Foreclosure Backlog Hits 30 Months As Option-ARM Cliff Arrives; Average Delinquency Period 537 Days

Tyler Durden's picture

Following today's Case Shiller confirmation that housing is due for many more month of pain, a press release from LPS confirms that the pain will be very prolonged, and home prices will declining for a long period of time. To wit: "The February Mortgage Monitor report released by Lender Processing Services, Inc. (NYSE: LPS) shows that while delinquencies continue to decline, an enormous backlog of foreclosures still exists with overhang at every level. As of the end of February, foreclosure inventory levels stand at more than 30 times monthly foreclosure sales volume, indicating this backlog will continue for quite some time. Ultimately, these foreclosures will most likely reenter the market as REO properties, putting even more downward pressure on U.S. home values." That is assuming Banks manage to bribe enough people to allow them to get back to foreclosing on tenants with improper loan docs (something we have no doubt will happen). And possibly far more troubling is that the Option-ARM trap is finally slamming shut: "February’s data also showed a 23 percent increase in Option ARM
foreclosures over the last six months, far more than any other product
In terms of absolute numbers, Option ARM foreclosures stand at
18.8 percent, a higher level than Subprime foreclosures ever reached. 
In addition, deterioration continues in the Non-Agency Prime segment.
Both Jumbo and Conforming Non-Agency Prime loans showed increases in
foreclosures and were the only product areas with increases in

There is some marginal good news... for banks:

The data also showed that banks’ modification efforts have begun to pay off, as 22 percent of loans that were 90+ days delinquent 12 months ago are now current. Timelines continue to extend, with the average U.S. loan in foreclosure now having been delinquent for a record 537 days, and a full 30 percent of loans in foreclosure have not made a payment in over two years.

Based on all this, it is surely time for Cramer to have another prophetic call like this one from 2008 that housing has finally bottomed.

h/t Credit Trader

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alien-IQ's picture

this is definitely the news that will send the DOW over 13k and the S&P over 1400.

camaro68ss's picture

this news equels Bulls for the market baby! ride That bitch until the end! Up Up and away Bitchez

whatsinaname's picture

what about all those articles on yahoo finance - "rents spike higher as housing stabilizes" ??

TwoShortPlanks's picture

Cramer went to Yahoo Finance dude!

Oh regional Indian's picture

Now that is a cliff and this is a runaway train.

Ouch straight ahead. All as per plan. Anyone still doubting ole Terrence McKenna's thesis needs to get into it. It's really telling the story here.


Michael's picture

What a BORE: Bank Owned Real Estate.

Manthong's picture

I have a back yard solution to the situation. I ran 400 Amp service to power the induction furnaces in my native American smelt lodge. Over molten pots of Ag and Au I absorb the heat and vapors as I cast the metal into more fractional and fungible form and am purified in body and spirit. I also sip from the jug of the spirits, eat the Oolichan (smelt) from the local lake and become one with the spirit of the smelt as I smelt. As the long count winds down (along with my positions), I embrace the specie die out for as the Mayans knew, all things are cyclic.  

bbq on whitehouse lawn's picture

A rain drop is cyclic, a tree's life is cyclic, but a man's life is a trail. Not everything is a cycle; as some men seek to leave more then their footprints, and others less. The opening of an Act, is no more the end of a play, then it is a beginning of one.

Spirit is community by another name.

Ps. Women are a whole other story. :)

Manthong's picture

Our lives might just be a skidmarks on the scivvies of the cosmos, I'm OK with that.. I was specifically referring to specie as in fiat. :D

Mr Lennon Hendrix's picture

ARM cliff, bitchez!

Really though, if ARMs have to renegotiate on higher rates you can kiss your Keynesian system good bye!  QE 4 EVA!

Threeggg's picture

It's not the rates, it's the value of that property at the time of the 3 or 5 year roll. Commercial realestate has to reflect occupancy during valuation/appraisal ........That will be your trouble.

People and businesses will pay the higher interest rates, but trying to find someone to "even write" an uncollaterized loan (ain't gonna happen) is another story.

Example: Mr. Joemall bought the shopping center for $50 million in 2008 with a 95% occupancy, Now he has an occupancy of 60% and the mall is only worth $35 million

So the question is who is gonna roll that debt ?

