Banks moving slowly on foreclosures
Despite being exempt from California's foreclosure moratorium, many lenders in June chose not to schedule foreclosure auctions for delinquent borrowers, data from ForeclosureRadar show.
Notice of trustee sale filings -- in which lenders set an auction date for property on which a mortgage is in default -- were down 14.8% in June from the same month the previous year, ForeclosureRadar reported. ForeclosureRadar is a website that sells default data for California.
This drop in foreclosure notices is happening as the number of borrowers defaulting is rising. ForeclosureRadar says June's 45,691 default filings were up 10% over the same month the previous year. So, absent a moratorium of some sort, foreclosure notices should follow default notices proportionately.
That hasn't happened. ForeclosureRadar Chief Executive Sean O'Toole said, "A number of lenders appear to have self-imposed Californiaâ€™s latest foreclosure moratorium on themselves, despite having received an exemption from it.â€ The California moratorium, which mandates lenders postpone foreclosure auction notices by 90 days, exempts banks that have a loan modification program in place -- and most major banks were thus exempt because they have such programs.
Exempt lenders still held off on foreclosure filings. Bank of America, for instance, filed 48% fewer notices of trustee sale in June than in May. O'Toole called such declines "an outcome we are struggling to find an explanation for." Its unclear whether lenders simply are overwhelmed by the volume of foreclosures or if there is an effort to slow foreclosures to ease the flood of repossessed properties hitting the market.
Foreclosure is a three-step process, beginning with a notice of default when a borrower misses multiple payments, then proceeding to a notice of trustee sale, in which an auction date is set. If no deal is worked out between the lender and homeowner, the property is then auctioned, and the home is either bought back by the lender or sold to a third party.
Other key findings:
- A total of 22,291 foreclosures were taken to sale at auction, representing loan value of $9.57 billion dollars, a 24.7% increase from the prior month, though 8.2% lower than the prior year. The opening bids set by lenders were an average 39.3% lower than the loan balance, with 46% of sales discounted by 50% or more.
Sales to third-party bidders at auction in June increased by 18.3% from May to 2,687 foreclosures. As a percentage of sales, the majority of foreclosures still continue to be taken back by the lender; 87.9%, or 19,604 sales, with a total loan value of $8.44 billion, were taken back by the lender in June.
-- Peter Y. Hong