California No Longer Foreclosure Kingpin? Playing with the data… again.
Yesterday, the Orange County Register published an article under the headline, â€śCalifornia no longer the foreclosure kingpin,â€ť and it caught my eye for a couple of reasons. Â Something was definitely rotten in Denmark, as Marcellus once said (in Shakespeare’s Hamlet, in case you don’t recall.)
For one thing, I wasnâ€™t aware that California was ever considered the â€śforeclosure kingpin,â€ť or what being a foreclosure â€śkingpinâ€ť actually means.Â Iâ€™ve heard Florida being referred to as something similar, and Iâ€™ve watched Arizona and Nevada jockeying for some sort of foreclosure leadership position, but Iâ€™ve never heard anyone say that California was the kingpin of foreclosures before I read the headline in the OC Register yesterday. Â
(I’m not saying California hasn’t had more foreclosures than other states, but it’s also a whole lot larger than other states, right?)
The other reason I stopped to read what the articles had to say was that the caption under the photo at the top of the article said the followingâ€¦
â€śLast year, 3.8 percent of mortgages in California were â€śnon-currentâ€ť â€“ from 90 days late to actually in the foreclosure process, according to mortgage trackers at Black Knight Financial. The California non-current rate fell by 13 percent from 2014.â€ť
Oh, how I do enjoy math problems, so as soon as I read it twice to straighten out in my mind what was and wasnâ€™t there, I dove right in.
First of all, the sentence says that last yearâ€¦ meaning in 2015â€¦ 3.8 percent of mortgages were â€śnon-currentâ€ť and that non-current is defined as being 90 days to anywhere in the foreclosure process.Â Thatâ€™s a tad vague for my liking, but Iâ€™ll overlook it for the moment anyway so we donâ€™t get bogged down in minutia.Â
Then weâ€™re told that the non-current rate was higher in 2014 and fell by 13 percent to reach the 3.8 percent number in 2015.Â And 13 percent does sound like a respectable drop in one year, right?Â At least to me it does.
If the non-current rate in California fell to 3.8 percent in 2015, that means that it would have been just under 4.3 percent in 2014â€¦. and correct me if Iâ€™m wrong, but thatâ€™s onlyÂ one half of one percent lowerâ€¦ from 4.3 to 3.8 percent.
Thatâ€™s the huge news behind the headline California no longer the foreclosure kingpin?Â Seriously?Â Will there be a parade involved?Â A television special?Â I wouldnâ€™t think so.Â Â
In fact, one half of one percentage pointÂ drop in the loosely defined non-current rate could just be a statistical anomaly since the data came from Black Knight Financial, which used to be LPS, and theyâ€™re a company that tracks roughly 40 percent of all mortgages.Â So, the one half of one percentage pointÂ drop in the non-current rate, if it didnâ€™t sound small enough already, might be within the margin or error and therefore not even be there at all!
I wonder who Black Knightâ€™s PR firm is.Â I donâ€™t know, but Iâ€™m guessing theyâ€™re big and from New York.Â Whomever they are, theyâ€™ve got serious clout if they can get the OC Register to run a headline like that with a story that starts like this one did with a questionable statistic of minuscule stature in the first place.
The article went on to report thatâ€¦
â€śNationally, 6.1 percent of mortgages were non-current in 2015, a drop of 17 percent in the rate from 2014.â€ť
Okay, so nationally, the non-current rate went from 7.13 percent to 6.1, which first of all is only a 14 percent drop if calculated the way they’re calculating it… but secondly, another way of saying the same thing is that it’s only a drop of a smidgeon over one percentage pointâ€¦ from 7.13 to 6.1 percent.Â
Again, Black Knight only tracks 40 percent of the nationâ€™s mortgages, so if the margin of error is plus or minus 2-3 percent, which you can be certain that it is… then the one percentage point drop would be within that marginâ€¦ and therefore only a statistical mirage.Â
I justÂ donâ€™t see how that small amountÂ of movement makes any state a â€śkingpinâ€ť or removes such an auspicious distinction either.
There are many reasons I could think of that could causeÂ a drop in Californiaâ€™s non-current rate in 2015.Â Like, for oneâ€¦ maybe with inventory being so low, prices wereÂ higher so homes that could sell, were put on the market instead of sitting there with a homeowner struggling to stay current on monthly payments.Â
Or, maybe there were more homes in foreclosure in 2014 then there were in 2015 andÂ the drop just represents fewer in actual foreclosure, meaning a Notice of Default had been issued, whileÂ the same number or even more showed up in the 90-180 days late column.
We canâ€™t determine the answer to that question from the data provided, but if thatÂ turns out to be the case, then weâ€™re just waiting for the other shoe to fall and take the non-current rate back where it was in 2014.
These numbers could be affected by an increasing number of subprime loans being originated in 2015, as discussed in a Scotsman Guide article of February 3, 2016â€¦ â€śSubprime loan volumes volumes stage a partial comeback in 2015.â€ťÂ Among other things, that article reportedâ€¦
â€śIn the first 10 months of 2015 through October, loans to borrowers with FICO credit scores below 620 (which is often called subprime) rose by 28 percent by count and 46 percent by volume, compared to the same period in 2014, according to the credit-reporting agency Equifax.â€ť
Or what about the change in the number of underwater homes in 2015 as compared with 2014.Â According to CBS News on January 16, 2016â€¦
â€śThe number of homeowners who are “underwater,” with a house that’s worth less than what they owe on their mortgage, was down to 4.3 million in the third quarter of 2015, compared to 5.2 million in 2014, according to CoreLogic, a real estate analytics firm. For context, back in 2011, 11.6 million households were underwater.â€ť
And, if the number of underwater homes nationally in 2015 fell by almost a million from 2014, which is roughly a 20 percent decline, then shouldnâ€™t foreclosures in 2015 nationally have fallen by more than just one percentage point?Â I mean, if underwater homes are the major factor in foreclosures, then 20 percent fewer underwater homes should mean more than a one percent drop in foreclosures, right?Â Am I missing something here?
