Foreclosure Wave Theory

In my quarterly column for the June issue of the venerable Scotsman Guide magazine, I had a chance to theorize on how lenders are dealing with large numbers of distressed loans still on their books given the constantly shifting foreclosure processing landscape.

Here’s how I set the stage:

“Standard foreclosure procedures have broken under the weight of more than 8.5 million foreclosure starts and more than 4.2 million completed foreclosures since January 2007.

“In many cases, lenders now are waiting a year or more before starting the foreclosure process on a delinquent loan, rather than the historical standard of filing an initial foreclosure notice after 90 days of missed payments. As noted in this past March’s column, rather than completing a foreclosure in about 150 days on average nationwide, it now takes lenders an average of 370 days nationwide to finish a foreclosure — and much longer in some states.

“So, if the foreclosure industry has defenestrated the standard operating procedures and timelines for foreclosure, how are they dealing with the still-massive amounts of distressed loans in their portfolios? Is there any method to their madness?

“One possible answer to these questions may be found by looking at foreclosure data over the past year. In several states — most notably in California — an ebb-and-flow pattern in foreclosure activity is appearing that indicates lenders are pushing through bad loans in batches that are hitting each stage of the foreclosure process like waves rolling into shore.

Foreclosure Processing Method or Madness?
Here’s a look at the graph I refer to in the column that shows waves of foreclosures starting the foreclosure process in California (NOD) followed by waves of scheduled foreclosure auction (NTS). Based on the latest data at the time I wrote the column (March), it appeared that NODs were headed higher again in California.

The only problem is that the trend of increasing California NODs did not continue in our April foreclosure activity report. In fact, California NODs dropped 14 percent from March to April, and the March numbers were down 16 percent from March 2012. Our May foreclosure report, which will be released on Thursday, will show whether this downward trend in NODs will continue in California and elsewhere.

I’ll give you a clue: it doesn’t.

Which all goes to show that there may be little method to the madness of processing foreclosures, particularly in a politically charged election year.

I’d like to hear your theories on how and why lenders are dealing with their distressed loans. Use the comment section below to provide your theories.

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