No escape: Foreclosure more likely than ever for defaulting homeowners

The efforts of the Hope Now coalition (pictured) are not translating into results in California: New statistics show that homeowners who default on their mortgages are more likely than ever to lose their homes to foreclosure.

Every three months, DataQuick measures the "escape rate" -- the percentage of the homeowners in default who manage to emerge from the foreclosure process by bringing their payments current, refinancing, or selling the home and paying off what they owe. As defaults mount, the "escape rate" (my phrase, not DQ's) has been sinking like a stone for two years:

Quarter  # of defaults in Cal.      "escape rate"
2Q 06    20,909                             88%
3Q 06    27,218                             80.9%
4Q 06    37,994                             71%
1Q 07    46,760                             52%
2Q 07    53,943                             54.6%
3Q 07    72,571                             45.9%
4Q 07    81,550                             41%
1Q 08   113,809                            32%
2Q 08   121,341                            22%

Source: DataQuick Information Systems

Analysis: In fairness to the efforts of lenders to work out problem loans, workouts become more difficult when prices are falling rapidly, so some decline in the "escape rate" is to be expected as prices weaken. But this is a dramatic decline.

Hat tip: Cal, in the comment section.
Your thoughts? Comments? E-mail story tips to peter.viles@latimes.com

Photo: Treasury Secretary Henry M. Paulson Jr. announces a mortgage initiative backed by Bush administration officials and the Hope Now industry alliance.

Credit: Associated Press

      

Comments

[Laker]

In short, allow me to add another couple of lines:
3Q 08 135,000 17%
4Q 08 150,000 14%
1Q 09 170,000 11%
2Q 09 200,000 5%

[Ace]

Good numbers. Thanks Cal.

The MLS put in a feature a while back that actually red flags the listings that have a notice of default. It is weird to track the listings. It goes like this:

Seller lists the house for what they owe on the loan for about a month. Doesn't sell.

Seller lowers the price 10 percent and says 'short sale must be approved by the bank'. Doesn't sell.

Seller lowers the price another 10 percent. Doesn't sell.

After a few months, the listing disappears... I assume the bank foreclosed. However, I can't remember any of the listings actually coming back on the market as a bank owned property.

[Dougmc]

No surprise here. As the market declines, the escape routes of selling and re-financing are cut off and motivation to re-structure a loan disappears (why make payments on an underwater property?)

[Gman]

This was expected as people walk away from properties. First there is no sense of responsibility left in people anymore. If you signed a contract you agree to abide by it. Do you think a homeowner would like if the lenders were to come after people who are paying 4% interest on loans saying that they were too good and they don,t like the contract and will take away the house unless they re-negotiate at 5,6,7%. We as a society have gotten used to free things and we feel entitled to everything going our way (to our profit). to hell with anything else. One thing is for sure, we will not learn from this mistake and create another bubble elsewhere be it food prices, energy, healthcare, stocks again, gold etc etc.. We are just living from one bubble to the other....on borrowed money.

[Cal]

The timeline for from filing to trustee sale is about 6 months. Going back 2 quarters to 2007 Q4, 81,550 NOD multiply by .78 = 63k trustee sales this last quarter (which matches the DQ stats).

So you can reasonably estimate the upcoming trustee sales over the next couple of quarters. Even just assuming a conservative 20% this next quarters trustee sale should be about 90,000 and Q4 should be 96k if things don't get worse..

This is why I think the lenders have to continue to drive sales volume through the fall/winter which will really hammer price. I don't think they can wait around for traditional seasonal buying patterns.

[l.a.guy]

I'll bet a lot of those 80% who 'escaped' in 2006 did so by being refied into Sub-Prime loans. I wonder how many of them were back in default by 2008?

[Nick]

About 40% of the "work outs" in 2007 have already gone into default again, and more will as time goes on. As banks have noticed, doing work outs only pushes back the foreclosure date, and thus costs the banks more money (since by the time they eventually foreclose, the properties will have decreased in market value even more). I'd guess by now, almost everyone knows work outs are just a way for lenders to lose more money, and the banks who want to survive will try to avoid them.

[MyLessThanPrimeBeef]

Let's face it. The center of our galaxy is one gigantic black hole.

At the center of this subprime mess, in all the Wall Street underground vaults where they hide their level III assets, there is also one huge financial black hole and once you get pass the event horizon, nothing escapes.

Nada.

Zero escape rate.

[woodse08]

Does anyone have any knowledge of Land Patents? I was told they can stop a foreclosure. I have found a few sites that claim to get you a Land Patent for between $650.00 to $1400.00 and one site www.thelandpatent.com that will sell you the paper work to do your own for $19.95. Is this for real? Can they stop a foreclosure? Please help

[E]

GOOD!

Option-ARM and I/O homeowners are lower than renters.

And we renters are a dirty bunch.

[Pat]

Landpatent? Total scam.

[Jeffrey Allen Miller NY]

Staggering numbers, just viewed the whole "by zip code" listing too. Is anyone even left in Lancaster / Palmdale / Victorville? And a number of other towns in Inland Empire....

No doubt these people made gross errors by not reading fine print... but so many of them making the same is worrisome and I fear will indeed trickle down to MY taxes now as we foot bill for bail outs. So, why can't I have a say in how the crisis is handled? Hypothetical short blog solution = it is better to have these hundreds of thousands of homes occupied. Set some flat rate (say 4.7%) these people would have for life of loan, newbies on the market get the rate too until Dec. 09. Defaultee's original loan amount holds, but monthly goes back to manageable level for them. Who actually loses in such a plan? Banks? who cares - they'll make profits again. Gotta keep things flowing here that is where our gov't fails 100%.

[Valley Observer]

"No doubt these people made gross errors by not reading fine print... but so many of them making the same is worrisome and I fear will indeed trickle down to MY taxes now as we foot bill for bail outs. So, why can't I have a say in how the crisis is handled?"

Well, we did have a say in how we got into this hole, by voting for the Republican free-market fanatics, even giving them both houses of congress and the presidency at the same time. Exhibit 1: the unregulated free market at work. And a lot of people made stupid decisions, too.

[rmark]

'Well, we did have a say in how we got into this hole, by voting for the Republican free-market fanatics, even giving them both houses of congress and the presidency at the same time. Exhibit 1: the unregulated free market at work. And a lot of people made stupid decisions, too.'

Ummm, aren't Fannie and Freddie government sponsored?

[sfvrealestate]

Again, my for-what-it-is-worth experience: lenders seem to be assuming that today's workout will be tomorrow's short sale or foreclosure. So they are NOT prioritizing work outs with their very lean staffs.

[Busby SEO Challenge]

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[steven Gregorowich]

What A bummer I retired then foreclosure fource
even took them to court {no good}