Foreclosure Stuffing

Tyler Durden's picture

Back in November 2010, the robosigning scandal hit in which it was made clear that when it comes to keeping track of mortgage titles, nobody really knows what belongs to whom, except maybe for Linda Green. The immediate result of this was a complete collapse in the foreclosure process as banks no longer had leverage to evict those who don't pay their monthly mortgage bills, since the banks couldn't confirm they actually had rights to the underlying mortgage, and the total monthly foreclosure total dropped from a ~330,000 average houses/month to roughly 250,000. Then in February, to much administration fanfare, the banks, and the attorneys general, signed what we dubbed the Robo-settlement: an event which was supposed to be the "resolution" to the robosigning scandal, and which should once again unclog the foreclosure pipeline. This did not happen. Instead, as RealtyTrac has been diligently reporting month after month, the monthly foreclosure total has continued to decline, and in August hit a level of 193,508 total foreclosures. The immediately spin is that this was a 1% improvement from July's 191,925. The reality is that it was a drop of 15.1% from a year earlier. As the chart below shows, ever since the advent of fraudclosure, the average monthly foreclosure total has dropped from a 330K/month average to just 219K. And declining.

So why did the robosettlement not undo the robosigning foreclosure crunch? Simple - foreclosure stuffing.

What happened is that since the properties not entering the foreclosure pipeline are effectively kept out of inventory, even shadow inventory, and thus the distressed end market, the monthly drop in foreclosures has acted as a form of subsidy to the housing market, as month after month less inventory than otherwise should, enters the market.

As the chart above shows, there is now a 2.5 million "backlog" of properties that should be foreclosed upon based on historical trendlines, but which are being completely ignored by banks. A stuffed foreclosure channel, if you will.

What this has resulted in is a logical increase in prices of the properties that are on the market. The trade off, naturally, is that there are millions of properties, not only in shadow inventory, but in this sub-shadow pre-foreclosure space, where the tenants live mortgage-free as the banks refuse to begin the foreclosure process (which already takes a record length of time - think years - to go from issuance of Default Notice until a new tenants buys and moves into the property). It is these beneficiaries of bank generosity that are to "thank" for the fact that houses are rising in price, or, in other words, less affordable for everyone else.

Because while the number of houses where the equity is underwater may have declined, what has also declined is the number of actual buyers who may purchase said suddenly more expensive houses.

Finally, what hasn't declined, is the number of people who now and going forward will live completely mortgage free just to perpetuate the illusion that "housing has rebounded." Consider them sunk costs in this latest attempt to reflated housing. Also, thank them if suddenly that home you have wanted to buy is once again just out of purchasing reach.

As for those who have a mortgage, and are wondering if they should continue paying it or not: why pay? It is now not only the administration, but the banks who are effectively handing out free housing.

Remember: in this New Socialist Normal, "just say no" when asked to pay for anything.

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Lost Wages's picture

Been living mortgage free for over a year and just got my Notice of Default last month.

MachoMan's picture

Not to nit-pick, but you still have a promissory note, you're just not paying it...  Further, unless a Court of competent jurisdiction has declared that you do not have a mortgage, then you still have one...  if you try to sell your house, the closing agent will withhold the remaining balance on the note...  if you try and sell directly, you'll likely break the law if you fail to pay the lienholder the sale proceeds.  You are not living mortgage free.

PS, kudos on not paying...  hope it works out for you.

banksterhater's picture

Either walk away or I hope the state you live in GARNISHES EVERY BIT OF INCOME YOU MAKE, FOREVER! GFY!

chunga's picture

With all due respect, I think you need a new screen name.

larz's picture

with absolutely no respect I agree give the name up to a real warrior

neidermeyer's picture

G'Day Chunga ,,

Pinged you on FR ... Did you see the news where the FDIC was suing over empty/never funded remics? It was on Matts site a few days ago ...

The big news is the Bernanke funding title whitewashing @ $40B/month forever to enable title insurance companies to resume coverage on post foreclosure bank owned ...

