Getting a fix on foreclosure data
As home foreclosures began soaring early this year, Nancy Burns of the Moorpark Redevelopment Agency was told to figure out how many homeowners in her city were in trouble.
The answer, she discovered, was 10.
Or maybe more than 100.
“I have no clue,” Burns said.
She’s far from being the only one who’s bewildered. The federal government compiles reams of data on home buyers and owners, but it doesn’t track how or why people lose their homes. Neither do most state or local governments.
A growing number of private outfits are stepping into this void. But the resulting data often are at odds, making it difficult to get a handle on the true dimensions of the problem.
The conflicting numbers are adding an acrimonious edge to the discussion. The dispute gets particularly heated over the figures from RealtyTrac, an Irvine firm that has become perhaps the most widely cited authority in the field.
RealtyTrac’s numbers tend to top all other figures because the company counts every step in the foreclosure process -- the notice of default, the auction, the house reverting to the lender -- separately. One house might be tallied several times as a foreclosure.
This is highly misleading, the company’s critics say. A Colorado housing official recently called RealtyTrac’s numbers “ridiculous and irresponsible.” The Mortgage Bankers Assn. chastised Congress for depending on the company’s data. RealtyTrac’s competitors are becoming increasingly vocal about what they see as its overstatements but are sometimes arguing among themselves as well.
“No one is measuring the truth,” said Mark Zandi, chief economist for Moody’s Economy.com. “This is a problem when formulating policy.”
Zandi takes issue not only with RealtyTrac for numbers he says are too high but also with DataQuick Information Systems, a La Jolla, Calif.-based research company frequently cited in The Times, for numbers he says are too low. DataQuick and RealtyTrac draw their numbers directly from filings in county recorders’ offices.
After four years of boom, the market in California last year definitely turned queasy. But RealtyTrac’s numbers show a full-fledged crisis, with 142,429 foreclosure filings -- one for every 86 households in the state, the company said in a February new release.
DataQuick reported less than a tenth of that total: 12,672 foreclosures.
“The RealtyTrac data is overstated, but no way there were only 13,000 foreclosures,” Zandi said.
His own data, based on a random sample of 5% of the consumer credit files assembled by data collection firm Equifax Inc., show 56,747 first-mortgage loan defaults in California last year.
Zandi acknowledges that the actual number of foreclosures is probably a little less than this figure, because some defaulting owners manage to save themselves, but says he stands by it as a more accurate representation of reality in the state than anyone else’s numbers.
John Karevoll, chief analyst for DataQuick, said Zandi, like RealtyTrac, was miscounting.
“You tell Mark Zandi we will go toe to toe with them, address by address, foreclosure by foreclosure. My numbers are right. I know they’re right,” Karevoll said.
How do three researchers arrive at such different results? The confusion begins in the county recorder’s office. In Los Angeles County, that’s a facility in Norwalk that gets 3 million documents a year, not only about real estate but also about births, deaths and marriages. They’re filed in no particular order.
“We record over 600 different titles of documents. A notice of default or trustee sale or notice of foreclosure is just one of them,” said Kathy Treggs, the manager of public records.
Foreclosure is popularly understood as an event: A homeowner can’t or won’t pay the mortgage and loses title to his or her house.
Yet foreclosure is really a process, one that can stretch over a year and vary from state to state.
It officially begins when the lender files a notice of default. This signals to investors that there’s trouble with the mortgage, and the beleaguered homeowner is often courted for a private sale. There’s also the possibility the owner can restructure the mortgage with his or her finance company.
If the borrower can’t negotiate a sale or refinance within three months or so, the house is scheduled for a public auction. Many of these homes wind up as the property of the lender. They are labeled REOs, short for “real estate owned.”
Deciding which of these moments constitutes “foreclosure” has become a matter of interpretation and dispute.
“No one can agree,” said Ryan Slack, chief executive of Propertyshark.com, a website that reported 2,453 foreclosure auctions in Los Angeles County in the first quarter.
That doesn’t mean that 2,453 families were forced out on the street, Slack cautioned. He estimated that more than half of the auctions were postponed or canceled.
“We’re a site for real estate investors,” he said. “You shouldn’t look at these numbers to formulate social policy.”
RealtyTrac has tried to straddle the line between selling data to investors looking for a profit and presenting broad trends to the media looking for a story.
It started in 1996 in Santa Barbara as an electronic bulletin board for real estate agents, notifying them of REOs that might be suitable for their clients. To promote its listings, the company began issuing press releases about foreclosure trends.
“Every newspaper has a real estate section, and every newspaper reporter has days where he has holes to fill,” said RealtyTrac Vice President of Marketing Rick Sharga. “Our objective was to position ourselves as the de facto resource for foreclosures. That would give us credibility.”
RealtyTrac is privately held, and Sharga declined to say how many subscribers pay $49.95 a month for its distressed-property listings. But he said the company had 200 employees, many added in the last six months.
“We’re being used by the FBI for fraud detection, the Federal Deposit Insurance Corp. for hot-spot analysis and predictive modeling, and the Federal Reserve for a nine-state analysis of foreclosure trends in the Midwest,” Sharga said.
The congressional Joint Economic Committee asked the firm for data to bolster a report last month titled “Sheltering Neighborhoods From the Subprime Foreclosure Storm.”
“We went to a variety of folks, and they had the best numbers, the most useful,” said committee spokesman Israel Klein.
The report painted a grim picture, saying “communities are struggling to stem the tide of foreclosures that impose significant costs on families, neighborhoods and cities.”
In Atlanta, 1 out of 23 homes suffered foreclosure in 2006, according to a chart in the report. In Dallas, it was 1 out of 26; in the Inland Empire, 1 out of 39.
With home prices heading down in 2007 and adjustable-rate mortgages resetting to rates that many borrowers can’t afford to pay, the committee concluded that government intervention was urgently needed.
The Mortgage Bankers Assn. points out that RealtyTrac has an incentive to overstate the foreclosure crisis.
“Their business model is to market foreclosed properties,” said the association’s chief economist, Doug Duncan.
Sharga said the mortgage bankers’ group had its own agenda.
“Given their clientele, it would not surprise me if their reports represented the most conservative possible interpretation of foreclosure activity,” he said.
In Colorado, the state Division of Housing grew so frustrated with RealtyTrac’s numbers that it took the unprecedented step of polling its counties itself.
It found 9,254 filings in the first quarter, 44% fewer than found by RealtyTrac. Though the Division of Housing number is still relatively high, the report noted that as few as half of filings proceed to an auction in which the owner loses title.
Sharga said that on homes with multiple loans, a single house could account for as many as seven foreclosures. “The nice way to put it is that we count different things and our methodologies are different,” he said.
The less nice way to put it is that RealtyTrac is “ridiculous and irresponsible,” which is what Colorado Division of Housing Director Kathi Williams said to the Rocky Mountain News this month.
Sharga blamed the media for misinterpreting RealtyTrac’s numbers, but he did acknowledge “some tension” involving the data on the percentage of households in foreclosure that was used by the Joint Economic Committee. He said the firm was working on fine-tuning its figures.
Not fast enough for Williams, who noted last week that the company’s April report showed a household foreclosure rate about three times the state’s rate.
“We’re not even in the same ballpark,” she said.