Efforts to modify loans and delay foreclosures may have helped hold down the stock of foreclosures for sale in the second half of 2009, fostering home-price stabilization. But that cure could require different medicine: an elevated level of foreclosures for sale over the next three years. Analysts from J.P. Morgan Chase & Co. are forecasting that bank-owned sales as a share of total home sales will remain at current or even higher levels three years from now in more than half of the nation’s 10 largest housing markets, according to a recent investor presentation. (The for the presentation are available as a PDF.) Bank-owned sales–or “REO,” real-estate owned, in industry parlance—are expected to account for between 39% and 50% of home sales in Phoenix in the fourth quarter of 2012, up from 37% at the end of last year. The REO share of sales in San Diego, where one-quarter of sales at the end of last year were REO, is projected between 24% and 31% three years out. 2Q 2009 4Q 2009 4Q 2012 Los Angeles 52% 39% 22-28% New York 11% 12% 12-16% Santa Ana, Calif. 30% 16% 18-23% Long Island, N.Y. 8% 8% 5-7% Chicago 33% 28% 21-28% San Diego 38% 25% 24-31% San Francisco 14% 10% 9-12% Oakland, Calif. 47% 20% 18-23% Phoenix 57% 37% 39-50% San Jose, Calif. 43% 22% 14-18% Source: J.P. Morgan Chase & Co. New York City could also see a slight increase in the REO share of sales, with a projection that 12% -16% of sales coming from foreclosures at the end of 2012, compared to a 12% REO share at the end of last year. Foreclosures could stay the same or rise in Santa Ana, Calif.; San Francisco and Oakland, while they’re projected to be lower in three years in Los Angeles, Chicago, Long Island, N.Y., and San Jose, Calif. With the exception of New York, foreclosures began to heavily flood housing markets in the first and second quarters of 2009. Because foreclosures sell at a discount, that generated big price declines that have since moderated as the REO share of the market has eased...

Rortybomb submits: Three things happened in a row Monday: (1) Two positive profiles of Timothy Geithner (, and ) came out, both working under the assumption that the stress tests of last year worked.

Treasury Assistant Secretary for Financial Institutions Michael Barr addressed a packed house of state housing finance agency (HFA) staff, leaders, and their affiliate partners yesterday in Washing

We've now come full circle. Instead of trying to get people to stay in their homes, Obama is willing to pay them to leave. Please consider . In an effort to end the foreclosure crisis, the Obama administration has been trying to keep defaulting owners in their homes. Now it will take a new approach: paying some of them to leave. This latest program, which will allow owners to sell for less than they owe and will give them a little cash to speed them on their way, is one of the administration’s most aggressive attempts to grapple with a problem that has defied solutions. Under the new program, the servicing bank, as with all modifications, will get $1,000. Another $1,000 can go toward a second loan, if there is one. And for the first time the government would give money to the distressed homeowners themselves. They will get $1,500 in “relocation assistance.” Short sales are “tailor-made for fraud,” said Mr. Lawler, a former executive at the mortgage finance company Fannie Mae. Under the new federal program, a lender will use real estate agents to determine the value of a home and thus the minimum to accept. This figure will not be shared with the owner, but if an offer comes in that is equal to or higher than this amount, the lender must take it. Big Shell Game Diana Olick describes the situation perfectly in . And so it begins. Big gun lawmakers are making the move toward principal writedowns as the last resort to save the housing market. The problem is prices. Home prices have fallen so far in the hardest hit areas, the areas where the bulk of the troubled loans are, that banks would have to write down principal 30 to 50 percent to put borrowers back in the green. Accounting rules require that banks write down the value of those loans on their books, and experts tell me that if banks really accounted for all the losses in the home loan market, they'd all be insolvent. That's why the Obama Administration has created this kind of shell game in the first place...

*Yesterday was a relatively quiet Monday with some selling coming out of money managers in particular but all in all it was relatively quiet. Today is opening up with more activity. ABX is slightly softer and once again we are seeing more messages from the street proposing “focus positions”, “cheaper offerings” etc. etc. The pace of widening in the pay-option market and subprime market has slowed but it doesn’t seem like many market participants are concerned about the market getting away from them on the upside and hence are comfortable to pick their spots.

The Federal Reserve pumped more than $1 trillion dollars into the economy at a lightning pace, but it plans to take it out glacially, a senior Fed official said in a speech Monday. Brian Sack, who runs the markets group at the Federal Reserve Bank of New York, laid out more detail on the Fed’s plans to reduce its massive holdings of mortgage backed securities and Treasurys in a speech to the National Association of Business Economics in Washington. The Fed is on course to own more than $1.25 trillion worth of mortgage backed securities by the end of March. As the economy improves it wants to reduce those holdings, but officials don’t want to do it in a jarring way. Mr. Sack noted that some of these holdings will run off naturally. By the end of 2011, more than $200 billion worth of mortgage securities mature or will be prepaid by borrowers. The Fed can shrink its balance sheet by not reinvesting proceeds from these securities as they’re paid off by borrowers, helping its own balance sheet to “shrink meaningfully.” Mr. Sack noted that another $140 billion worth of Treasury securities mature by the end of 2011. Right now the Fed is reinvesting cash it gets as Treasury securities mature, but it could decide to let those securities run off too, shrinking its balance sheet even more, he noted. “With this approach, the FOMC would be shrinking its balance sheet in a gradual and passive manner,” he said. “That, in my view, is a crucial message for the markets. “A decision to shrink the balance sheet more aggressively could be disruptive to market functioning,” he said, adding, “A more aggressive approach would risk an immediate and substantial rise in longer-term yields that, at this time, would be counterproductive for achieving the (Fed’s economic growth) objectives.” Mr. Sack also offered noteworthy insights into how the Fed believes markets are positioning for possible interest rate increases in the months ahead. “The current configuration of yields and asset prices incorporates...

submits: The chart below, the Affordability Index of US Residential Property, comes courtesy of the blog. The Index is computed by factoring in home prices, mortgage rates and income. Let’s have an open thread and discuss in the comments section whether this represents a buying opportunity, or is it a question of fools rush in where wise men fear to buy? Click on the "comments” section below and share with me your views on whether I should part with my South African rand for a residential property in some part of America.