"Boomerang Foreclosures" Are Back As Bernanke's Second Housing Bubble Begins To Pop

Tyler Durden's picture

Something curious happened in California in January: the foreclosure process virtually ground to a halt. Specifically, as RealtyTrac describes it, "the downward foreclosure trend in California accelerated into hyper speed in January, decisively shifting the balance of power when it comes to the nation’s foreclosure activity", shifting it in favor of homeowners and effectively preventing banks from sending out Notices of Default (NOD) repossessing homes whose owners no longer pay their mortgages. This was the result of the Homeowners Bill of Rights, or legislation which "extends many of the principles in the national mortgage settlement — including a prohibition on so-called dual tracking and requiring a single point of contact for borrowers facing foreclosure — to all mortgage servicers operating in California. In addition the new law imposes fines of up to $7,500 per loan for filing of multiple unverified foreclosure documents." The outcome of this law as it propagates through the market can be seen in the chart below: in January 2013, California foreclosure starts are now down to levels not seen since 2005!

And for the first time since 2006, Florida properties with foreclosure filings surpassed those in California.

As a result of this latest artificial intervention (the first one of course being the Robosigning fiasco which hit in November 2010 and which resulted in the wristslap mortgage settlement whose sole purpose was, again, to give a legitimate reason to boost shadow inventory) preventing underwater properties in the state with the most impaired mortgages and the most "underwater" housing, from hitting the market, the outcome is simple: a direct, explicit subsidy by US banks to prop up the housing market.

As we explained before when we clarified the concept of "foreclosure stuffing", as a result of clogging up the foreclosure pipeline, where millions in homes will not clear the market for years, as even less inventory will enter and exit the foreclosure process, the inventory of available homes declines even more, pushing prices even higher, but not due to a rise in demand, but simply due to a subsidized contraction in supply.

What else happened in January as a result of this latest intervention in the California housing market:

  • U.S. foreclosure starts were down 11 percent from the previous month and down 28 percent from a year ago to the lowest level since June 2006 — a 79-month low.
  • U.S. bank repossessions (REO) decreased 5 percent from the previous month and were down 24 percent from January 2012 to the lowest level since February 2008.

This is all shown dramatically in the next chart, which demonstrates that as a result of the latest crunch in California foreclosure activity, foreclosures at the national level, both starts and completions, in January plunged some 30% below year ago levels.

Note in the chart above the dramatic contraction in all foreclosure activity starting in November 2010 - the month when the "Linda Green" robosigning scandal so conveniently broke out. Because while the punishment to the banks as a result of the "mortgage (robo)settlement" was laughable, what it did do was provide a perfectly legal cover to reset the foreclosure activity to a new baseline: from 330K per month on average to just 210K currently, and in the process keep some 3.2 million additional properties (using a simple back of the envelope analysis) in the shadow backlog, and thus out of the market supply, resulting in what some still erroneously dub a "housing recovery."

Two other charts that show how exogenous intervention reduces the supply of housing availability for sale, are the charts of foreclosure starts, and completions, both of which have plunged to multi-year lows.

Yet while informative, none of the above, which frequent readers are well aware of, is the focus of this story.

What is, is that as always happens when central planning is involved, when one tries to stop a leak here, two new leaks appear elsewhere. Because while the Homeowners Bill of Rights managed to grind foreclosure activity to a halt in California, what is happening elsewhere is the dreaded Boomerang Foreclosure phenomenon, or, said simply, redefaults.

In other words, those homeowners who tried to take advantage of the most recent housing bubble mania created over the past year by the unholy trinity of the Fed (open-ended liquidity, REO-to-Rent programs, and $40 billion in monthly purchases of MBS), foreign buyers (who launder illicit money courtesy of the NAR's anti-money laundering exemption and park it in ultra luxury US real estate, usually sight-unseen) and of course, the banks, who with the aid of the robosigning fiasco and the Homeowner Bill of Rights, have over the past year subsidized the housing market by keeping non-cash flow generating mortgages on their books in exchange for a wholesale subsidizied rise in housing prices, ran out of cash before they could flip the "hot potato" that is the house they just bought, to a greater fool, and since they had no actual cash to pay the mortgage with, and with no fear of retribution, handed it right back to the bank.

