This from LA Land is scary. Basically, they say that servicers and lenders are doing everything they can to keep houses out of foreclosure. The question is are they just adding to a backlog that’s going to result in an epic crash.

In May, a record 111,824 California homes were scheduled for foreclosure sales, but just 16% were auctioned. By comparison, last May, sales were held for 49% of homes slated for foreclosure.

Of last month’s postponed foreclosures, 40% were delayed at the request of the lender; an additional 33% were postponed by agreement between the lender and borrower.

ForeclosureRadar CEO Sean O’Toole’s take on this: “The data actually shows that lenders are doing everything possible to delay foreclosure. The reality is that we have very few homeowners being foreclosed on when viewed as a percentage of those scheduled to be foreclosed on, in default, delinquent, or upside down in their mortgage.”

Notices of default — the first stage in foreclosure, which occurs when a borrower has missed several payments — were down 4% in May from April and down 3% from the same month a year ago, to 40,870 filings statewide.

Foreclosures taken to auction were down 30% in May from a year ago, to 17,871. Of those homes, 84% had opening bids set below the outstanding loan amount. The average opening bid for these properties was 59% of the loan amount. For instance, if a house with a $100,000 mortgage went to auction, the average opening bid would have been $59,000.

Of homes going to auction in May, 88% were taken back by the lender. When a home is not sold to a third-party bidder at auction, the lender takes it back, typically to sell on the open market or through private auctions.

Concentrate on the last two paragraphs. Banks are only bidding 59% of the loan amount at the foreclosure auction. Even if the loan was originally a no money down deal this implies that the discount to sales price is over 40%. Realistically, it’s probably much more. Even with that sort of discount only 12%  draw a higher bid.

Wow! They’re doing everything possible not to take the house back and when they do no one else wants it. There is no market clearing occurring!