Average Default Amount Nearly $80,000 on California NODs in May 2011
Maybe it does make sense to strategically default, at least if you live in California.
If you're a California homeowner who stopped making your mortgage payments in the last few years, you could have "saved" $80,000 on average in housing costs, according to an analysis of Notices of Default that were entered into the RealtyTrac database in May 2011.
You could use those savings for rent once the bank finally kicks you out, or possibly for a down payment on your next house when the delinquency or foreclosure has faded on your credit history. While you wait, that $80,000 could be earning you a minimum of $800 in interest each year with a basic savings account from somewhere like ING Direct. If you had put that $80,000 in Apple stock a year ago, it would be up to $96,000 today.
The analysis of California NODs was run after RealtyTrac released its May 2011 U.S. Foreclosure Market Report last week, showing that foreclosure activity dropped on an annual basis for the eighth consecutive month to just under 215,000 properties receiving a foreclosure filing during the month. The last time we saw 215,000 properties receiving foreclosure filings nationwide was in December 2007.
We believe the decreases of the last eight months are being artificially caused by foreclosure processing delays rather than a market recovery lifting homeowners out of distress and foreclosure. We can demonstrate that in part with our new Foreclosure Life Cycle report, which calculates the average time it takes to foreclose in each state. That reports shows that U.S. properties foreclosed on during the first quarter of 2011 took an average of 400 days to foreclose, compared to 340 days for properties foreclosed on during the first quarter of 2010 and 151 days for properties foreclosed on during the first quarter of 2007.
But in addition to the delays within the foreclosure process, we also believe delays before the foreclosure process even starts are making the monthly foreclosure activity numbers lower than they would be under normal circumstances. There is anecdotal evidence to support this (seems like everyone has a story of someone they know who hasn't made a mortgage payment in two years but still hasn't been foreclosed on), but now we have some solid data to back up the anecdotes. The average default amount of nearly $80,000 in May 2011 is up more than six fold from the average default amount of nearly $13,000 in December 2007, the last time we saw foreclosure activity levels as low as they were in May. The average default amount as a percentage of average loan amount is up more than 350 percent during the same time period.
Granted, this data is preliminary, and it's not clear whether we'll be able to run this for every state, but it's safe to say that homeowners in California who entered foreclosure in May were in much deeper delinquency than California homeowners who entered foreclosure back when the housing bubble was just beginning to burst. And this is one trend that's probably not just a California fad.