Adding Countrywide’s missing $1.5 billion, the default dollar amount would have been at an all-time high.

The chart below shows the actual Trustee Sales that turned into bank REOs. This is the final stage of foreclosure, when the home is seized. Over the past year, at least 95% of all foreclosures have been bought back by the foreclosing entity due to lack of third party interest at the opening bid price.

The drop in Sept was due to SB1137 and wide-spread modification efforts. The number would have spiked in Dec like NOD’s did if FNM and FRE had not gone on Trustee Sale moratorium. Adding back CFC, FNM and FRE, foreclosure counts would have been near record highs like NOD’s.

Additionally, January is typically a big month for Trustee Sales, as banks go to sell the properties they held over from Dec. Many think banks hold properties from foreclosure in Dec in order to help boost quarterly and year-end earnings. Others think it is a holiday gesture to the home owners. I think the former. It is not uncommon to see a double digit increase in this data point in Jan.

The chart below shows the number of properties sold to third parties at Trustee Sale on a monthly basis. In Dec, only 830 foreclosures in the entire state were sold at Trustee Sale, with the rest reverting back to the banks as the REOs shown above. With sales waning, banks’ shelves will start getting packed with REO properties, likely forcing them to price aggressively. This will put further pressure on CA real estate prices.

Best, Mr. Mortgage

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