New York City Mortgage Delinquencies “Elevated”: What’s the Likely Real Cause?

I normally don’t like criticizing a financial analyst who has worked hard to unearth some important data, but Keith Jurow has made the mistake of suggesting that a high level of mortgage delinquencies in the New York City means that the housing market may similarly not be as healthy as it appears to be in the rest of the US.

The problem is that Jurow has failed to consider two distinctive features of the foreclosure process in New York. The first is that it is a judicial foreclosure state. A house cannot be taken from an owner without court approval. Second is that during the robosiging crisis, New York courts implemented a requirement to make sure that lawyers representing banks and mortgage servicers were submitting valid documents to the court. The effect of that procedural change was to slow the initiation and processing of foreclosures to a near halt. This confirmed what critics, including your humble blogger, had been saying for some time. In the years running up to the crisis, mortgage originators and packagers stopped adhering to the very strict procedures stipulated for conveying mortgages to securitization trust. For American lawyers, this would seem to be no biggie, since contractual screw ups happen all the time. You write a waiver, or negotiate some sort of fix with the other side (which might entail paying money if one party screwed up particularly badly) and life goes on.

But for a whole host of reasons, mortgage securitization contracts, which govern how the mortgage securitizations are formed and then managed, are rigid, or in the words of Adam Levitin, “immutable”. If you didn’t get the mortgage into the securitization trust by a time certain, you couldn’t get it in later. That meant among other things that the servicer representing the trust would not have the right to foreclose because the trust didn’t have the mortgage. And exposing that trillions of dollars of mortgage securitizations might be empty bags, or had never been formed due to contract formation failure was something no one in any position of authority wanted exposed, since the consequences for banks and investors would be cataclysmic.

So the first fix was mass scale document fabrication and forgeries, to make it appear that the mortgages had all gotten to the trusts on a timely basis. That blew up in 2010 in the so-called robosigning scandal. It turned out that the media focus on the symptom, the creation of fake affidavits, rather than the cause, a widespread breakdown in mortgage securitization procedures, turned out to be a key win for the banks.

New York courts imposed the stringent new procedures for documents presented in foreclosures in October 2010. By 2011, the business press was whinging about how long it was taking to foreclose. As we wrote then:

An article at the New York Times, “Backlog of Cases Gives a Reprieve on Foreclosures,” is more than a little frustrating in that it takes some high level factoids about the mortgage mess and fails to draw the right inferences from them…:

In New York State, it would take lenders 62 years at their current pace, the longest time frame in the nation, to repossess the 213,000 houses now in severe default or foreclosure, according to calculations by LPS Applied Analytics, a prominent real estate data firm….

The convention in writing is to list the most important cause first. Thus by giving “the foreclosure system is bogged down by the volume of cases” pride of place implies that the “foreclosure system” being overloaded is the biggest cause.

But this level of abstraction is misleading. There is no “foreclosure system”; that turn of phase implies a single overarching set of procedures. As the mere mention of judicial versus non-judicial states indicates, each state has its own laws and case history as to what is proper practice. Referring to a “system” when there is none is also likely to lead many readers to think in term of the system that is involved in the foreclosure process, the judicial system, and to incorrectly infer that courts being overloaded is a major culprit. The vagueness of the expression, in other words, has the effect of directing attention away from the fact that it is the banks’ own machinery that is the most gunked up…

But after the robosigning scandal broke, banks halted or very much slowed foreclosures to get their procedures in order. Remember, a basic requirement of evidence is that affidavits are used to stand in the place of testimony, and the person providing the testimony has to have personal knowledge of the matter. Thus dispatching with robosigners, who didn’t even read what they were signing, much the less have any direct knowledge, meant at a bare minimum rebuilding substantial sections of what had been a highly streamlined process. That takes time and also means longer ongoing throughput time.

But even that charitable assumes that the banks’ depiction of the robosigning mess was to be taken at face value, that it was a mere “paperwork” problem. Adam Levitin reminded us last week that the real implications of the scandal were ignored by the media:

We’ve already seen pretty shocking evidence of documentation fraud in foreclosures. Remember that the robosigning scandal was the by-product of depositions that aimed to show backdating of assignments to trusts. The shame of the robosigning press coverage was that it focused on some shmucks signing 10,000 assignments in a month–which didn’t necessarily produce any harm itself, just carpal tunnel syndrome–and overlooked the really quite serious criminal problem of the backdating of assignments. The depositions showed pretty clearly that there was backdating–the notarizations were by notaries who didn’t have their commissions until a couple of years subsequent or were done on Christmas Day, etc.