Rentier's picture

To add to that, down the road when the bank forecloses and sells the house if the bank so chooses they can drag you into court and get a judgement against you for the difference you owed on the mortgage to them and the price they sold the house for.  It is no different then defaulting on an auto loan.   Even if the bank doesn't go after you for the difference the IRS will expect you to pay taxes on the difference if the bank doesn't make you pay it since the IRS views that as a capital gains and tax you accordingly.

eatthebanksters's picture

It seems to me that banks want it both with everything else they do they ignore the moral hazards of their actions (while warning the same of others) and manipulate markets for their own benefit, to the detriment of everyone else. Where is our principled leader to give us direction....Vegas Baby!

Calmyourself's picture

IRS does not go after you for the difference, I will not bother looking up the law Bush signed..  You do it..  Non-recourse state ditto..  Get your facts straight, not saying I agree but this is ZH get your facts straight..

WillyGroper's picture

if you do not do a short sale by EOY or file bankruptcy, you bet ur boots toots they'll tax you. 

neidermeyer's picture

That IRS exemption on forgiven debt ends at end of 2012.. so if you're looking to short sell you're too late although you could probably negotiate a cash payment to walk out with the house in good condition by then.

Piranhanoia's picture

Only in select states and only if you walk away from the house before it is sold. (again,  depending on your state)  What you have stated is not accurate to most people.  Mortgages are different from auto and other loans entirely.

TheCanadianAustrian's picture

I'm probably missing something, but I interpreted his comment as meaning that he finished paying off his mortgage a year ago, and now they're trying to tell him that he's delinquent.

MachoMan's picture

The odds of that happening are incredibly small at best.  In the event that does happen, then what bank would be stupid enough to take that to the jury?  Not that it would ever get to the jury given it's summary judgment material...  but still.

StychoKiller's picture

The wife and I only have around two payments left, what kinda Paper is BofA supposed to send us?

Lost Wages's picture

We surrendered it under Chapter 7 bankruptcy, so there will be no deficiency judgement or tax penalty. The bank is still taking its sweet time to foreclose, since we were discharged in November 2011.

Dr. Richard Head's picture

I have a neighbor who divorced his wife a year and a half ago.  They stopped paying the mortgage about two years ago now.  The guy still lives in the home and his girlfriend has moved in.  The house is up for sale, but no buyers.  His girlfriend now has a Benz in the driveway.  What a life.

unununium's picture

When he finally get the boot he'll get another $10K from the bank just so he doesn't steak the copper and glass.

neidermeyer's picture

Tell your neighbor to rent the house to his GF ASAP and record the lease at the county ... insert some language where it automatically renews... If the lease is recorded then the foreclosing entity has to honor it.

samcontrol's picture

non payers in Argentina got an awsome deal.

You have balls!

Urban Roman's picture

To paraphrase what they used to say toward the end of the USSR:

"We pretend to pay and they pretend there is a mortgage."


... In real life, I paid my mortgage off a couple years ago -- lucky enough to inherit the cash to do that. Of course, it wouldn't keep them from taking the house ...

greyghost's picture

i am wondering where we can find the info on bank non or low default regions around the country? as hard as our region has been hit, our home prices have risen in the past year....hmmm. have noticed for years now that the banks put a house on the market for maybe sixty days and when it doesn't sell they yank it and another one takes it's place. just constant rotation into and out of the market.

eatthebanksters's picture

Think about it, taxpayer money used in government approved bailouts has given banks (which should have failed) enough financial strength that they can sit on distressed inventory so they can limit supply and drive home prices up...that way when they foreclose they don't lose money on underwater homes. I'd say we're getting fucked twice.  If the shit ever does hit the fan like some are saying, I won't shed a tear or come to the aid of any government official or bankster where  a mob is readying him or her to be an ornament on a lampost.  This shit is just wrong and pisses me off to no end. Criminal market manipulation in the wide open, breaking laws with no concern for prosecution...what is this country coming too when TBTF banksters do what they want and our government smiles and stands by?

brokenclock's picture

Depending on where you live it might takes years. 


I have a friend in Orlando Florida that has been living mortgage free for 5 years in a 500K home, (now only worth about 230K).  He has not paid insurance, taxes, or HOA dues either.  He said, "by the time he moves out he will have enough money to buy another house cash".