As the chart below shows, while California foreclosure activity is collapsing, things in other places are starting to indicate that the second housing bubble blown by Bernanke in 5 years, is finally starting to crack:

RealtyTrac has more:

  • Scheduled foreclosure auctions increased  from the previous month in 26 states and the District of Columbia, hitting 12-month or more highs in several key judicial foreclosure states, including Florida, Illinois, Pennsylvania, and New Jersey,

In other words, ignore the sad and very much artificial reality of California where the real estate market is no longer indicative of what happens in a free market, and instead keep a close eye on those states where all artificial attempts to crush foreclosure starts and completions have been used up, and where reality is about to come back with a bang.

Because for all the propaganda, and all the artificial attempts to juice the market, the sad reality is that the US consumer has less and less disposable cash flow, and when one adds such $1 trillion + debt items as student debt (now greater than all credit card debt combined), has a soaring debt load to add.

The only question is how long until the funding to prop up this latest artificial housing market subsidy runs out, and banks realize that the time to dump all those millions of underwater homes on their books into the market is now.

Because, like with everything else, those who sell first, sell best.

Source: RealtyTrac

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BaBaBouy's picture

RoBo Bernankey ... Print And Save The ENTIRE Multiverse ...

redpill's picture

Banks don't want to foreclosure anymore because the upside is not worth the potential liabilities resulting from improper paperwork and politically unpopular perception.  At this point they'd rather just cut their losses and settle it with a short sale.


idea_hamster's picture

Also, banks realized that during the period they own the property, they are responsible for taxes, maintenance, and liability in the event that kids drown in the algae-clogged pool out back.  Huge PITA.

Easier to send a notice of foreclosure and then let the borrowers deal.

TruthInSunshine's picture

When markets tank again and housing re-sours, the rightful crtitics of Bernanke & Geithner are going to have a field day, and make much political hay about it. The Muppets will be distraught to the point of naming names, a field of nearly illiquid and trapped "housing investors" will be caught in a literal minefield,  and The Bernank's "virtuous circle" theory of macroeconomics will be fully and finally mocked as the farce it's always been.


(Any guesses/estimates as to the value of "paper wealth" that will be vaporized when the third bubble, this time involving equities, AND credit instruments, AND real estate AND BONDS -- neat trick, central bankers...errr planners -- will be when the bubble implodes for the third time in 13 years?)


Careless Whisper's picture

@ redpill

"improper paperwork".  Hey You! What happened to redpill? What did you do to redppill? 

redpill's picture

Haha, what I mean is even putting the outright Linda Green-type fraud aside or missing wet signature notes, etc., the paper trail on just about every foreclosure in the last 5 years is a mess in one way or another, so there is broad legal exposure for them even in the best of circumstances.

NotApplicable's picture

When MERS is the only beneficiary on ones' deed of trust, it was broken from Day 1.

"What's that, a foreclosure notice? From whom? Wells Fargo??? Sorry, but they've no standing. Now go away, or I might not make good on the unsecured loan that nobody holds."

economics9698's picture

Wow this is really good reporting.  I think I will plagiarize this one Tyler.  Really this should be the blog of the year.  Very well done.


Rogue Trooper's picture





I've gone in ALL CAPS this is so SeRIalous!

RockyRacoon's picture

Broke people, who now have just as much money as they did (not) have in the first place, have been given back the same toys they can't afford.  And they default again?  Who didn't see that coming?  Is the system that bad?  Wait... don't answer that.  It was just a rhetorical flourish.

BKbroiler's picture

Who didn't see that coming?

Apparently, them.   Maybe I just like down arrows, but I think the new banker landlord class will hold up the market.  I mean the con was beautiful:  give easy credit, inflate the market, bet against it, tighten credit, crush the market, take profits, buy at bottom.

disabledvet's picture

While a perfect description of the "scam" there was one MAJOR fly in the oinkment. Once Uncle Salami panicked and monkey hammered rates to "at or near zero for forever" he took the carry away for the banks to profit "on the non existent recovery." indeed the idea that the Fed may actually be the CAUSE of a massive double/outright deflation strikes me as a "foiled again" moment for our Vampire Squid-berts. I really don't see where the "re-lever"'comes from...and with apartment REITS now flooding the market in "housing bubble variant 2.0" why the he'll would anyone by some stale, "so 2008" McMansion? And of course the answer is "no homebuyer is/is going to." the beauty of a massive deflation thesis is you don't have to explain it to people. "no...that house costs 20,000 not 2'million" is how it works. "and it comes with a gardner, a pool guy, club membership, use of the local yacht" etc...etc...heretofore and WTF.

boogerbently's picture

That's why no one is buying this "housing is recovering" ruse.

