The Foreclosure Process:
Foreclosure processes vary by state. Typically, a foreclosure process is initiated by a Sheriff's or Public Trustee's Sale through an attorney. This is referred to as "Day 1" in the foreclosure process. Before this can occur, there needs to be a record of payment delinquency of three months or greater. During this time frame, the borrower will receive a "Demand Letter" or a "Notice to Accelerate."
If the borrower does not make arrangements with the lender to keep the mortgage current, then the lender can proceed to initiate foreclosure. The lender will hire a local an attorney to facilitate the selling process. Once an attorney has scheduled a sale, then an actual sale can be made. This final step can also vary by state and in some cases, can occur as quickly as two to three months (HUD).
Why Measuring Foreclosures Is Difficult:
There are at least three barriers that make it difficult to completely and uniformly measure or estimate the number of foreclosures in the U.S.
Lenders prefer not to disclose the number or dollar volume of foreclosed properties on their books since it can show signs of stress in their ability to originate loans, and imply weaknesses in underwriting standards.
Each state has different foreclosure rules, and there is no comprehensive database that tallies the foreclosure count for all areas in the United States.
Because of the subprime crisis, many small mortgage lenders have failed and sold their loan portfolios to other firms to service.
What Moody's Economy.com Provides:
There are three major sources that measure of mortgage delinquency and foreclosure that Moody's Economy.com has available for download.
Mortgage Bankers Association National Delinquency Survey
This survey breaks down delinquency by severity (days late), and lists foreclosure starts and inventory (ongoing proceedings) -- all figures are expressed as percentages of loans serviced, not as levels. Detail is available at the national and state levels. The survey is quarterly, and lags by three months.
It's important to note that the percentage figures refer only to loans serviced by reporting MBA members. This is smaller than the full number of loans outstanding in the United States; the MBA does not include all lenders, and estimates that its survey encompasses approximately 85% of the U.S. mortgage market. Therefore, you cannot compute the number of foreclosures nationwide with the NDS -- you would be under-counting.
For more detail, please see this article in the February 2008 issue of DataBuffet.com Monthly Update ( http://www.economy.com/data/ocb/pro/DataBuffet_Monthly_Update/200802/dbmu_delinquencies.asp ) and the background document linked from the online catalog.
OCC and FHFA Mortgage Metrics Report
In late 2008, the U.S. Office of Comptroller of the Currency (OCC) and Federal Home Finance Administration (FHFA) initiated programs to track the performance of various mortgage products. Since these programs are new, they don't have much history yet. Moreover, geographic detail is limited to the U.S.
The OCC collects information on loan performance at nine national banks and five thrifts and tracks their performance by the profile of the loan-consumers at time of origination. The FHFA tracks similar information, but separates detail to the programs with which the loans are affiliated, including GSEs (Fannie Mae and Freddie Mac), HOPE NOW, and others.
See the announcements of these datasets in DataBuffet News in ( http://www.economy.com/support/blog/buffet.aspx?did=5768A415-A97D-4327-872D-6EDBA87429BD ) and ( http://www.economy.com/support/blog/buffet.aspx?did=5813C6E5-406D-4062-9FE0-2934AF9AFEFA ).
CreditForecast.com (separate subscription) is a joint venture of Moody's Economy.com and Equifax that uses a sample of 5% of consumer trades (accounts) in each of nearly 300 metro areas. This can measure the amount of delinquency from an individual credit report, but not the status of the foreclosure process of an individual home.
FDIC Statistics on Banking
The FDIC's "Statistics on Banking" aggregates the call reports submitted by banks that participate in the Federal Deposit Insurance Program, and is published quarterly with national and state totals.
It includes data on REOs ("real estate owned" by a bank). Banks book the property acquired through foreclosure as an asset if they are unsuccessful in disposing of it by auction. If the home for auction is "underwater" (the mortgage owed is greater than the value of the home), then a REO will most likely occur since any bid must include accrued interest payments, attorney fees, and other foreclosure-related expenses owed to the bank. In addition, many mortgage products resulted in "negative amortization" on the loan, such that the principal owed is greater than even the original purchase price in an inflated housing market.
Please note that, as aggregate data, this dataset cannot indicate the value of an individual property. Nor does it state the number or the dollar volume of actual foreclosures since banks may write-down (or up) the value of their portfolio of REO properties.
The American Council of Life Insurers Mortgage Loan Performance Profile is an alternative to the NDS, but the sample is much smaller. It reports on long-term residential and commercial mortgage loans and underlying guaranteed investment contracts held by life insurance companies; some 50,000 mortgages totaling $275 billion. Conversely, the NDS in 2008 Q4 encompassed 45 million loans.
Resources Beyond Moody's Economy.com:
Credit Conditions in the United States
The Federal Reserve Bank of New York publishes information from the LoanPerformance database of FirstAmerican CoreLogic. The dataset is monthly, by state, with numerous indicators; but it applies only to nonprime (subprime and Alt-A) mortgages. This dataset is not available for redistribution ( http://www.ny.frb.org/regional/subprime.html ).
There are other sources that attempt to estimate nationwide total foreclosures with various methodologies and limited geographic samples. However, there is presently no agency that provides an official number or dollar amount for foreclosures in the United States.
Michigan State University Housing Development Authority - Stages of Foreclosure ( http://www.michigan.gov/mshda/0,1607,7-141-45866_47905-177816--,00.html )
HUD - Are You At Risk of Losing Your Home? ( http://www.hud.gov/foreclosure/fctimeline.cfm )