Full story here. The short synopsis is that Notice of Defaults (NODs) are down in California, but 91% of that downturn can be attributed to Countrywide not posting them. Is it not a bad statistic if I fail to report it? One paragraph was of particular concern:

“Despite lender’s best efforts to discount, third-party buyers largely yet remain on the sidelines. Foreclosures hit a total of 28,795 properties during July; of those, 27,817 received no bid higher than the lender’s opening bid, meaning REO inventories are mushrooming throughout key areas in the state.”

For those keeping score at home, that means that only 978 homes got a bid that was bigger than what the bank was owed on the mortgage. That’s only 3.4% of the homes that go up for auction! I don’t see it as “the lender’s best effort to discount”, however, since they usually come in and say our mortgage on the place is $400,000, so that’s where the bidding starts. If it fails to get a bid, it then goes over to being an REO property. There is no starting the bidding lower [that I’ve experienced]. Of course, if you’re in an overstocked, declining market, maybe the latest comps only indicate $325,000 as the current price.  Who’d pay $75,000 too much? Definitely not someone who’s paying all cash. Having had some experience in the foreclosure game, I can tell you that there are only a few players in any given county who are able to come up with that much liquid cash. Rules vary by county, some require 100% cash at the time of purchase, some 10% at the time of sale and 10 days to settle the remaining 90%. These guys generally look at the existing comps, weighing toward the lower end, then taking 50% of that as their max bid for a house. So for the above example, your foreclosure buyer will offer max $162,500 (Our comp at $325,000 x 50%). This represents 40 cents on the dollar for the mortgage company’s return rate. Considering a slower market where getting a buyer financed into your foreclosure is more difficult, the property bids may be going down to 30 cents on the dollar.

Of course, this example is only good for a first mortgage. Seconds (as Countrywide was fond of giving) have practically no redemption. If they’re lucky, they will get $2,000-5,000 for their troubles and be gone, even when the 2nd was $100,000.

The moral of the story is that stated losses on mortgages are waaaaay off. Mortgage providers would risk their entire stock prices heading down the drain if they put out the true, ugly numbers.