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More Bank-Owned Homes Likely to Hit the Market

It’s a bit like guessing how many pennies are in a gallon jug at the state fair, but housing analysts keep trying to count how many foreclosed homes banks and mortgage investors own. Why should we care? Unlike at the state fair, there is no prize for guessing right. Still, if we can track the number of these REO (“real estate owned”) homes, we can get some sense of how banks and others are doing in their efforts to dispose of the properties and how much longer they will be weighing on the housing market. The good news is that two of the leading contenders in this guesstimating game–Tom Lawler, an independent housing economist and gentleman farmer in Leesburg, Va., and Robert Tayon, an analyst at Barclays Capital in New York–have been comparing their methods recently and learning from each other. Both are in the same ballpark and both say the REO count is on the rise.

Mr. Lawler estimates there were 574,000 one- to four-family REO homes at the end of the first quarter, up from 518,000 at the end of 2009 but well below a peak of 668,000 in the third quarter of 2008. More modest (honest?) than most economists, Mr. Lawler describes his estimates as “crude” and “a work in progress.” He figures his tally is too low–he can’t find good data on all of the thousands of REO owners– but still “indicative” of the trend. Mr. Tayon of Barclays estimates that REOs totaled 522,000 in March, up from 479,000 at the end of 2009 but below the peak of 688,000 in September 2008. After soaring in 2008, the REO total shrank for most of 2009 as foreclosure-prevention efforts slowed the flow of defaulted loans toward resolution and investors rushed to buy what they saw as bargains in hard-hit areas such as Phoenix and Las Vegas. Now, as banks and other loan servicers work their way through the backlog of loan-modification applicants and reject many of them, the REO count is rising again. Mr. Tayon expects it to peak at 538,000 in August 2011 before starting to decline gradually. Fannie Mae and Freddie Mac, two of the biggest holders of REO, both expect their REO inventories to increase in the next few quarters, Mr. Lawler says. The expected rise in REO supply will “challenge” housing markets in areas with high concentrations of foreclosures, Mr. Lawler adds. But he doesn’t think the effect on prices will be as severe as it was in late 2008 and early 2009, when loan servicers dumped huge amounts of property on the market. There are still plenty of struggling borrowers at risk of losing their homes. The Mortgage Bankers Association, a trade group, last week reported that 14% of mortgage loans on one-to-four-unit homes were 30 days or more delinquent or in the foreclosure process as of March 31. That represents about 7.3 million households. The rate was 12% a year earlier. At the same time, fewer people have fallen behind in recent months as the economy has improved. Those who want to guess how many REOs will be in the jug two years from now will have to take a view on whether the economy is going to produce enough jobs to create demand for all those houses. Written by: James R. Hagerty Wall Street Journal

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Comment by Matthew on December 30, 2013 at 10:10pm
How can you be sure a property preservation company is going to pay there bills as you work for them? What can you as contractor do to make sure that your not working for a company that will not pay you for work you have done? Is there a way to recoup my loses cause it's happened to me !
Comment by John Thomas Dzialo on November 26, 2012 at 9:04am

Thanks for the insightful article and It would help those who are planning to invest in real estate in nearest future. 

Real estate lawyer

Comment by Steven Ransom on August 6, 2010 at 5:39am
In Relation to above article:

Four years after the housing bubble popped, the American real estate market has yet to launch a sustainable recovery. Although U.S. home prices have improved modestly since the spring of 2009-and certain regional markets have performed even better-sales and values will face renewed downward pressure later this year in the wake of the expiration of the federal home buyer tax credit. Indeed, some analysts expect the bloated inventory and sputtering demand to trigger a "double dip" housing recession, with prices possibly even slipping back below their April 2009 lows. This disconcerting outlook has materialized despite some optimistic developments within the market. The 30-percent drop in prices has helped restore affordability to a once wildly-overvalued market, putting additional consumers in position to become homeowners. Meanwhile, mortgage financing has grown downright cheap-with rates falling to 50-year lows. "So what's the problem then?"

"What's causing this stagnation in the housing recovery?" Here are six reasons why the housing market hasn't recovered:

1. Labor market: The labor market holds the key to a recovery in housing. "We need more job growth in this country for a housing recovery to take hold," Dwyer says. That's because a steady income stream is the first step to home ownership. And with the national unemployment rate sitting at an uncomfortably high 9.5 percent, a great deal of potential buyers are either out of work or worried about losing their jobs. And until jobs and confidence return, the market won't have enough demand to support a sustainable recovery, says Mike Larson of Weiss Research. "This is truly a jobless recovery to end all jobless recoveries," Larson says. "And that's why I think the housing market is still struggling."