What are the implications? Well, foreclosures that depended on fraudulent procedures are far less likely to be put forward in judicial foreclosure states (ones where the proceeding takes place through the court system), particularly ones where at least some of the judges are paying attention.

Thus what the article depicts as “backlog” (remember, LPS is including “severe defaults”, meaning deliquencies that have not yet resulted in foreclosure) is far more likely to be the result of foreclosures that either will not be initiated or have been abandoned. In other words, the samples all include a mix of foreclosures that are moving forward to resolution which should be parsed out and analyzed separately to see what the real time to foreclosure is, versus ones that the banks have dropped and/or are not initiating (and I don’t mean dropped by virtue of being contested, I mean left in limbo by the bank)…

And it is not accident that the apparent longest time to foreclose is in New York. Judges here have become particularly bloody minded about adhering to the law; the notorious curmudgeon Judge Schack now has plenty of company, with other judges issuing rulings that have gotten attention nationally (I particularly enjoyed the MERS smackdown that basically said, “I don’t really care if you have 62 million mortgages, rules are rules”). The article points out some of the procedures New York has implemented:

And many foreclosure lawyers seem unable to meet a requirement, made last October by the New York Chief Judge Jonathan Lippman, to affirm the accuracy of their documentation.

“The affirmation has had a pretty chilling effect,” said Ann Pfau, New York’s chief administrative judge. “The attorneys for the banks tell us they can’t get through to the right people at their clients who can verify the information.”

This is a stunning admission. Note that the New York procedure did not impose a new legal standard per se; lawyers are supposed to verify the accuracy of filings that as a matter of course. But it increased the consequence of casual violations.

Yves here. If you read the post below, Jurow talks about pre-foreclosure notices being sent repeatedly. That’s consistent with the picture above. Moreover, his post points out that a notice of default is valid for “only” three years; it then has to be refiled. So properties that have had to have notices of default filed more than once might not have multiple pre-foreclosure notices counted properly. Jurow says the authorities have the number of repeat pre-foreclosure notices on the same property as 40%. I would bet it’s higher by counting “repeats” on the same notice of default.

Now why would servicers behave this way and keep quiet about the problem? In an securitization, there were requirements for geographic diversification, so mortgages from New York would not account for much of the original value of any deal. But most of these zombie mortgages are likely in trusts sold before the crisis. In those, you’ll have only a very small portion of the original deal left, due to mortgage exiting the trust via normal sale processes (moving, death, divorce, trading up), refinances, and foreclosure sales where state law and post-crisis decisions were bank-friendly.

So the tail-ends in these trusts will be the small number of mortgages that are still in them and paying on time, the occasional home sale or refi leading to a mortgage payoff, and then the zombie mortgages. On those, the servicer charges late fees which have priority in payment, so it gets to bleed what little is left in the trust by not foreclosing.

Put more simply: New York’s crackdown on foreclosure abuses led it years ago to be the most difficult state in the US for cutting corners. And that quickly led to a big backlog of delinquent mortgages not going to foreclosure. That means you can’t generalize from New York to what is happening in any other state.

By Keith Jurow, a real estate analyst and former author of Minyanville’s Housing Market Report. His new report – Capital Preservation Real Estate Report – launched in 2013. Originally published at KCS Blog

With the Mortgage Bankers Association’s (MBA) monthly report continuing to show a decline in the delinquency rate, pundits are more convinced than ever that the mortgage crisis is over.

Since I have written extensively about the growing delinquency problem in the New York City metro for more than six years, let me explain my skepticism and how the truth has been hidden from the public.

In 2009, the New York State legislature passed a statute compelling all mortgage servicers to send out a pre-foreclosure notice to all delinquent owner-occupants in the state. The notice warned them that they were in danger of foreclosure and explained how they could get help. Servicers were required to regularly send statistics back to the state’s Department of Financial Services for all notices sent out. The department published two reports in 2010 with a compilation of these numbers. That was the last time these statistics were officially reported. I strongly suspect that the numbers were a little too scary.

Undeterred, I was able to obtain the unpublished figures from the person in charge of compiling the pre-foreclosure notice filing statistics at the department. For six years, I have received quarterly updates from him and have published several articles using them. The actual numbers are mind-boggling and hard to believe. I speak to my contact regularly about them and I am convinced that they are complete and extremely accurate.

