Foreclosure Filings on Track to Hit 3 Million Homes. Repos Expected to Reach 1 Million in 2010
Default notices, auction sale
notices, 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 Foreclosure
Market Report issued by RealtyTrac.
These findings represent a 5 percent
decline in filings from the last half of 2009, but an increase of 8
from the first half of last year.
Perhaps the good news is that the year-over-year change was almost
totally due to a jump in bank repossessions, which were up five percent
default and auction notices were down 10.4 percent since the first half
In June there were a total
of 313,841 filings, a decrease of nearly 3 percent from May and down
percent from the previous June. It was
the sixteenth straight month where the total number of properties with
foreclosure filings exceeded 300,000.
RealtyTrac’s report incorporates documents filed in all three phases
foreclosure, unfortunately the mid-year review did not break down the data into individual categories (but we're building our own spreadsheet).
- Notice of Default (NOD)
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 and
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 companies
have foreclosed on and subsequently purchased through the foreclosure
auction if there was no offer higher than the minimum bid.
During the second quarter
of 2010 there were foreclosure filings on 895,521 properties, down from 932,234
in the first quarter, a decrease of 4 percent.
This is 1 percent more filings than in the second quarter one year
"The second quarter was a tale of two trends,"
said James J. Saccacio, chief executive officer of RealtyTrac. "The pace of
properties entering foreclosure slowed as lenders pre-empted or delayed
foreclosure proceedings on delinquent properties with more aggressive short
sale and loan modification initiatives. Meanwhile the pace of properties
completing the foreclosure process through bank repossession quickened as
lenders cleared out a backlog of distressed inventory delayed by foreclosure
prevention efforts in 2009.
"The midyear numbers put us
on pace to exceed 3 million properties with foreclosure filings by the end of
the year, and more than 1 million bank repossessions," Saccacio continued. "The
roller coaster pattern of foreclosure activity over the past 12 months
demonstrates that while the foreclosure problem is being managed on the
surface, a massive number of distressed properties and underwater loans
continue to sit just below the surface, threatening the fragile stability of
the housing market."
usual, Nevada, Arizona, Florida, California, and Utah topped the list of states
in foreclosure activity. In Nevada, one
in 17 housing units (6 percent) received at least one foreclosure filing in the
first six months of the year, down 6.2 percent from a year earlier and 13
percent from the last half of 2009. In Arizona
there were filings posted against one in 30 housing units, down 1.6 percent
from the second half of 2009 and 1.88 year over year. Florida follows with one in 32 homes in some
stage of foreclosure, a decrease of 8.61 from the most recent half year and an
increase of 3.4 percent from one year ago.
Other states with
foreclosure rates ranking among the nation's 10 highest were California (1 in
39 units), Utah (1 in 52), Georgia (1 in 56), Michigan (1 in 58), Idaho (1 in
59), Illinois (1 in 62), and Colorado (1 in 72.)
These were the thoughts MND shared regarding the May data. They are still very relevant...
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 banks
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 have
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 their
houses and also allowed banks
to avoid asset value write-downs. Unfortunately, with HAMP running out of
qualified borrowers, that trend is starting to reverse
course. Bank balance sheets are beginning to balloon with REO, shadow
inventory is being converted to actual inventory!
This is a
negative for two reasons. First it implies more people are being put out
of their home and onto the street and second, at some point, the
banks are adding to their balance sheets will need to be
put back up for sale. Once the housing market starts to pick up recovery
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 of
two reasons why the housing recovery will likely be a very long process
(the other being long term unemployment).
MORE ABOUT SHADOW INVENTORY
ARE THE HARDEST HIT STATES
READ MORE ABOUT
HOMELESSNESS AND THE NEED FOR LOW INCOME RENTAL HOUSING