Shadow inventory.

Paperwork snafus or not, all these homes WILL be foreclosed on, eventually.

Banksters's picture

The idea of central bankers is to use 'money' to tempt people to trade their property, precious metals and everything they own for this useless paper. "Debt acceptance programs' were tailored to even get the smallest far-away farmer addicted to getting more of this counterfeit paper, resulting in indebtedness: a life-long, permanent and inheritable contract between people and an octopus-like corporation lacking any human value or common sense and only going for unlimited power.
Now people seem to start realizing that they cannot eat money and that the whole world is in debt with a few central bankers. About food: the EU commissionandFDA are s aggressively enforcing the Codex Alimentarius to make people eat GMO food that hinders the immune systems, while spending hundreds of millions on developing new 'medicines' that no longer cure but become lifelong needs.
This crisis is not a natural phenomenon.

TruthInSunshine's picture

Not just "trade their property, precious metals and everything they own," but pledge such things (especially homes, land and other properties) as securitized collateral in exchange for fiat-demoninated loans, so that those pledged assets are "free" for "the taking" in the event of the regular boom-bust cycles that happen with regular frequency and intervals in a fiat-fueled, total-volume-of-fiat/credit-dependent pumped-and-drained (intentionally) fraudconomy:

Fiat Money & The Cycle of Harvest

847328_3527's picture
Ex-San Diego mayor's gambling losses top $1 billion




Another SoCal high roller ?

WTFUD's picture

To be fair the casinos provided her a free room with a waterfall feature view. So can't be all bad!

Groundhog Day's picture

Here is why interest rates can NEVER go up.  Not only will their be a massive hit on the bond market, the real estate market will also get crushed.  As rates rise, the monthly payment increases causing values to fall as it prices out even more potential buyers.  If the housing recovery is this anemic with the lowest mortgage rates in history, what would happen if rates went back up to say even 5% on a 30 yr mortgage?  perhaps another 20% lower in asking price and causing even more people to be under water on the mortgage.  Extend and pretend is the only solution, and as the tyler's so eloquently educated us over a year ago, the banks are counting the uncollected interest and principal payment as INCOME.   The banks and the Fed are on a circus tight rope and a snap anywhere on the rope brings down all the clowns no matter where they are standing (except goldman of course, they will probably have parachutes for when this happens)

Rogue Trooper's picture

Well said and your 'avatar' so appropriate!

The injuns are crcling the Wagons and now matter how many they shoot them darn induns just keep comin.

"Ben, you still got some ammo for dem heathens...!"

"Sure, Waggon Master "O", I still got me plenty.  Cavalry gonna come over that plain and save us all any minute Boss.  They gonna be packin GDP Gatlin' Guns.  Dem injun heathens are gonna be cut down like buffalo on the plains!"

Bunga Bunga's picture

I should have bought a house in 2007 with zero down and 120% financing and then barely made any payments. I would very likely still live in the house and could spend my income for hookers and iPads.

boogerbently's picture

And I'm sure the clowns that do that bemoan the unethical behavior of others.

Son of Loki's picture

Excellent research. So why should anyone pay their mortgage? Live there for free and invest in something that will rebound when the SHTF.


In 3-4 years when they finalyly get around to your particular foreclosure, 'just walk away.'  In a couple of years your credit will be cleansed and you can repeat the process if the Fed is still bailing/subsidizing the banks.



alangreedspank's picture

Banks always knew this. They'll take 100$/month on a 1,200$/month mortgage over the house itself.

rupertq's picture

yes, hit a bid any bid.  