The latest update shows cumulative figures through the first quarter of 2017. It covers only the five counties of New York City as well as Nassau and Suffolk Counties on Long Island. Totals for the entire state are also included. Here is a brief summary of what the data reveals.

Since February 2010, mortgage servicers have sent out a cumulative total of 1,034,876 pre-foreclosure notices to delinquent owner-occupants in New York City and Long Island. That’s right – more than one million. This does not include delinquent investor-owners because that was not required under the 2009 law. Approximately 85% of these notices were for delinquent first liens and the remainder were for second liens.

Numerous phone conversations with my contact have made it clear that roughly 40% were second or third notices sent to the same property. These are not duplicate notices. The servicers have been sending repeat notices to owners who have not taken action to cure their delinquency for more than a year and have not yet been foreclosed.

This is confirmed by related figures published monthly in the Long Island Real Estate Report. For the last 18 months, nearly half of the formal notices of default filed in Suffolk County have been repeat notices. Why? In New York State, a default notice (known as a lis pendens) is only good for three years after which it expires. Hence lenders have had to file a new default notice for borrowers who have been delinquent for more than three years.

The Suffolk County statistics reveal how terrible the serious delinquency situation has become in the New York metro area. Although 297,000 cumulative pre-foreclosure notices have been sent to deadbeat borrowers in Suffolk County, less than 1,000 formal default notices have been filed each month on these properties since late 2009.

How is that possible? The answer is simple. Mortgage servicers have been compelled by statute to send out pre-foreclosure notices to all delinquent owner-occupants, but it is entirely up to the discretion of the mortgage servicer whether or not they file a formal default notice on the delinquent property to begin foreclosure proceedings. For almost seven years, the servicers have chosen not to foreclose.

Some of you may argue that these shocking pre-foreclosure notice numbers don’t reveal very much because many of these delinquencies must have been either (1) brought current by the borrower or (2) foreclosed by the servicing bank. That is a reasonable objection. But you would be wrong.

As for foreclosures, I have reliable figures from Property Shark that an average of only 1,548 properties were foreclosed annually in New York City between 2012 and 2016. From its 2015 State of New York City’s Housing and Neighborhoods Report, we learn from the well-respected Furman Center for Real Estate at New York University that an average of only 300 properties were foreclosed and re-possessed each year by the lenders annually from 2011 to 2014. This was in a city where more than 531,000 pre-foreclosure notices have been sent to deadbeats since early 2010. The Furman Center report also showed that an annual average of only 12,800 formal default notices were filed on delinquent NYC properties between 2011 and 2015.

What about the idea that many of these delinquent property owners have probably brought their loans current after receiving a pre-foreclosure notice? Remember what I explained earlier – roughly 40% of these pre-foreclosure notices are second or third notices sent to borrowers because they have not paid the arrears owed.

Furthermore, I published an article last November with figures from Fitch Ratings showing that 53% of all delinquent non-agency securitized loans in the entire state of New York had not made a payment for more than five years as of August 2016. New York City alone had roughly 225,000 of these non-agency loans outstanding. As of February 2016, 37% of them were seriously delinquent. That is the worst delinquency rate for any major metro in the nation. This percentage has climbed steadily for the last five years. The notion that many delinquent owners in the NYC metro have cured their delinquency just will not hold up.

Conclusion: Even if my analysis is rock solid, a legitimate question remains. Does it have implications for the delinquency situation of any other major metros? This is important.

No other metro in the nation has delinquency statistics as comprehensive and reliable as those for NYC. I would go so far as to assert that we are really in the dark when it comes to any of the other two dozen metros where the housing collapse was focused.

I would like to suggest two premises for you to think carefully about. One is that the delinquency statistics you read from the MBA’s monthly delinquency report are inaccurate, incomplete and quite useless. To rely on them in order to assess the state of mortgage markets is not a good idea.

My other premise is that the delinquency rate for most of the other major metros which had major housing collapses is much higher than you think. All data firms that claim to have solid delinquency figures are totally dependent on the numbers they obtain from mortgage servicers who are their clients. I have learned from seven years of digging deep for reliable data that numbers from the servicers are notoriously inaccurate, incomplete and often just made up.

If you dismiss these premises out of hand, you risk having your real estate portfolios decimated when the housing crash resumes.

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  1. perpetualWAR

    The real story across the nation is that judges are suspending the rule of law to allow the banks to literally steal these homes. The banks have no idea who owns them, but the courts couldn’t give a rats FAMILY BLOG.

