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Foreclosure Picture Worsens...Up 23%

Written By Brian Hicks

Posted October 15, 2009





According to a report today from RealtyTrac, foreclosure filings — which include default notices, scheduled auctions and bank repossessions — were reported on 937,840 properties in September.

That marked a 5% increase from the second quarter and a 23% rise compared to the same quarter in 2008.

In fact, all told one in every 136 U.S. housing units received a foreclosure filing during the quarter – the highest quarterly foreclosure rate since RealtyTrac began issuing its report in the first quarter of 2005.

Of course, that is only half of the story since the dirty little secret in all of this is that there is a “shadow inventory” of foreclosed homes about to hit the market this spring.

In fact, the banks have kicked this little can so far down the road now that there is a tidal wave of homes out there that will need to be dealt with, either through short sales or foreclosures.

According to Ivy Zelman, CEO of Zelman & Associates, that wave could reach as high as 3 to 4 million distressed homes hitting the market, since 3.7 million homes are either already in the foreclosure process or are at least 90 days past due.

That’s an important distinction, since a recent analysis of foreclosure rates by the Amherst Group showed cure rates for these loans are practically non-existent. The Amherst data noted a near 0% cure rate of all loans in foreclosure, while loans 90 plus days past due were cured only 0.8% of the time.

As for loan modifications, you can practically forget them – 70% of all loans re-default within 12 months. You can add them to the total pushing the number even higher.

In that regard, Amherst actually believes the real shadow inventory of distressed properties will be closer to 7 million, equivalent to 135% of the average number of homes sold in a year.  

So when you add it all up, the picture you get is lot less rosy than the one the housing bulls are trying to paint.

And I haven’t even mentioned what soaring unemployment, exploding option ARMS, and the collapse of the FHA will do the market. 

At this point, talk of a housing bottom is greatly exaggerated.

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The Brewing Trouble at the FHA

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Underwater Mortgages Drive the Next Foreclosure Wave

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