MillionDollarBonus_'s picture

My Autobiography

A Virtuous Life:
A story of courage, integrity and bravery

I was born in Conneticut into what you might call an upper middle class family. My father, a successful patent lawyer, was away most of the time. However, once every year he would take the family on vacation and would teach me all about the virtues of the state. My mother was a prominent feminist and author for vanity fair. She taught me what it means to be politically correct and to respect the feelings of those most disadvantaged among us such as women and minorities. Mother also taught me to respect the poor and to defend the virtue of the welfare state from what can only be described as right wing sadism.
Since both my parents were Ivy League educated, I developed a deep respect for acadsmic achievement and scholarly excellence.

(To be continued ...)

Desert Irish's picture

I really hope that was intentional...

economics9698's picture

"Mother also taught me to respect the poor and to defend the virtue of the welfare state from what can only be described as right wing sadism."

Pretty good stuff there MDB.

Buckaroo Banzai's picture

MDB, I like where this is going...

BKbroiler's picture

me too. MDB back with a vengence.  Finally a backstory to the legend.

wisefool's picture

which "be-nine" secret society will join the lore? be nice to have something to warn the noobs who do not understand the depths of MDB's trust fund.

francis_sawyer's picture

So MDB... How did you go from there to selling HerbalLife?

idea_hamster's picture

"acadsmic achievement"


Freddie's picture

LOL!  He sounds like a typical NE libturd. 

I was at a meeting a few days ago.  A person who probably voted O in 2008 started talking to people at the table in hushed tones.  They started going on about the evils of O and how our world has changed forever, etc.  I wanted to laugh because I know this person, their friends, relatives, etc are all fairly liberal and are Dem voters.   

I was pretty shocked and almost want to say F You!  I bet you voted for this?! How you like them apples now?! Just like those libturd Matt Damon and Affleck said in their shitty movie.  F TV and F Hollywood.  

derek_vineyard's picture

MDB didn't proof read.....he is not perfect.  I'm crushed.

Poetic injustice's picture

Freddie, it is simple.

They expected that somebody else will pay tax increases... turned out them to be suckers.
That's why all the hate.

Freddie's picture

Yup.  They are so smug and know everything.  Now the pain from Obummer is starting to get to them.  They are starting to wake up.  I was reading on the net that someone predicted this.  They said the libturds would start to feel it just below the upper middle class.   It was tough luck for the working class and middle class.  

Now the pain is moving up to some of the true believers.  This guy was mortified.  He was like a lib who just got mugged twice during David Dinkins aka Bernie Goetz.   Now the Obummer monster is about to take everything they have and ruin their future.

I remember meetings with these people in 2008, 09, 10, 11, 12 and now 13.  Usually twice a year.

Eally Ucked's picture

it's strange that they invite idiots like you to any meetings, at some point they have to realise that you're a mental case. 

donsluck's picture

Indeed, full of hate for "libtards". I did not vote O, or the Republican (who was it again?) but I sympathise with those who did. The lesser of two argument is now deeply ingrained and hard to shake. Voting your conscience is actually easy once you realise your vote does not really matter, nor do you.

Whiteshadowmovement's picture

C'mon guys, its just like Madlibs, everyone fill in a little bit


....so then I enrolled at Brandeis, became a 40 year old vegan, never married and no kids, who has disappointed her parents and family but has been able to make all the way to director of personell at her 50+ employee company. My favorite part about the inclusionary liberal society is the support it gives to artists like these:


Zymurguy's picture

... I was raised though mainly by my father who had a penchant for buggery.

Harbanger's picture

She was impersonating her husband during sex.

Metalredneck's picture

"My 17 cats love to hear me read from my Master's Thesis on Post-Modern Feminist Poetry..."

Thisson's picture

Now I have a wonderful job "regulating small businesses." 

[Did I get that right?]

Dr o love's picture

...and am considered profficient at speling by my family.

Overfed's picture

Jeezuz Keyrist. Fighting cats are more musical than that.

Meat Hammer's picture

Stop feeding the troll!!!! No down arrows; no comments; no nuthin.  Imagine the smirk on MDBs face disappearing as he reloads the page again and again and there is nothing!  He'll have to go back to masturbating to his Cat Woman comics, because in some of this pictures I swear you can almost see nipple.  

eclectic syncretist's picture

Is Conneticut anywhere near Connecticut, the U.S. state?