    1. Debra

      Yeah, this is the story that’s never become a story. And it’s what caused me to lose hope in President Obama. Despite some early hints otherwise, he (and every regulatory and enforcement agency) completely ignored the fact that banks, investors and servicers stole millions of homes. It was the biggest heist of the century and the judicial system completely failed. It was far worse than any sketchy deal Trump and family ever concocted.

      1. Smarterthanilook

        Yep. Don’t know if it’s sketchier because Trump owes Deutche Bank a hell of a lot of money but it’s a huge untold story,

        1. Yves Smith Post author

          No, Trump does not owe Deutsche Bank money. Trump-owned entities do, mainly entities that hold real estate assets. Trump’s real estate is very much underleveraged. The idea that Deutsche has some sort of hold over him is nonsense.

          There are plenty of reasons for criticizing Trump but this site no tolerance for narratives that so badly distort facts that they amount to conspiracy theory. See our site Policies for more detail.

          I suggest you choose another handle. You are advertising that you have a case of Dunning Kruger syndrome.

    2. Keith Jurow

      Nonsense Debra. The servicers had drastically curtailed foreclosures around the country by early 2010. This was not because of the fraud, but to stop the collapse of home prices. Yves should know this. Read some of my past articles ( and you’ll read the details of this effort. Right now, there is not a single metro in the country where foreclosures are proceeding to any great extent. But there are still millions of delinquent homeowners living in their houses on which they have not paid a cent for years. Think that’s right?

      1. Yves Smith Post author

        She is not wrong. It is 100% false to say foreclosures slowed down in 2010. It was a record year and that was after many servicers stopping or drastically curtailing foreclosures when the robosigning scandal broke in October of that year.

        And you do not appear to have factored in how servicers are compensated and therefore what their incentives are.

        For those homes where the bank held the mortgage, they would care about seeking the best recovery value. But that is not the case for mortgages that were securitized. You can see that on homes they have as REO (and they had tons in Florida). They didn’t secure or maintain them. They’d regularly be squatted in and/or be stripped of appliances and copper.

        Servicers are paid to foreclose. They are not paid to modify mortgages.

        By contrast, in every other type of loan where it’s big enough to be worth the hassle, lenders will lower the principal amount for a borrower in trouble since they know half a loaf is better than none. That’s the logic behind Chapter 11.

        It’s hardly a secret that people with high credit card balances can get them cut by 25% and get a rate reduction if they or better yet an attorney calls the credit card issuer and says the borrower will declare bankruptcy and they’ll get less.

        These borrowers didn’t want a free house. Many borrowers who were foreclosed upon only missed one or two payment, but many deals had “pyramidying” fees that would assure a foreclosure. I know personally of a case of a single disputed late payment (as in the guy made every single payment) being compounded in a foreclosure.

        All they wanted (in a surprisingly high percentage of cases) was to get their records fixed, and in the ones where they were bona fide payment issues, to see if they could work out a modification, which banks would do as a matter of course in day when they held the mortgage.

        So you appear to be losing sight of the fact that the investors are big losers, not just the borrowers, from preventable foreclosures.

        1. Keith Jurow

          Yves — I know you have your agenda about the big bad banks and evil servicers, but why can’t you talk about what I actually discuss in my article? All my data is absolutely accurate.

          Let me clarify what I said about the servicers sharply reducing foreclosures. NYC metro was the most egregious example as I explain in my Feb. 2017 article in In LA, foreclosed properties put on the market had plunged by mid-2010 and a year later in Chicago.

          I am no fan of of the servicers and have often said that their numbers are very inaccurate and often made up. I have never excused them for what they did. They continue to lie and believe they can get away with it. But I have no sympathy for deadbeat borrowers who just try to stall the foreclosure and haven’t paid a nickel for five, six or seven years.

          No reader has ever criticized the accuracy of what I have reported over the last 7 years. You can dispute the conclusions I draw from them. No problem there.

          1. JTMcPhee

            Deadbeat borrowers vs. the thieving banksters. Which one is the bigger set of sinners? Calvin knows…

          2. H. Alexander Ivey

            But I have no sympathy for deadbeat borrowers who just try to stall the foreclosure and haven’t paid a nickel for five, six or seven years.

            And no one else does either, Mr Jurow. But just who are these “deadbeats” you are talking so flippantly about? Got specific numbers where the people in the house haven’t ‘paid a nickel’? Or you simply extrapolating from foreclosures (which most emphatically are NOT about deadbeats families refusing to pay what they thought they had signed up for)?

