One certain outcome from the foreclosure crisis is an increased liquidation lag across all U.S. states.
"Liquidation lags are already extremely long," said Laurie Goodman, senior managing director at Amherst Securities Group, during a panel discussion at the Grais & Ellsworth conference called Robo-signers and Other Servicing Failures: Protecting the Rights of RMBS Investors. The gathering was held this week.
According to Goodman, liquidation lags are an average of 19 months in California and other judicial states and up to 25-months lag in Florida and other non-judicial states.
The percent of loans greater than 24-months delinquent — borrowers that have been sitting in their homes without payment for the last two years — that have been liquidated averages at 25% for California and other judicial states and 45% for non-judicial states. This excludes Florida where 24-months lag average at 50%.
"One consequence of robo-signing is that you extend the liquidation lag still further as servicers proceed to dot every 'i' and cross every 't', which they should have done to begin with," Goodman said.
She highlighted the unusually long liquidation lags at Carrington Mortgage Services and Countrywide. Subprime lags across all states — an average of both judicial and non judicial states — averaged at 19 months. For Countrywide, the lag averaged 26 months and for Carrington the average was 30 months.
In 2008, for 20-months delinquent loans, servicers liquidated approximately 10% of the loans by 3Q09, servicers were liquidating 6%.
"Now it's about 4% and that number is going to be different depending on whether it's a judicial state or a non-judicial state," Goodman said. For judicial states, she said that, on average, the liquidation of 29-months delinquent loans was 2% and in non-judicial states the average was about 5.5%.
"But Carrington and Country liquidate far fewer percentages of these delinquent loans than the market as a whole," Goodman said. "Why are they much slower? Carrington owns the residual on their deals and Countrywide own Balboa, their captive insurance company. So when a borrower stops making their mortgage payments, Bank of America force places the insurance with Balboa at a much higher rate than market weight."
She added that it makes sense that these servicers would be much slower to liquidate and, in fact, they are, which she cited as another conflict of interest for securitization.