Answer: Nobody ! Not even mentioning the derivatives written under the original loan when Joemall default's because "not one" financial Institution will "Roll" with him. 

Prepare, it's going to get lonely Biatchez !!!!!!!!!!!!

NotApplicable's picture

Every commercial property around me is ending up in the hands of one of the local developer oligarchs, only to remain empty.

TruthInSunshine's picture

A lot of that stuff is going to the FDIC, also, and most of the time, they don't advertise the fact (they will if they think they can do a quick turnaround sale, and raise some cash, through the Dallas FDIC desk).

It's sort of surreal, because most people would never even come close to guessing how many of the 'normal' commercial properties they see are either now owned or in proceedings to be owned by the FDIC (or the Fed; Red Roof Inn is but one example).

Dr. Porkchop's picture

Uncle Benny in the alley has what you need.. just stick it in your ARM and everything will be dig?

Piranhanoia's picture

LPS. Now spokeshole for industry?  They create documents from whole cloth and pretend they are real.  And Case Shiller shills for LPS statements?   

If either has made a truthful statement in the last decade, I would be most suprised.

RobotTrader's picture

CRB Index at "Do or Die"

Oil stocks doing great, gold stocks are still sucking wind.  Still too early to tell which way this will break.

dasein211's picture

EU insolvency.
US insolvency.
Japan insolvency.
Massive liquidity injections.
Near nuclear apocalypse.
Housing still coming like a tsunami.
Worldwide uprising.
Banking insolvency.

What the fuck is it gonna take. Nothing less than an asteroid I suppose.It is the utmost surreal to watch this all and see it not collapse. Maybe the PTB are too powerful...
I wanna make money but it seems the best I can hope for the foreseeable future is to barely preserve it.

ivana's picture

Think we are all in same boat. Problem is that powerz and their utilities have control on almost all markets. Worse than that - they do not see any "obstructions" on the way ... since most of players obey.
Preserving values will not be easy since their target is inflation.

The only hope for asteroid-kind-of-change (for quick wins) will be some unprecedented hostile move from chinese, russians, taxpayers and ??? others which are on the other side of system

Cdad's picture

Oops...and here come the the bear capitulation posts [from short timers] tagging onto Robo's constant 12 month bullish chart nonsense...confirming the coming "surprise sell off" that NO ONE can see coming.

For those of you who have very little imagination [eh hem Wall Street bankers], get your Iphone cameras ready.  Point them at yourself and press the button to mark the surprise that you are about to feel....


Long-John-Silver's picture

Buys asteroid futures


/JK sarc

A Man without Qualities's picture

My theory is that the system is so screwed, there is simply no way to "allow" values to fall to the "correct" levels.  The governments, in collusion with the banks, have engaged in a gross fraud upon the people, repeatedly offering all sorts of wondrous things to placate the sheep, using all sorts of accounting tricks to make things look semi-solvent and relying on the banks to find a market for their paper.  The financial system has grown rich "managing" our money, which in reality means skimming off the top for years, relying on their ability to prop up asset prices at phony values to disguise the amount of theft that's been going on. Of course, all of this really took off with the emergence of the derivatives market, which allowed you to skim for years into the future, but pocket everything today.  

If things were to reach their true clearing price, everything would stop and the people would come looking for those they feel responsible for perpetrating the fraud.  Therefore, it needs to be propped up, for dear life, for as long as possible - this is what you are up against.  

In fact, it seems to me the way the system will cover up all their crimes is literally killing the currency by which everything is measured.  

Temporalist's picture

The short explanation of all that you just wrote is "QE."

Max Hunter's picture

I'll buy that.. If the RE market were to reflect the inventory and labor market, everything would fall like a house of cards.. You're right, they can't let it happen.

buzzsaw99's picture

Over a year of free rent. Nice.

SilverRhino's picture

Sitting here wondering why I'm still playing the game with a 4.9% fixed 30 year.   Maybe I should just stop paying and see what I can get from CitiMortgage.

NotApplicable's picture

Well, if you aren't desiring to move then what benefit can it provide? It isn't like you are going to be able to live there forever without someone eventually foreclosing on you.