            I don’t have numbers either, but I have seen court cases where the judge ruled that the ‘deadbeat’ can live in the house because there was no proof of who owns the mortgage. I wouldn’t consider those cases ‘deadbeats’. They are simply people who found a fair and honest judge – rules are rules and the mortgage was not conveyed properly.

            Why all the latent sympathy for the banks and investors? Don’t they deserve opprobrium for their lending to people who did not pay back? The banks and investors have a lot more means of predicting whether a person can pay back the loan than the loanee. Or do you believe that people who made the primary mistake (lending the money, giving the mortage) should not bear the primary loss?

          3. perpetualWAR

            The only reason that NY foreclosures have taken so long is because the dirty bank attorneys are unwilling to verify that all the forged documentation the *big bad banks* (your words, not mine) submit to courts are true and accurate. What’s shocking is these dirty attorneys don’t want to put their careers on the line to verify forged documents! Yet, in every other state, courts are using these fraudulent docs to allow the crooked financial industry a HUGE land grab.

            So, Mr. Jurow, keep displaying your vast ignorance of the suspension of the rule of law. I, for one, enjoy seeing total incompetance and ignorance displayed. As this is what makes propaganda work.

            Your puppet masters should be very proud.

  2. Sue

    There is an evident correlation between pre-foreclosure notices and notices of default, but there is an immense ocean which separates both too and , at any rate, the former would be more relevant with a longer historic track record-which does not exist, as the NY pre-foreclosure notices issuance is too new of a requirement-. What triggers the servicer to issue a pre notice? For what I recall, the mortgage servicer can not initiate legal actions towards foreclosure proceedings if a pre notice has not been sent to the account holder and never within 90 days after such notice had been sent. In other words, the pre-foreclosure notice has become the equivalent of what before was a “mild collection” letter addressed to the borrower when the delinquency was 30 or even less than 30 (payment 30 days late and current month dq). For example, if the notice of default is considered the beginning of the legal actions, the servicer understandably will issue the pre-foreclosure notice at an incredibly early delinquency stage. Just from this perspective Jurow’s numbers are not particularly alarming.

    1. Keith Jurow

      Sorry Sue, but the pre-foreclosure notices are very different. I have stats from my contact at the Dept. of Financial Services and quite a lot of these notices aren’t sent out for months after the initial delinquency. Yves is simply incorrect in her interpretation of their significance. I have spoken to my contact numerous times and he keeps very accurate records. Second and third notices are just that — sent to a delinquent borrower because nothing has been done to resolve the delinquency after a year, or two, or three, or four. The more than one million notices sent out to borrowers in the NYC metro has nothing to do with what Yves discusses. These deadbeats know that if they stop paying the mortgage, it could be five years before their property is foreclosed. Wouldn’t you be tempted to default?

      1. Sue

        I have very different information and the regulation’s wording seems to backup my position. All you need to do is talk to low level mortgage service employees. They will tell you what is really going on. Pre notices, from a legal purview, provide the borrower a time and an informative based protection against a rushed foreclosure; yet, for a better picture of a true risk default probability index ,pre notices would need to be broken down into the old dq categories, that is to say, current month dqs, 30s, 60s and so on. My reports tell me that borrowers with a payment due date on the first of each month and who, systematically cannot pay until the end of the month, are receiving these notices every month-and of course are charged the outrageous late payment fees month after month-. You state that:
        “Second and third notices are just that — sent to a delinquent borrower because nothing has been done to resolve the delinquency after a year, or two, or three, or four”
        But, don’t you understand that behind your “resolve the delinquency ” concept are thousands of people who are “every month late on time” because do not have the means to correct the damage caused by what it was a late payment once before? Don’t you understand that if the servicer does not send the pre notice right away, it won’t be able to issue a notice of default until the account is at least five or six months past due?
        Let’s put it like this: if your argument is right, a NY mortgage default tsunami should hit in less than six months from now. Let’s talk again in December 2017

        1. Keith Jurow

          Sue — I’ve been writing about the NYC delinquency problem for seven years. I am the only one in the nation who has actually seen the quarterly pre-foreclosure notice figures since they have not been published since Oct. 2010. Have you seen them? I speak regularly with the person in charge of the data at the Dept. of Financial Services, so I know exactly what they mean. If you have specific information as you suggest about “what is really going on,” please send them to me through my website messaging platform at I’d be glad to look at them.

      2. Yves Smith Post author

        The idea that borrowers choose to default is a right wing meme successfully propagated by banks justifying their foreclosure abuses. I saw how it was being promoted real time from 2010 with no substantiating evidence whatsoever (as in I debunked the one or two obviously flawed studies designed to provide a veneer of validity).

