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NOD Filings Plummet!

September 14, 2008

Did the market suddenly move from 50+ Notices of Default filed per day to 3? Is the market miraculously fixed overnight?

I was at a meeting this week where we were discussing the market, foreclosures and Notices of Default.

Up until September 6th, NODs were being filed at a rate above 50 per day and sometimes hovering around the 100 per day mark. September 9th there were 3 NODs filed.

We were trying to figure out this huge drop off in NOD filings. We came up with all sorts of ideas ranging from the fannie/freddie take over, changing market, etc. but it all boils down to recent legislation that makes it harder to foreclose on a borrower in default.

SB1137 is legislation that requires lenders to give the consumer an extra 30-day notification prior to filing the NOD. The lender is now required to meet with the defaulter in person or via the phone to “explore options” to avoid foreclosure. Loans originated 2002 and earlier do not have the 30-day requirement and could proceed with their NOD filing. Using the 3 filings vs the 50/day prior minimum, 94% of the loans in trouble were originated post 2002.

I have mixed emotions about SB1137. On one hand, I like to see lenders working with borrowers in default. On the other hand, lenders have [mostly] realized that foreclosing on a borrower is MUCH more costly than working something out. Even Fannie and Freddie recently issued a press release basically saying that they were actively working on loan modifications wherever possible. Lastly, the crisis that we are having is one of liquidity. Loans are more and more difficult to get, even with big downs and good credit. If California makes it more difficult for the lender to get their money back, no one will be lending here. Not a good idea given the current climate.

I have heard of properties selling 3-4 times because of problems with loans. Have you heard of or experienced this? Do tell!

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