Foreclosure Filings on Track to Hit 3 Million Homes. Repos Expected to Reach 1 Million in 2010

by devteam July 16th, 2010 | Share

Default notices, auction salernnotices, and actual bank repossessions were received  on a total of 1,961,894 homes, or one in every 78 households,  during the most recent six month period according to the Mid-Year 2010 U.S ForeclosurernMarket Report issued by RealtyTrac.</p

These findings represent a 5 percentrndecline in filings from the last half of 2009, but an increase of 8 percentrnfrom the first half of last year. rnPerhaps the good news is that the year-over-year change was almostrntotally due to a jump in bank repossessions, which were up five percent whilerndefault and auction notices were down 10.4 percent since the first half of lastrnyear.</p

In June there were a totalrnof 313,841 filings, a decrease of nearly 3 percent from May and down nearly 7rnpercent from the previous June.  It wasrnthe sixteenth straight month where the total number of properties withrnforeclosure filings exceeded 300,000.</p

RealtyTrac’s report incorporates documents filed in all three phasesrn of foreclosure, unfortunately the mid-year review did not break down the data into individual categories (but we're building our own spreadsheet).</p<ol

  • Notice of Default (NOD)</a and Lis Pendens (LIS). This is the first legal notification from a lender that the borrower on a mortgage loan has defaulted under the terms of their mortgage and the lender intends to foreclose unless the loan is brought current.
  • Auction — Notice of Trustee Sale and Notice of Foreclosure Sale (NTS andrn NFS); If the borrower does not catch up on their payments the lender will file a notice of sale (the lender intends to sell the property). This notice is published in local paper and contains information pertaining to the date, time and subject property address.
  • Real Estate Owned or REO properties : “REO” stands for “real estate owned” and typically refers to the inventory of real estate that banks and mortgage companiesrn have foreclosed on and subsequently purchased through the foreclosure auction if there was no offer higher than the minimum bid.</li</ol

    During the second quarterrnof 2010 there were foreclosure filings on 895,521 properties, down from 932,234rnin the first quarter, a decrease of 4 percent. rnThis is 1 percent more filings than in the second quarter one yearrnearlier. </p

     “The second quarter was a tale of two trends,”rnsaid James J. Saccacio, chief executive officer of RealtyTrac. “The pace ofrnproperties entering foreclosure slowed as lenders pre-empted or delayedrnforeclosure proceedings on delinquent properties with more aggressive shortrnsale and loan modification initiatives. Meanwhile the pace of propertiesrncompleting the foreclosure process through bank repossession quickened asrnlenders cleared out a backlog of distressed inventory delayed by foreclosurernprevention efforts in 2009.</p

    The midyear numbers put usrnon pace to exceed 3 million properties with foreclosure filings by the end ofrnthe year, and more than 1 million bank repossessions,” Saccacio continued. “Thernroller coaster pattern of foreclosure activity over the past 12 monthsrndemonstrates that while the foreclosure problem is being managed on thernsurface, a massive number of distressed properties and underwater loansrncontinue to sit just below the surface, threatening the fragile stability ofrnthe housing market.”</p

    Asrnusual, Nevada, Arizona, Florida, California, and Utah topped the list of statesrnin foreclosure activity.  In Nevada, onernin 17 housing units (6 percent) received at least one foreclosure filing in thernfirst six months of the year, down 6.2 percent from a year earlier and 13rnpercent from the last half of 2009.  In Arizonarnthere were filings posted against one in 30 housing units, down 1.6 percentrnfrom the second half of 2009 and 1.88 year over year.  Florida follows with one in 32 homes in somernstage of foreclosure, a decrease of 8.61 from the most recent half year and anrnincrease of 3.4 percent from one year ago.  </p

    Other states withrnforeclosure rates ranking among the nation's 10 highest were California (1 inrn39 units), Utah (1 in 52), Georgia (1 in 56), Michigan (1 in 58), Idaho (1 inrn59), Illinois (1 in 62), and Colorado (1 in 72.)</p

    These were the thoughts MND shared regarding the May data. They are still very relevant…</p

    Plain and Simple: The good news is it seems like the worst is behind us in terms of new defaults. Plus the modest decline in newly scheduled auctions helps out housing on the excess supply front as banksrn are choosing to hold onto their inventory instead of flood the market with distressed supply (which would drive prices even lower). Perhaps this is a factor of the expiration of the homebuyer tax credit? Now for the bad news. Over the past year, to give HAMP a chance to “work its magic” (which servicers havern little incentive to do ) and to reduce the cost of maintaining the condition of foreclosed properties, banks were delaying the foreclosed home liquidation process. This allowed delinquent borrowers to stay in theirrn houses and also allowed banks to avoid asset value write-downs. Unfortunately, with HAMP running out of qualified borrowers, that trend is starting to reversern course. Bank balance sheets are beginning to balloon with REO, shadow inventory is being converted to actual inventory! </p

    This is a negative for two reasons. First it implies more people are being put outrn of their home and onto the street and second, at some point, the distressed homes banks are adding to their balance sheets will need to be put back up for sale. Once the housing market starts to pick up recoveryrn momentum, banks will begin to slowly liquidate their inventory of foreclosed properties. Hopefully they will do so in a manner that does not greatly disrupt local supply/demand and push prices even lower (which would hurt their own cause). Growing “shadow inventory” is one ofrn two reasons why the housing recovery will likely be a very long processrn (the other being long term unemployment). </p





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  • About the Author


    Steven A Feinberg (@CPAsteve) of Appletree Business Services LLC, is a PASBA member accountant located in Londonderry, New Hampshire.

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