        Independent of the loss of equity in the home is the damage to one’s credit record. Credit records are now reviewed as part of virtually any job screening, even for low level jobs where it would appear to be irrelevant.. A bad credit history = no or extremely diminished job prospects. In a world where average job tenures are 4.4 years, which means if you are currently employed, you need to subtract your current time in service to get at an average time left, is a huge risk. And that is before having to live with the stress that the bank can come after you at any time.

        1. Sue

          Very true! It is incredible to think how years ago personal credit history not being considered during the hiring process was part of the conversation and now everyone takes it without many public complaints. The disciplinary action by the financial industry over the rest of mortals is multifold.

  3. Byron the Light Bulb

    I’ve seen assignment allonges twice-stamped: one stamp transferring the mortgage from, say, National Bank Subsidiary A to National Bank Subsidiary B, then a second stamp transferring the mortgage back from National Bank Subsidiary B to National Bank Subsidiary A. The dates of transfer were then seemingly written in sometime after the fact. I know this was done to accommodate the back office assembly line, but I always wondered if the asset was double-booked on the balance sheets at any point, then sorted back according to how the loan asset panned out.

    Of course in hindsight, this might be tiny tater tots compared to the creation of MERS and the subversion of 1,500 years [or more] of common property law, and the unilateral usurpation of the people’s right to keep factual records of land ownership. Was any of this contrary to criminal statute?–Probably not. Were there civil damages?–Absolutely, but good luck finding precedent to defend the inevitable appeal. Funny thing about a corporation’s infinite ability to settle with a state gov’t or otherwise: settlements don’t make case law and they can’t protect the rights of others in the future.

    1. perpetualWAR

      Of course these notes were multiply-pledged!

      That’s why all of the PSAs have no mortgage loan lists attached to the SEC listing. Additionally, all the PSA docs are unsigned. These are SHAM trusts. Many have not even been legally formed.

      Servicers are literally stealing these homes through unlawful foreclosures with forged and manufactured documents.

  4. Susan the other

    Love the sentence about NYC’s bloody-minded judges following in the footsteps of Judge Shack – whom I had forgotten about. What’s not to love about MERS eating it raw, still after all these years. Maybe we could yet get some class action lawsuit that seeks damages for every clouded title. Calling Lynn Sczymoniac. (sp?)

      1. Keith Jurow

        That is total bull, but widely believed. Foreclosure completions have dropped precipitously since 2011. The truth is that servicers around the country will do almost anything to avoid foreclosing. Read my other articles if you want to learn more.

        1. Yves Smith Post author

          The commonly cited figure, which has been used in Congressional testimony, is that 9 million homes were foreclosed upon post crisis, as in completed foreclosures. I’ve written repeatedly on how the lack of any method for capturing mortgage data on a consistent basis, even the huge variation in estimates of how many homes have mortgages, means all the data is pretty squishy. Even so, the 2017 article below shows 8 million total completed foreclosures post criss. That’s relative to an estimated 53-55 million homes with mortgages during that period. Completed foreclosures dropped only by roughly 100,000 per year after the peak year of 2010, less than a 10% drop per year. That’s hardly “precipitous”.

          About 25% of the mortgages pre crisis were subprime, per the Chicago Fed. About 40% of those defaulted. That gets you to roughly 10% of total mortgages. For the remaining 75%, we can use Fannie and Freddie as a proxy. Default rates over the 13 years prior to 2013 per the most analytically rigorous mortgage analyst, Laurie Goodman, were 3.7%. 22% of the loans were rehabilitated, taking you to 2.9% that should be foreclosed upon. 75% x 2.9% takes you to 2.2% of the total. 10% + 2.2% = 12.2%. That is actually LOWER than the 7.7 million mortgages/54 million average mortgages above, which puts completed foreclosures at 14.3% of mortgages.

          So the data simply doesn’t support your contention, ex the de facto prohibition of foreclosures in New York State if you can’t prove title, that there are tons of people who have defaulted and not been rehabilitated where the servicer has not foreclosed. That is also consistent with how many cases there were of banks proceeding with foreclosures in judicial foreclosures even when the borrowers tried contesting the foreclosure.

          The homeownership rate in the US dropped from 69% to under 63%, in a period of population growth, largely due to foreclosures. Where do you think private equity found all those rental homes to buy?

