Banks Foreclose in Mysterious Ways

The banal 3 percent monthly decrease in U.S. foreclosure activity in November masks wildly volatile swings below the surface of the national data.

This is apparent by simply looking at the state foreclosure numbers  — with 25 states and the District of Columbia posting monthly increases in foreclosure activity, and 23 states and DC posting annual increases in foreclosure activity — but becomes even more obvious when the data is further broken down by the bank filing the foreclosure notices.

Certainly the overall trend shows that lenders and servicers are slowing down foreclosure filings used in non-judicial states (Notices of Default and Notices of Trustee’s Sale) while ramping up judicial foreclosure filings (Lis Pendens, or Pending Lawsuits, and Notices of Sheriff’s Sale) as demonstrated in the charts below.

But that trend is not consistent across all banks or all states.

Non-Judicial Foreclosure Trends
Among the five major lenders involved in the national mortgage settlement — Bank of America, Wells Fargo, JPMorgan Chase, Citi and Ally/GMAC — non-judicial foreclosure filings in November dropped 26 percent from the previous month and were down 41 percent from a year ago. This was driven largely by a sharp decrease in Bank of America NOD filings in California — down 59 percent from October and down 89 percent from November 2011.

Most of the other five major lenders reported big drops in foreclosure filings in California and other non-judicial foreclosure states, but those decreases were not uniform across the board. Even in California, Wells Fargo NODs increased 13 percent from the previous month, although they were still down 34 percent from a year ago. In Nevada, where a law that took effect in October 2011 made filing an NOD much more difficult for lenders, Wells Fargo NODs increased more than 7,000 percent from a year ago — albeit from an extremely low level of just five NODs in November 2011.

The non-judicial mold was most clearly broken in the state of Washington, another state with a 2011 law that intervened with the foreclosure process and resulted in a 16-month slowdown in foreclosure activity that was interrupted in August. From August through November (the most recent monthly data available), Washington has posted four consecutive months of annual increases in foreclosure activity.

All five of the major lenders involved in the national mortgage settlement posted annual increases in NTS filings in Washington in November, led by Chase and Ally/GMAC, both with year-over-year increases of more than 900 percent. Bank of America NTS filings in Washington increased more than 700 percent from a year ago, while Citi NTS filings were up 192 percent and Wells Fargo NTS filings were up a mere 19 percent.

Judicial Foreclosure Trends
States like Florida and New Jersey led the upward trend in judicial foreclosure filings in November. Florida LIS filings increased on a year-over-year basis for all five major lenders, led by Chase (164 percent increase) and Wells Fargo (107 percent increase).

Bank of America LIS filings increased more than 32,000 (yes that is 32 thousand) percent from a year ago in New Jersey, while Wells Fargo and Chase LIS filings were both up more than 10,000 percent during the same time period. Again, this in the context of extremely low LIS filings a year ago thanks to a court-initiated foreclosure moratorium against the nation’s biggest lenders.

But the picture is not so clear in Ohio, where Chase and Wells Fargo LIS filings were up from a year ago, but where Ally, Citi and Bank of America LIS filings were down more than 40 percent during the same time period. Similarly, in Illinois, Bank of America LIS filings dropped 60 percent from the previous month and were down 51 percent from a year ago — with a similar pattern seen for Citi and Ally LIS filings — while Wells Fargo LIS filings increased 6 percent from a year ago, and Chase LIS filings increased 48 percent from a year ago.

Confused yet?

Two Conclusions
All these conflicting numbers are not just good for numbing the mind. There are actually a couple important conclusions that can be made from looking at the data this way. First, there is likely no conspiracy among the big banks to hold back foreclosures. If there is a conspiracy it is certainly not being consistently executed.

Second, although there is no well-planned conspiracy, the foreclosure market continues to function opaquely instead of transparently, driven into near insanity by a drumbeat of well-intended government foreclosure prevention efforts. Many of those prevention efforts are at the state level — resulting in an increasingly divergent set of 50 state foreclosure rules that the mortgage servicing industry is scrambling to keep straight.

So although it’s quite clear that the housing market is past the worst of the foreclosure problem, the muddy waters created by state legislation and court rulings in recent years could be obscuring some latent distress lurking in the depths.

There is at least one such piece of state legislation yet to take effect, and it’s a doozie. The so-called Homeowner’s Bill of Rights in California takes effect Jan. 1, and could be contributing to the recent drop-off in California NODs. But if the pattern we see in Washington, and to a lesser extent Nevada, is any indication, that recent drop-off could be a prelude to a subsequent spike down the road.

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