2. Household formation: The weak labor market is undercutting a housing recovery in another way as well. As jobs become scarce, unemployed workers tend to move in with friends or family members, says Patrick Newport, a US economist for IHS Global Insight. This development works to constrict the creation of new households, which typically serve as a key driver of real estate demand.

3. Foreclosures: Despite a sharp pullback in new home construction, the housing market remains significantly oversupplied. The market had an 8.3-month supply of unsold existing homes in May; that's above the 6-month supply associated with a balanced market. At the same time, a mountain of distressed properties will ensure that additional inventory continues hitting the market in the form of foreclosures. Foreclosure filings were reported on nearly 1.7 million homes in the first six months of the year, an increase of eight percent over the same period a year earlier, according to RealtyTrac. "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," James Saccacio, the chief executive officer of RealtyTrac, said in a statement. And with large numbers of Americans still struggling to pay their mortgage bills, even more foreclosures are on the way. Ten percent of all mortgage loans were delinquent at the end of the first quarter, according to the Mortgage Bankers Association. It could take two years or longer for the market to work through this excess inventory, experts say. And it will be difficult for home prices to rise appreciably until balance is restored.

4. Tight credit: Rates on 30-year fixed mortgages fell to 4.57 percent for the week ending July 15-that's the lowest level since the 1950s. Not everyone, however, will be able to take advantage of these attractive terms. That's because banks-who incurred huge losses on bad loans made during the housing boom-have increased their lending standards significantly. "If you don't have good credit it's going to be difficult [to get a mortgage]," says John Bancroft, the executive editor of Inside Mortgag
Comment by Steven Ransom on August 6, 2010 at 5:37am
Continue:

"If you don't have money for a down payment and you are in a market that is still considered deteriorating, it's going to be difficult [to get a mortgage]." To get the best rates, today's borrowers will need a FICO score of 720 or higher, a down payment of around 10 percent, and fully documented income and assets, says Keith Gumbinger of HSH.com. Buyers that can't meet these requirements could still be eligible for government-backed loans through the Federal Housing Administration. Attractive rates are also available on larger, so-called Jumbo home loans, but the credit bar will be even higher. Today's Jumbo borrowers generally need a FICO score of at least 740 and should expect to put down anywhere from 20 to 40 percent, Gumbinger says.

5. Falling home prices: With home prices having fallen so dramatically from their 2006 peaks, the real estate market's weakness has become an obstacle to recovery in and of itself. Although home prices have stabilized recently, they are expected to decline in coming months. Meanwhile, the years-long period of home price deflation has blinded many Americans to the potential benefits of buying a home, Gumbinger says. "The message which has been repeated over and over again in anything from 40-point headlines on down is: 'People are getting screwed by homeownership.'" As a result, many would-be home buyers are still scared off by concerns that their investment may lose value after they've gone to closing. "No one wants to catch the hot falling potato," Gumbinger says.

6. Selling your other home: While today's housing market has created some serious deals, not all buyers are in position to take advantage of them. For example, any current homeowner interested changing addresses will first need to sell their home. And with roughly one in four homeowners in negative equity-meaning they owe more on the mortgage than their property is worth-that can be tricky. Homeowners with negative equity may take a loss on their investment if they sell their property.

Recent article by: Luke Mullins , U.S.News

"The reality is that when you get these types of situations that carry so far to the upside, the recovery period takes quite some time." Newport expects median existing home prices to fall another 8 percent or so before bottoming out in the first quarter of next year. From there, he expects prices to begin a slow and fitful climb.
Comment by Steven Ransom on August 6, 2010 at 5:08am
Quote: " The Mortgage Bankers Association, a trade group, last week reported that 14% of mortgage loans on one-to-four-unit homes were 30 days or more delinquent or in the foreclosure process as of March 31. That represents about 7.3 million households. The rate was 12% a year earlier. At the same time, fewer people have fallen behind in recent months as the economy has improved."

This is worth looking into.
Comment by Tony - trmbuildpro.com- Machado on June 1, 2010 at 10:51pm
well I just want to go to work evry day. T R M Construction or as TRM repo Cleanouts property presavation. web trmbuildpro.com

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