According to the Mortgage Banker Association’s quarterly survey, 4.6% of all mortgages were in foreclosure at the end of December, matching the all-time high set in the first quarter of 2010 and up from 4.4% in the third quarter. On the positive side, the number of loans where the borrower had missed just one payment fell to the lowest level since the end of 2007.
To put those numbers in perspective, consider that more than 14% of all mortgages in Florida, the hardest-hit state, were in foreclosure at the end of the fourth quarter.
The number of loans in foreclosure remained at its highest level since the start of the mortgage crisis. Why? Partly because banks slowed their foreclosure processes late last year to fix the September document-handling problems.
So, while the number of loans entering foreclosure fell, “loans were not exiting the foreclosure process,” said Michael Fratantoni, an MBA economist – thus an increase in the total inventory of loans in foreclosure.
Interestingly, the Wall Street Journal’s take on these numbers is, “The figures provide the clearest indication yet that the mortgage crisis that began four years ago has stopped getting worse and is easing.”
In the next line they qualify the statment echoing other economists:
“But the sheer volume of foreclosures still in the pipeline poses a significant challenge to housing markets across the country and is likely to keep pressure on prices. Prices tend to fall more quickly as the share of bank-owned and other distressed sales rises because banks are more motivated to sell.”
Falling prices will also leave more borrowers in homes worth less than what they owe, making it hard for them to refinance or sell and putting them at greater risk of foreclosure if they face financial difficulties. Wall Street Journal
When will this shadow inventory of foreclosed homes make its way to the market?
That’s the million dollar question. There have been new challenges created by the courts and there have been some rather interesting responses to these new problems. Still, many experts believe it will occur sooner rather than later.
Just how many foreclosures (REO) can we expect this year?
Analysts said the number of REO properties could double over the next 12 months to 4 million from 2 million, with a dramatic spike anticipated during the first quarter.
Another current phenom without a simple answer: Delinquency rates are showing improvement.
That’s the good news.
However, if foreclosures do indeed increase dramatically that will likely mean that home prices will soften even further – which could push more homes into a negative equity situation.
Falling prices leave some borrowers in homes worth less than what they owe, making it hard for them to refinance or sell, and putting them at greater risk of foreclosure if they face financial difficulties. This in turn could lead to an increase in strategic defaults (where homeowners simply walk away from their mortgage obligation).
All is not clear right now about the foreclosure challenge. We may just happen to be in the ‘eye of the storm’.