They never seem to give you quite enough information to actually solve the puzzle on these things, have you noticed that?
The article ended with the followingâ€¦
â€śSince 2007, 7.1 million homes were lost through foreclosure nationwide. Some 1.2 million of those actions were in California, the state hardest hit by the Great Recessionâ€™s mortgage meltdown. Next was Florida (872,000) and Michigan (407,000).â€ť
Well, it is nice to see the numbers edging up to somewhere closer to reality.Â It seems to me that we were stuck at quotes about â€ś5 millionâ€ť homes having been lost to foreclosure for the longest time, so admitting to 7.1 million is at least a step in the right direction.Â Watch for that number to be adjusted upward over time.
But, what else can we know from the data points provided, and what are we missing?
Well, for one thing, we arenâ€™t told how many foreclosures there were in 2014 or 2015.Â Weâ€™re told the was a percentage decline, but we donâ€™t know whether that means that we went from a million to 800,000â€¦ or five million to four millionâ€¦ we just donâ€™t know from any of these reports.Â
Why not?Â I donâ€™t really know but if I had to guess itâ€™s because â€śtheyâ€ť donâ€™t like releasing those numbers because they look too large to supportÂ the argumentÂ that the crisis is behind us.
Here are the REAL POINTS of this articleâ€¦
- The headline in the OC Register about California no longer being the foreclosure kingpin is just flat out misleading.Â What the numbers in that article show is that in California, the non-current rate fell to 3.8 percent in 2015, from 4.3 percent in 2014â€¦. thatâ€™s a drop of one half of one percentage point.Â A half a percent point drop just isnâ€™t enough change to celebrate California no longer being the â€śforeclosure kingpin.â€ť
- Nationally, the non-current rate reportedly went from 7.13 percent to 6.1, which is only a drop of a smidgeon over one percentage pointâ€¦ saying that itâ€™s a 17 percent drop is again a very misleading way to phrase it.
- Nationally, the number of underwater homes is reported to have dropped by almost 20 percent, which sounds good, but during that same period the number of foreclosures only fell by roughly one percentage point?Â If thatâ€™s true, then itâ€™s clearly not underwater homes that are driving foreclosures, as many would have you believe.
Bottom-lineâ€¦ the foreclosure crisis is NOT OVER, as CBS also reported on January 26, 2016 under the headline: Americaâ€™s foreclosure crisis isnâ€™t over.Â But, it seems clear to me that the banking industry and our government seem to want people to think itâ€™s over.
Let me offer another example of what I’m talking about…
The OCC, which regulates commercial banks, recently published its Mortgage Metrics Report for the third quarter of 2015. Â On page seven the report talks about foreclosures decreasing 22.4 percent from the prior year, which sounds wonderful… until you read the footnote that says…
“Newly initiated foreclosures decreased 22.4 percent from a year earlier. The number of foreclosures in process decreased 23.8 percent from a year earlier (see table 4). Factors contributing to the year-over-year decline include improved economic conditions, foreclosure prevention assistance, and transfer of loans outside the reporting institutions.”Â (Emphasis added.)
See that last sentence? Â “Transfer of loans outside the reporting institutions.” Â So, transferring loans to Nationstar would fall into this category, because Nationstar is not a commercial bank, so it’s not regulated by the OCC. Â Bayview, Ocwen, Fay Servicing, Greentree, SPS, SLS… none of those companies are regulated by the OCC, so how much did foreclosures really decrease and how much of that decrease just represents loans being transferred to servicers that don’t report to the OCC?
Bank of America, Wells Fargo, JPMorgan Chase, Citibank, HSBC, One West Bank, PNC, U.S. Bank and Wells Fargo are the eight reporting banks that contributed data to the OCC’s report… and the report says that these banks only represent 10 percent of loans. Â Another 60 percent were reported on by the GSEs… Fannie Mae and Freddie Mac.
So, although I can’t tell exactly, it doesn’t take a genius to figure out that perhaps half of thatÂ decrease in foreclosures were simply loans transferred to non-reporting companies, likeÂ Nationstar and the rest. Â And if that weren’t enough, the data for 2014 represents a full year, while the 2015 numbers are only for nine months.
Do you see how distorted this reporting becomes? Â It can’t be an accident, someone is trying to make it impossible to see clearly what’s going on. Â Otherwise, why report that newly initiated foreclosures decreased by 22.4 percent in 2015, compared with 2014… if the truth is that the decrease is closer to half that amount or even less?
There’s only one reason… to make people think that things are better than they really are… and I can see why some people would want others to think such a thing: It makes people more confident and that means more will buy homes, etc.
The problem is that it’s not true, and by lying to ourselves about the progress or lack thereof stoping foreclosures, we lose the political will to make loss mitigation programs better… and they really need to be better if we’re going to see the end of the foreclosure crisis anytime soon.
Well, after writing this, I’d like to say more and I have a lot more to sayâ€¦ but I need to lay down.Â My hair hurts.Â