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66 housing bust. is first wave has largely subsided in the last few years, with loans originated between 2004 and 2008 accounting for 40% of all Auction.com inflow so far in 2019—the third consecutive year at less than half of all foreclosure inflow. e second post-recession wave of distress emerged in 2018 as the result of a series of devastating natural disaster events—primarily hurricane-related—in 2016 and 2017 in Florida and Texas. Foreclosure moratoriums imposed immediately following these natural disasters eventually were lifted, resulting in surging foreclosure auction inflow in mid-2018. Although these inflow spikes were regionally focused in Texas and Florida, the impact was evident at a national level given the large size of combined housing inventory in those two states. DEFAULT UNDERCURRENTS: GOVERNMENT- INSURED AND PRIVATELY OWNED e emerging third wave of post-recession distress is showing up in parts of Florida and Texas, but it is also showing up in markets far removed from Florida and Texas (see below for some more geographic details). at's because this wave is less characterized by geographic concentrations of distress and more characterized by concentrations of distress based on loan type and lender type. More to the point, the emerging third wave of distress is primarily driven by a rising undercurrent of defaults among government- insured loans and privately held loans. e data shows a 1% increase in the overall inflow of government-insured loans, including those insured by the Federal Housing Administration (FHA), Veterans Administration (VA), and U.S. Department of Agriculture (USDA). at increase, in and of itself, is nothing to write home about, but two subcategories within the overall government-insured space stand out: VA-backed loans with a 31% increase and FHA- backed loans serviced by mid-market lenders— many of them so-called nonbank lenders and servicers—with a 17% increase. By contrast, FHA-backed loans serviced by national lenders, mostly traditional banks, posted a 12% decrease in foreclosure inflow in Q3 2019. In its quarterly reports to Congress, the U.S. Department of Housing and Urban Development has been signaling an expected rise in defaults. In its most recent report, covering activity in the three months ending June 2019, it included the following statement: "As the portfolio serious delinquency rate has 44,000 42,000 40,000 38,000 36,000 34,000 32,000 30,000 Q1 2016 Q2 2016 Q3 2016 Q4 2016 Q1 2017 Q2 2017 Q3 2017 Q4 2017 Q1 2018 Q2 2018 Q3 2018 Q4 2018 Q1 2019 Q2 2019 Q3 2019 A THIRD WAVE OF DISTRESS BUILDING FORECLOSURE AUCTION INFLOW (PROPERTIES REFERRED TO AUCTION) Q3 2019 FORECLOSURE AUCTION INFLOW TRENDS NATIONAL LENDERS | MID-MARKET LENDERS 160% 140% 120% 100% 80% 60% 40% 20% 0% -20% YEAR-OVER-YEAR PERCENTAGE CHANGE IN INFLOW FHA LOANS 17% -12% 19% 45% 139% 3% VA LOANS PRIVATE-PORTFOLIO LOANS

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