          And the reason foreclosures dropped was the reason I cited, the fact that the trusts didn’t have a clear ownership in many cases due to failure to transfer mortgages to the trust properly, and that posed a serious impediment in judicial foreclosure states. You curiously ignore the fact that this wouldn’t be anywhere near the same issue in non-judicial foreclosure states.

          The peak month for completed foreclosures was September 2010 with approximately 120,000 foreclosures nationwide in that single month. It was at this point that a moratorium on foreclosure sales was initiated by most of the large mortgage services in reaction to wide reports of so-called robo-signing of foreclosure documents and other irregularities in the legal process. Despite the moratorium, the year closed with a total of 1.2 million foreclosures. Since that 2010 peak, the number of completed foreclosures has steadily declined, dropping by nearly 100,000 each year through 2016.

          Corelogic has one of the very best databases. This is about as good as you will get.

        2. JTMcPhee

          Total bull, KJ? Some have named Florida as poster child for the “foreclosure mess.” But since we have NASA and the Space Center here, we also have the “rocket docket,” where judges are under mandate from the legislature (no co-equal branches down here) as a result of banksters lobbying and that $h!t we have for governor, to clear all those pesky rotten foreclosure entries off the bench tout suite.

          Due process? Rule of law? Haw haw. One wonders, since you used the loaded term, what YOUR agenda might be?

        3. perpetualWAR

          You are entirely wrong, Mr. Jurow.

          Try reading a few judicial decisions and then read some from Judge Schack (God bless his honest soul.)

          You haven’t the faintest idea of the crimes being committed against the homeowners nor how these crimes are being totally ignored by our courts!

          Please answer me this:
          Why are banks using Lost Note Affidavits & Indemnity Agreements (for escrow companies) when reconveying properties now? The original note is no longer sent to escrow before the monies are dispersed? I would really like to hear your answer to this.

    1. justanotherprogressive

      I know very little about the financial world – I don’t know what these headlines actually mean. I’m glad Yves understands and can explain to the rest of us, and call BS when necessary. I’ve learned so much from NC about this part of economics!

  5. Enquiring Mind

    There are, of course, some unintended consequences of all that mortgage industry shenaniganery. For example, pity the fool looking to have a decent credit score, or attempting to repair one, when loan servicers, banks and who knows how many others submit multiple incorrect entries.

    Given how often credit scores are used, by sometimes unknown vendors, for indirect analysis of one’s worthiness, say, for insurance in states where not disallowed, or other non-credit purposes, what is the average citizen to do?

    1. perpetualWAR

      Keep in mind, some employers now look at credit scores too. Just another way to screw the poors (formerly middle class.)

  6. Jim A.

    On the one hand, in the vast majority of these cases, the borrowers did intend to pledge the property as security for a loan, and then failed to make the payments that they had agreed upon. So losing their house because they haven’t made the agreed upon payments IS exactly what can be anticipated and expected, and isn’t a horrible miscarriage of justice. On the other hand, because the consequences of taking somebody’s home away from them are SO severe, most states have pretty tight requirements on the paperwork and when it has to be filed to foreclose. In the RE bubble mania, lenders didn’t simply lose some paperwork here or there, they simply decided to ignore wholesale the requirements necessary to foreclose on the property in the event that the borrower fails to make their loan payments. At some level, a vast number of loans made to buy property should now be regarded as unsecured loans. And since the initial lender didn’t convey said loans into the trusts properly, they should be forced to take them back from the trusts at par.

    1. perpetualWAR

      You have ZERO knowledge of the crimes committed regarding the 2008 housing crash. ZERO.

      In my case, I have uncovered SEVEN different entities claiming to own the debt to my mortgage. Who the f*** would you pay???

      In addition, most states, including mine, put the onus on the BORROWER to pay the correct entity.

      If the servicer claims 7 different entities may own my purported debt, they have NO original promissory note & no original deed of trust, whaf the f*** would you do????

      J3sus H. Chr!st

    2. EyeRound

      “So losing their house because they haven’t made the agreed upon payments IS exactly what can be anticipated and expected, and isn’t a horrible miscarriage of justice.”
      Textbook American ideology–when will people start thinking through this differently?
      Point 1: The lender has recouped the “agreed upon” amount (the loan amount) several times over, as Dayen shows in his book. The lender is not hurting because the borrower, for whatever reason, has ceased making payments.
      Point 2: People were rendered UNABLE to make loan payments by the financial crash, which caused them to lose their jobs, their savings, their ability to pay for anything (other than food, absolute necessity for staying alive). And what rendered them unable to pay was–still is–the unholy machinations of the same banking system that now, having already recouped the sums loaned, demands that the borrower fork over her/his house to them.
      I think there is a legal term for this, but I don’t know what the term is–when you lend someone money against their collateral, then in order to collect the collateral you cause them to be unable to repay the loan.
      I dislike the term “deadbeat” for someone who does not or cannot make payments; Jurow’s jarring repetitions of that word clue what side he’s on (as well as other comments he makes here).