I would think that living under the constant threat of eviction would cause quite a bit of stress. Every single time someone came to your door, fear of the inevitable consequences would emerge. I couldn't imagine doing it for more than two years.

If you're looking to bail though, then perhaps it could be workable.

Fearless Rick's picture

Gotta tell ya, living in a house that you neither own nor pay on is a bit of a nuisance. On the other hand, my situation is a bit different. I inherited this property, and my two siblings didn't want anything to do with it, so I moved in, rented out my F&C home and am doing just fine.

The issue is the taxes, which I have allowed to run, simply as a hedge against the banksters. They know the house is worth 30% less than their mortgage, is in need of repairs and has unpaid taxes.

My situation is well, come 2012 - 9 months from now - the country could foreclose for unpaid taxes, but I could pay them. Or, I could take that money and just move on, find a similar property for less, nearby if I like, or far away.

Meantime, I'm inching up on two years of no payments and just passed the 1 year anniversary of the foreclosure action. Have heard bupkiss from the bank. They're still at square one.

I don't disturb their sleep, that plan having worked to perfection thus far (why poke a sleeping bear?). At some point, they may come along with their phony documents and try to push ahead, and I may sue for fraud or take the case to the federal level via recision.

It's fun and I don't worry about the knock on the door or the mail. Eventually, I suppose something will change, but, maybe not. Quiet title or 10 years to adverse possession. Both look pretty good right now.

Nearly debt free in the meantime. What's not to like?

trav7777's picture

you may be the wrong color to receive any modifications...

mkkby's picture

I realize you do this just to push people's buttons and entertain yourself.  But seriously, loan mods are a curse.  It's just to keep you locked into paying interest to the banking cartel.  And in non-recourse states a mod generally takes away your protection against judgements beyond taking the collateral.  Bad stuff.

mmlevine's picture

Anyone think that ALL of these loans have a loan loss provisions?  It use to be that after 90 days delinquent, the loan had to be considered non-performing and reserved 100%.  But heck, that was back in the 1990's.

The Great Ponzi continues...

buzzsaw99's picture

The more underwater a person is the less likely they are to foreclose. Double plus good!

Jerry Maguire's picture

It's all good.  We'll just become a nation of squatters:

Or, we could have a jubilee, restore sound money and go on prosperously from there.

Nah.  Too simple.  And what would the banksters be able to do to co-opt it all to their own purposes?


Yield2Greatness's picture

This is likely to start the next great depression.  People are already leery enough, and this will send them into panic mode.

Long-John-Silver's picture

What makes you think we are not in a Great Economic Depression?

TruthInSunshine's picture

I've often wondered if one of the reasons that the MERS broken chain of title fiasco is even more of a bizarre, guarded type battle is that The Federal Reserve is saddled with a few hundred billion (or more) in residential mortgage backed securities, and that if MERS was rule on as being illegal (from a title transference standpoint) by the judiciary (it actually has by a few state and federal courts), then the Federal Reserve would face massive losses on their residential MBS assets.

MachoMan's picture

Why is that?  If declared invalid, the losses would flow backwards to the entity who created the securities...  eventually resulting in the entity most close to the eventual turnip with a pretty big bag.  In other words, the holding institutions sue on back the entire chain for selling toxic securities...  My guess is TBTF entities would be on the hook given their predecessor was the initiator, who is now defunkt/bankrupt.  As it should be...

TruthInSunshine's picture

What would the Fed do? Sue the originators that it took possession of the MBS from, on a put back?

The same lenders it's (still) trying to prop up and save - even if we know many of them are already zombified?

You see where I'm going with this.

MachoMan's picture

This is why they haven't moved much, yes, I understand.  But, we must adhere to the legal formalities of separate entities.  As a result, and out of a rudimentary fiduciary duty, all holders of toxic MBS must seek putbacks where available/damage has occurred.  I think the holding entities are required to put them back...  and either they put them back on down the line or they eat the turds when due from the class actions (european municipalities, snicker).  I think they have an obligation to pass the cost on down the line to the predecessor purveyors...  and I think they certainly have an equitable, if not legal, basis for doing so...

