Foreclosure, Default, Delinquency, REO — All Mixed Up

If I’ve learned anything from reading the often wildly-entertaining posts by Tanta over at Calculated Risk, it’s that she doesn’t tolerate fools very well. And the thing is, very few people really understand the inner workings of the mortgage servicing industry in particular — which means anyone at a major media outlet attempting to write about the mortgage market these days is pretty much bound to come off looking like a fool to any of us who have actually worked in the industry before. This past weekend’s diatribe was induced by the age-old use of “foreclosure rates” to buttress some politically-motivated inanity over at The New York Times and other media outlets. The following tidbit underscores an issue I ran into time and time again when I was working in even the industry’s trade media, trying to get stats to provide readers:

Some servicers may not even report loans in foreclosure—a state a loan may be in for many months before it becomes REO and the REO is liquidated—in the “delinquentâ€? category, which is why you find nerds like me getting occasionally rather anal about the terms “delinquentâ€? and “defaulted,â€? or “seriously delinquent,â€? or “non-accrual,â€? or “non-performing,â€? or “collateral-dependent,â€? or any of the other categories problem loans may be found in, depending on what one is up to and whose book is involved (servicing a loan, accounting for assets or loan income, taking an impairment, etc.). Even with a “vintage anaysis” that separates loans into year of origination, you have the potential problem of a purchase loan that closed in January being refinanced in September and becoming delinquent in December. That’s two loans, one early payoff, one EPD, one year, and one borrower.

I mention the above because I was lucky enough a few months back to catch wind of a pretty interesting attempt in the REO industry to collectively establish a standardized and industry-owned REO reporting database that could be used to determine REO liquidation rates, third-party sale rates, and more. (Think LoanPerformance but much more granular for REO.) The idea was to create a rating system that would make it possible to see where each shop in the industry really stood relative to the others. (If you’ve ever worked in REO, you know that every servicer and every vendor offers the best time to disposition in the industry — since nobody has the data to prove it, everybody tends to lay claim to the throne.) Nonetheless, I haven’t heard or read anything on the effort, which makes me wonder if it fell victim to the sort of problems that had Tanta on her pulpit early today.

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