      1. Randall Stephens


        The term you’re looking for could be “interference with performance,” or “intentional interference with contractual relations,” or “tortious interference.”

    3. Yves Smith Post author

      You have no idea how bad servicer fraud was.

      1. Banks foreclosed upon homes where there was no mortgage, on servicemembers where it was illegal to charge the rates they were charging and foreclose, and on homes that had been burned down where they refused to accept the payout check from the insurer. There have been suits and regulatory sanctions for escrow abuses and force-placed insurance, which made some borrowers make short payment because they had not been given the bogus payment figure the bank had cooked up. I have had more than one servicer employee write to tell me that they had been instructed to hold borrower payments and deposit them late so as to create a late payment and earn the servicer late fees.

      2. If you were to read our series from nine whistleblowers on the Bank of America foreclosure review, you’d learn of even more frauds.

      3. Borrowers were told by servicers to become delinquent to qualify for HAMP mods, then were foreclosed upon, typically by the servicer repeatedly not processing the paperwork the borrower had submitted and falsely claiming it had never been sent it (borrowers had records of received faxes at the fax numbers they were told to use).

      4. As I said above, even for borrowers who had bone fide payment problems, a modification would have reduced losses to investors AND damage to real estate values in the area. A foreclosure reduces the value of homes in the neighborhood by ~10%.

  7. lyle

    The question is which part of the securitization got full paid. Yes the servicer got a lot of money in fees etc. But however the owner of a share in the trust did not get his interest stream and principal as anticipated. So the banks were ripping both sides of the deal off which is a good trick. Consider that a lot of trusts went to zero so the trust share holders lost.

  8. Randall Stephens

    The author’s use of the term “deadbeat,” both in his original piece, and again in his responsive comments, is an indication of 1) his bias, 2) his unintentional ignorance, 3) his willful ignorance, and/or 4) his denial (If I were a betting man, or woman, I’d put my money on it being a combination of 1, 3, and 4.). Whatever the case the author has severely undermined his own credibility by his repeated use of that known to be false, and clearly pejorative, term.

    Yves commented, “The idea that borrowers choose to default is a right wing meme successfully propagated by banks justifying their foreclosure abuses.” It appears to be a/the meme the author has bought into (Yeah, yeah, somebody point out that I’ve ended a sentence with a preposition. Go ahead. I dare you.).

    Yves further commented, “You have no idea how bad servicer fraud was.” True that. Almost no one knows how bad servicer, et. al., fraud was. Certainly our state AGs don’t know. They don’t know because they didn’t really bother looking.

    Consider the “settlement” with LPS in early 2013. 40 + state AG’s entered into an identically worded agreement with LPS, including this language at Article II., General Provisions, § 2.1, Agreement:

    “The parties agree to entry of this Consent Final Judgment (“Judgment”) without the need for trial, discovery in this action, or adjudication of any issue of law or fact.”

    It is not possible to come to reasonable, meaningful settlement when the extent of the misbehavior is unknown. That is just one example in a crap ton of deficient settlements that could be exemplified (Yes, “crap ton” is a legal term. Look it up in Black’s if you don’t believe me.).

    What I find most troublesome, however, is the author’s response to the suggestion that courts have been given a directive to foreclose. The author asserts “That is total bull.” I have to wonder upon what knowledge, skill, experience, training or education the author supports his abilities, and/or qualifications, to render opinions in such scatological identification.

    One need only have a rudimentary working knowledge of the rules of evidence, and civil procedure, and to sit in on some hearings or bench trials in judicial foreclosure cases, in order to easily recognize that trial court judges have abandoned those rules in their efforts to rule in near step lock uniformity favorably for the banks. Due process (both procedural and substantive) in foreclosure litigation is near nonexistent.

    Former OTS regulator William K. Black has said in regard to bank fraud that if you don’t look for it you won’t find, but if you do look for it you’ll find it everywhere. I would add to that you have to have at least a rudimentary working knowledge of what it looks like. Black has considerably more than that.

    Due process, lack of due process, and violations of due process, are similar. You have to know what it looks like before you can recognize whether it is present, lacking, or being violated.

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