With that said I'm wondering who the smarter person is. He refinanced his house to the hilt during the boom using his house as an ATM (size player). Now he is saving money and living rent free (size player). He is even renting 3 of the 5 bedrooms out bringing in over 1,200.00 a month( size player) . So not only is he not paying but receiving money. If you ask me I call him "SIZE PLAYER!!!!"  He basically robbed the banks doing a NINJA loan. Now the banks are eating the interest lost, the depreciation, expenses, & foreclosure costs. After all is said and done he will buy another house cash without even dealing with the banks.







MachoMan's picture

If it's been that long, the banks may be impotent to foreclose on him...

blunderdog's picture

   He basically robbed the banks doing a NINJA loan.

Er, but...taking out a loan isn't "robbing" the bank.  It's giving them an asset.  The money for the loan was never THERE.

Anyway, you know the deal.  He made some risky and speculative financial decisions. 

Greater risk, greater return.  All's right in the world.

MachoMan's picture

This is true for the money printer, but in all likelihood, he got a loan from a financial institution that had to answer to another institution, who borrowed the money, from another institution, who borrowed the money, and so on.  The money might have never been there per se (although it was, given the check was probably written by the local institution), but there was an obligation for that lender to repay another lender on up the chain.  Now, this scenario gets a little fuzzy once you hit the stopwatch on the time it took many of them to assign and sell the loans downstream... 

The only way to really find out is to cause massive put-backs.  Then we'll get to see who rightfully must eat the turd.  My guess is that the money creator will not have to be the turd eater, although it will opt to gobble it down by design.

prodigious_idea's picture

If/when the bank gives up trying to collect the deficiency, you in all likelihood will get a 1099 for foregiveness of debt for the difference.  The only way to avoid that (and perhaps prolong your stay in the home) is to file bankruptcy.  That will likely postpone the foreclosure process, but won't end it.  It will, however, prevent you from getting a loan modification because the Trustee would have to approve the reaffirmation of the debt.  And that isn't going to happen in 99% of bankruptcy cases.  If you file bankruptcy and get a 1099, it will be a 1099A, which is informational only and has no tax consequence.

Winston Churchill's picture

Is the moral hazrd of none payers any worse than the moral hazard of

allowing banks, who have been paid multiple times alredy,gettring paid

yet again ?

MachoMan's picture

What I don't understand is how the banks can get paid multiple times for these turds and STILL be bankrupt...  further, if banks have the largest cash balances evar111!!!111rawr, then why the fuck can't they push through some of the shadow inventory?  Clearly, they're leaking elsewhere or are being set up for something to which we are not privy.

Dr. Richard Head's picture

Debt Jubilee?  Digital wealth and digital debt will disappear?

Obviously, I have been drinking.

JLee2027's picture

I agree that "Digital Wealth/Debt" (great phrase btw) is in danger of extinction should the meteor hit the markets. Correction: When the meteor hits.

Winston Churchill's picture

Because the money that funded the RMBS bonds never went there.

A good portion was sucked off into the Caymans thru' overseas branches

of TBTF.The balance was levered up 40 to cover the missing money.

Each forecloseure for 200k actually is a hidden contingent liability for


Rentier's picture

From what I have read they don't want to release to many at once, because it will drop prices even more and could crash the housing market.  So, they are choosing to release them in measured amounts to try and keep prices propped up some while they unload their sh*t properties.

MachoMan's picture

I don't really see this activity in any material way.  Basically, if the house has net equity, it will be mercilessly foreclosed upon...  if it is going to be an obvious loss, then the bank sits on it.  I do not see bona-fide plans to rid shadow inventory from locals, regionals, the GSEs, or anyone in between.  Why would you recognize the loss at all?  You can get a bigger bonus if you pretend it doesn't exist.

prodigious_idea's picture

Pretty certain banks don't push them through for a couple of reasons.  They have almost zero-cost of keeping the asset on the books, even if they have to provision for a loss.  And the cost of a sale usually includes RE commissions and other closing costs which can amount to 5% or more of the value.  But of course there's the hope that values rise, borrowers start paying again, etc.  However, when they do sell them (presumably at a loss), the actual loss is recorded, and banks, like many entities with loss reserves, can produce complex calculations to support reserves that are lower than the actual losses that may be incurred.  The reasons are varied, but usually because the loss reserve is on a pool of assets but once the asset sells there is a specific asset identification and associated loss.