The thing to realize is that all will not become due at once...  basically, the lawsuits can be dragged out over years...  and, after the appeals process on virtually all of them take hold, the system will have already collapsed from other disease.  Maybe they have to pay up a few...  maybe they get sweetheart settlement agreements whereby GSEs, the FED, et al, decide to split the costs of putbacks...  who knows...  but, any which way, I think this whole process takes longer to come to fruition than the dollar has in remaining lifespan...  it's kind of like old people smoking and eating fast food...

TruthInSunshine's picture

It's true that winding down of the assets will take some time (or a hell of a lot of time, IMO), but the problem the Fed and the TBTF Banks are facing with some of the MERS challenges alleging broken chain of title is that they get some solidly reasoned court opinions that begin to shape a clear trend against them in the courts, and then if the federal courts also agree on matters where federal law + property law are involved (e.g. bankruptcy proceedings), you have the possibility of some very significant adverse law being handed down, with even the chance the Supreme Court grants cert and renders an opinion that's highly deferential to property law and recordation law (affirming it as an In Rem matter) - the SCOTUS could do this by denying cert, also.

MachoMan's picture

There isn't and should be any disagreement on this point...  it's a certainty.  But, the issue is who, on down the line, really has liability?  Does the end purchaser of a security get to sue a pseudo sovereign?  Is this why they've been dumped on an arm of the state?  Are all of the chain of sellers jointly liable to the end purchaser?  If adequate disclosure was made to the buyer and the seller did not have knowledge of any falsities, what is the cause of action?

It seems to me that everyone other than the original packagers of the securities would be together in the lawsuits as plaintiffs...  I suppose there might be some cross claims, but generally speaking, I think a fractured plaintiffs side would make it more difficult to recover (more confusion of an already complex issue) and they'll likely opt to keep any differences at bay until a determination is made otherwise... 

Further, if the original packagers of the securities are now defunkt/bankrupt, what redress do the end users really have?  If recission is a possibility, then the bag holders will be the last sellers, closest to the packagers...  this may or may not be a TBTF...  In other words, the TBTF have probably assumed quite a bit of liability via M & A or out of original action, but I suspect only a portion of the potential putbacks are even capable of being thrown upon the TBTF institutions...  they'll only have liability insofar as intermediary institutions (hopefully having a predecessor bagholder with deep enough pockets).  But, obviously, any additional hiccups to an already insolvent institution are to be avoided at all costs...

Also, I don't think the failure of MERS is necessarily marginally detrimental to the banks...  all it will require them to do is file a breach of contract action on the note and proceed to a quick judgment...  and then enforce the judgment quickly...  all of these procedures shouldn't be very difficult...  and without mortgage issues to deal with, most of the new defenses for debtors are easily avoided...  the only issue is whether or not third parties have intervened in the lien priority...  but, with a lien already filed of record, the likelihood of seconds, thirds, etc., is probably not as high...  essentially, and subsequent creditor would have to rely upon the guess that the predecessor liens are not only invalid, but will also not be redeemed or redeemable via any other action in the meantime...  I suspect that even with our rampant moral hazard, this is probably not quite the issue many expect it to be...  [the securities side is totally different though].

Fearless Rick's picture

Macho, many thanks for all the high-falutin' cogitation on the issues, but really, you don't know jack when you make statements like this:

hopefully having a predecessor bagholder with deep enough pockets

Do you actually believe that a TBTF bank is looking down the chain of title for somebody with deeper pockets? Laughable, indeed. BofA is on the hook for Cuntrywide failures, plain and simple, and there's no way out. Why do you believe this has gone on so long. The banks are screwed, screwed and screwed.

There are a couple thousand venues across the country trying to deal with these issues, mostly state Supreme Courts, like here in NY, and all the rules have nuance. The legal bills are astronomical. The banks are going to get jack. Same with the note holders, whoever they may be. Homeowners are in the cat-bird seat because they actually live in, maintain and pay taxes on the properties in many cases. The banks are NEGLIGENT to a very large degree, something lawyers and judges like to bring up in hearings on these matters.

How far one can take fraud as an action for negligence is a case I'd like to pursue.

