Housing Foreclosures — A Myriad of Info Sources and Implications

Given that 23 percent of homeowners are currently underwater on their mortgages, that prices have yet to recover, and that 2.87 million homes alone in 2010 received notices of default, there remain a minimum 4 to 5 million properties that will either go through foreclosure, be sold via a short sell, or will receive some type of a loan modification.  In May 2011 the inventory of homes more than 90 days in default or already foreclosed on but not yet sold totaled more than 4 million, yet a miniscule 78,676 foreclosed homes actually sold that month.  Thus if foreclosure was the only solution, there currently exists 51 months of inventory of distressed properties (assuming no more defaults and a continuing 78K sales per month).  Others estimate more than 60 years (below).

Foreclosures

Regardless of the information or news source, everyone is agreeing that there are both a mountain of foreclosures on the market and an even larger mountain that could come to the market.

The cities with the largest current inventory of foreclosures may surprise you, however.   Based on data from Realtytrac (the go-to source for default and foreclosure information in the country) and as reported by the New York Times and summarized in a Realtor® article last week, the top cities respective foreclosure inventory (including those in process) are:

Chicago            118,776
Los Angeles        86,745
New York City     84,600

But this is not the real story.  You need to examine the sales rate of these properties in relation to the current inventory (and this does not even address the shadow inventory of housing that is in default today but not yet in the foreclosure, short sale or loan-modification process). From January through May of 2011, the average number of foreclosed sales per month in two of these cities was

Chicago            1,697
New York            762     

Thus—even with no added Real Estate Owned (REO) inventory, New York City has an estimated 9.25 years for inventory of REO while Chicago is at 5.8 years.  These are sobering numbers that indicate housing recovery is indeed years off (but again remember that there is no such thing as a national real estate market).  

The top five states for foreclosure activity (and they accounted for more than one-half of the total activity in the U.S.in May) are:

California
Florida
Michigan
Arizona
Nevada

An earlier article notes that 33 percent of all involved in foreclosures had not made a mortgage payment in more than two years.  It is not the inventory of defaulted properties that is on question, but rather the number actually being successfully sold.  Legal issues have stemmed the volume of foreclosures and dramatically lengthened to time to complete foreclosures.  LPS Applied Analytics estimates that the current rate of foreclosures are resulting sale would indicate a more than a  60 year supply of severely defaulted or foreclosed properties in New York, 49 years in New Jersey and 10 years each for Florida, Illinois and Massachusetts.  Without question political and legal actions have delayed the housing recovery. 

Foreclosure Sales Drop, But Inventories Swell- Realtor.org

Foreclosures Slow as Banks Face Backlogs – Realtor.org

Foreclosures Costing Some Their Jobs

While many that are unfortunately involved in the foreclosure of their home will end up with a dinged credit record, some individuals are actually losing their jobs. In a summary article by the National Association of Realtors of an Orlando Sentinel article, it notes that Federal workers and contractors requiring security clearances have lost their jobs due to the impact on their credit arising from a foreclosure.  While that number is small, it does lead to the question in those states where a credit report can limit hiring by private companies. The implications of foreclosure unfortunately extend far beyond the home itself.

Fannie Mae to Start Fining Servicers Failing to Foreclose on Severely-Aged Delinquencies

Kicking the can down the road just got more difficult (expensive) for servicers not taking actions against long-term delinquencies as reported by the Housing Wire.  How long is deemed seriously delinquent depends on the location. In Florida, servicers have 185 days to foreclose once turned over to an attorney, Nevada 150 days and Maryland just 90 days.  Foreclosure laws vary significantly from state-to-state.  Upstate New York has a 300 day Fannie Mae requirements while New York City has 420 days (where one in ten mortgages is seriously delinquent.  

Loan Modifications Limited in Number

Inman News reported on July 5th, 2011, summary statistics of Loan Modifications through the top lenders in the Home Affordable Foreclosure Alternatives (HAFA) Program.  The total homes processed through the program tallied just 17, 781.  Of these, 60 percent were done by JPMorgan Chase and Wells Fargo.

Good News

Not all of the news is bad, as there are fewer defaults today according to Lender Processing Services.  In May of 2010, 18.3 percent of mortgages were 30 or more days delinquent compared to just 8 percent in 2011.  

Some of this decline is coming from far fewer strategic defaults (where the homeowner has the money to pay but has opted not to do so).  Experian reported that 17 percent of all defaults on loans 60 or more days delinquent were strategic defaults in the second quarter of 2010 compared to 20 percent in the same period in 2008.  

More Home Owners Staying Current on Mortgage- Realtor.org

Fewer Borrowers Strategically Defaulting- Realtor.org

The bottom line is that there is no quick end to the housing debacle (which varies across the country).

What we do know is that political delays in handling distressed property is merely kicking this can down the road.

Comments

  1. Danny Fernandez

    What do you think about the Cape Coral, Fort Myers market? (Lee County and Collier County

  2. Judy Proctor

    Hello,

    I recently attended your lecture in Phoenix last week and just wanted you to know how much I enjoyed and tried to digest the message. I have gone to your blog as you can see and will look forward to more knowledge you have to offter.

    Judy Proctor
    RE/MAX Achievers
    Goodyear, AZ.

    1. Ted C. Jones Post author

      Appreciate your kind words. Ted

  3. Mary Brickler

    Thank you for your insightful and eye-opening presentation at the Cincinnati luncheon last month. I thoroughly enjoyed it and look forward to reading your blog each week!

  4. Lauren Caruso

    You have a lot of valuable information here. Most of the blogs I have read on any kind of real estate, housing, foreclosure etc…. is just complaints. No solutions. You reflect someone who wants to help the industry, not make it worse, and help home owners, buyers and sellers. I have recently been introduced to a company that is helping home owners who are facing foreclosure, stay in their home (if they want to) and avoid foreclosure or a short sale. They get their equity back. I have been doing a ton of research and there are thousands of home and commercial property owners who owe more than the property is worth!

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