MachoMan's picture

Actually, this isn't true at all...  there is an incredible cost to banks for not foreclosing sooner, but this cost has not been realized yet because it will only be realized upon sale.  The deterioration of vacant homes combined with vandalism, theft, and the dangers of being a haven for drug users/vagrants all have a significant toll.  Further, tack on property insurance, taxes, HOA fees, etc. and you've got some significant carrying costs.  Realistically, I have to doubt that many of the organizatons are earning juice on the money saved (deferred recognition) in excess of these costs.  It's just a waiting game. 

prodigious_idea's picture

"Isn't true at all."  Love superlative statements.  We were talking about occupied homes - not vacancies.  So that takes out the drug use and most likely the vandalism.  Insurance is cheap - about $75/mo for a home valued at $400k.  And only a fraction of homes are in HOA areas.  But you might ask a banker about the losses I described.

MachoMan's picture

Looking back through the thread, I see nothing specifying occupied homes...  Obviously omission of vacant homes would lead to inaccurate conclusions as to holding costs of shadow inventory...  it's relevant and material.

Any comments regarding property taxes?  What about the fact that the statute of limitations is now beginning to run on many of the underlying promissory notes?  Each month that goes by is another month that is objectively no longer collectible, even if a deficiency judgment could be had (from a turnip anyway).

Also, even as to occupied homes, the level and degree of maintenance required to keep a home habitable is different than that necessary to keep it in tip top shape...  I'll posit that if one is simply biding his time in a home until forced to leave, that maintenance will be performed with the former in mind moreso than the latter.

nowhereman's picture

Quite simple really, as the article notes;

"Back in November 2010, the robosigning scandal hit in which it was made clear that when it comes to keeping track of mortgage titles, nobody really knows what belongs to whom, except maybe for Linda Green."

When they failed to attach the note to the RMBS and let MERS rip-off the local real estate authorities by avoiding transfer taxes and such, they can only foreclose in areas where the local judiciary is bought and paid for.

MachoMan's picture

This is complete and total bullshit.  Not only do foreclosures happen everywhere, but most jurisdictions passed uniform law allowing the assignment of notes to be excepted from the recording requirements.  This is why the lawsuits from county clerks seeking recoupment of transfer taxes are going to go nowhere.  Assuming arguendo you are correct, then the penalty for failing to partake in the recording acts is simply to lose priority, not to lose the lien, given even an invalid mortgage is good as to the person who signed it.

If you want to talk about bought and paid for, go to the legislature...  no reason laws like that should have ever been passed.

nowhereman's picture

Sounds like you've never heard of Florida.

MachoMan's picture

So florida doesn't have foreclosures?  You can only bring suit where you paid the transfer taxes?  Give me a break.

AmericanBulldog77's picture

1... "When they failed to attach the note..."  The NOTE is GONE. No connection/attachment was ever made to the RMBS.

2..."they can only foreclose in areas where the local judiciary is bought and paid for..."  BS.

Most Banksters are allowed to slide FC's thru the Courts because most Americans are Sheeple and dont try to save their own homes.


PKF's picture

So now The Fed is going to buy $40 Billion/month of Mortgage Backed Securities.  From who?  Fannie?  Freddie?  Or their good buddies the TBTF Banksters?  Is that where all the Stuffed Mortgages are going to go? 

And people living 'free?'  At least they could give some homeless family shelter.  Something is just morally wrong with this...because someone who played by the rules is paying for this jerk to live 'free' in a big house in FL. 

America....the Land of the Scam, Home of the Greed.  

neidermeyer's picture

MachoMan ,

What set of books are you looking at when you declare the banks to be bankrupt... You need the Cayman and Bahamian info to get the whole picture.