Your reasoning, on the other hand, is that of a rank amateur with no experience in these matters. Stick to something you might actually know something about, whatever that may be.

And remember, while the banks sought to separate the note from the mortgage via MERS and securitization, the put-backs and the property in question are completely intertwined. You can't kick somebody out and still expect to make money.

MachoMan's picture

I didn't say whether their hope (or the analysts' hope) was well founded...  I don't beleive it is and I already made mention that none of it applies if they picked up direct liability via M & A...  I think you've taken the statement out of context.

And we're also talking about two broad categories, securitization and fundamental real property law...  this leads to different analyses...  for example, it is possible to have a putback of a mortgage security (let's say from a naive scandinavian municipality to a TBTF) without deciding to destroy the security, e.g. recission.  The question is who has the liability for creation?  And does merely being an intermediary for the sale of the security impose liability?  Obviously it depends on the cause of action, but the nuances of the security law are above my pay grade...  this is literally the most difficult area of the law where the real sharks play (unfortunately as all taxpayers know too well by now). 

As for the real property side, I'm in the trenches every day, advocating all sides of the process...  In fact, I have a case on appeal at the moment (representing BFP at foreclosure sale) whereby the debtor alleged the sale was conducted improperly and void...  we won at trial...

The foreclosure cases need to be broken into two categories, those pending and those already decided.  For those cases that have been decided, the issue is FRAUD, not negligence.  The person seeking to invalidate a judgment must typically prove standing to attempt to do so.  One of the requirements is to prove a meritorious defense...  in order to do so, the debtor would essentially need to show that he/she was not in default...  the most notable exception to the requirement of showing a meritorious defense is when a judgment rendered by default is VOID...  disputes over a void judgment typically arise over proper service, but may also arise out of a fraud committed on the court (not on the debtor).  In the foreclosure cases that invalidate foreclosure decrees, they've determined that a fraud was committed on the court via robo-signed documents, false affidavits, etc.  In other words, negligence on the part of the bank is NOT typically a sufficient reason to invalidate a foreclosure decree...

Now, negligence may very well be an important issue for prospective foreclosures...  However, the negligence would largely be self inflicted by the banks...  meaning, all they've done is ensure they cannot foreclose on their liens...  (actually that the dumbasses who bought the mortgages cannot foreclose, but at least not a harm to the debtor).  The real issue is how do you ensure a release of the liens on your property?  Well, practically speaking, if there was but a single mortgage filed against your property, and you receive a release from the mortgagee (the only party you had privity of contract), then you're pretty much at the finish line...  It may be possible for some scandinavian municipality to pop up in 10 years and claim an interest in your property, but this would seem to be more properly a cause of action against the assignor of the mortgage, not the original mortgagor...  (and practically speaking, you're going to have home court advantage on every case).

I also think that there are numerous ways to properly conduct prospective foreclosures...  especially if the prospective plaintiff list gets whittled down to only a few banks...  essentially, they can all be plaintiffs against the debtor and will not run afoul of lying to the court...  whoever is not decided to be the holder can nonsuit their foreclosure claims and can simply sue to recover the proceeds of the sale from the holder (in the same lawsuit, presumably).  And, of course, the note is always there for a breach of contract action...  (open and shut case).  The only question is whether there have been intermediary lien filers... 

PS, fraud and negligence are separate causes of action...

Joe Davola's picture

TBTF - yeah, they're gonna be the bagholders.

gina distrusts gov's picture

the TBTF banks own the fed, kill one the other dies the printing press will be no help as the dollar will be worth less than a sheet of scott ass wipe.

RobotTrader's picture

Hardly anybody in L.A. is paying their mortgage now if they are underwater.

Most guys I know have lived mortgage-free for 15 - 21 months now.

Any wonder why consumer spending is going through the roof?

Long-John-Silver's picture

Any wonder why consumer spending is going through the roof?

People would demand payment of daily wages before lunch so that could buy before prices increase during the time of the Wiemar Republic currency collapse.

A Man without Qualities's picture

Ok, now assuming these have been securitized, the simple question has got to be where is the cash coming to make the payments on the notes? If they are retained mortgages, you just put it as interest accrued, but if it's in note form, the payment has to be made until the foreclosure has occurred.