Market Update - foreclosures


Well Happy mid June all! I cannot believe how quickly this year has flown by. I would really like to fast forward a year or two, to where the analysts all believe the market makes a turn around, because this month to month stuff is wearing on me! I am asking for your business.


According to the latest reports on the U.S. housing market 96,400 homes were hit with default notices last month. That is 7% less than in April and 22% less than in May 2009.

132,680 first time property(not properties recycled through the process) foreclosure auctions were scheduled last month. That is 4% fewer than the month before and 16% fewer than in May a year ago.

Foreclosure filings of all types - default notices, scheduled auctions and bank repossessions - were reported on 322,920 U.S. properties in May, a decline of 3%. All told, this latest report seems to have painted a picture of a gentle and steady recovery for the embattled U.S. housing market. This is where you say, gee Dan that all sounds great!

Not so fast!


Actual bank repossessions hit a record 93,777 in May which is a 1% increase over April’s record. It is also a huge 44% increase from the same month a year ago.


Here's another stunning stat:… All 50 states are reporting year-over-year increases in bank repossessions! Yikes!

Lenders are attempting to work through a backlog of distressed properties that have built up over the past 20 months. Defaults and scheduled auctions combined increased by 28% percent from 2007 to 2008 and another 32% from 2008 to 2009, creating a build-up of delayed bank repossessions. Lenders appear to be ramping up the pace of completing those forestalled foreclosures even while the inflow of delinquencies into the foreclosure process has slowed."

The larger problem is that millions of delinquent loans are still on banks' books and in mortgage pools. Banks seem unwilling to take more write-downs or to incur the high cost of maintaining repossessed homes. So they have taken to hiding behind federal and state government-foreclosure moratoriums and a host of modification programs designed to keep borrowers in their homes. Some of you will remember my quote from my DC travelogue where my comment on the modification programs was…..” stacking up the bodies outside the morgue doesn’t make them alive”.

Make no bones about it, the modification programs are only in place to stave off the foreclosure process and they are not there to help people. Less than 10% of loan modifications are approved and of those, 97% end up in foreclosure. It is a staging place for defaulting properties.

In the banking industry this tactic is known as "delay and pray" (or sometimes as "extend and pretend"). How long can you ignore changing oil in your car before the motor breaks?

This tactic becomes problematic in the fact that home prices should be firming up by now and rising. However, the expiration of the homebuyer-tax credit, deep unemployment, restrictive mortgage underwriting standards and a growing overhang of unsold properties is putting more downward pressure on home prices. Banks may be realizing that the hoped-for "bounce" isn't coming and may begin taking back more properties so they can unload them for as much as they can get before prices decline even more.

There are approximately 3.5 million homes for sale today. Another 2.9 million have been repossessed or are in foreclosure, but have not yet hit the market. And 4.5 million borrowers are 30 days delinquent - a factoid that may cast an even larger shadow over the outlook for the U.S. housing market.

As bad as these numbers are, they still aren't telling the entire chilling story. There is more bad news for banks.

In April over 12% of all U.S. mortgages were delinquent, but less than 3% of mortgages nationwide are in foreclosure.

This begs the question of what will happen to U.S. housing market prices when foreclosures catch up with delinquent borrowers and modified loans that are now re-defaulting? Once foreclosures are completed and titles to repossessed homes are in the hands of banks and mortgage servicers, they have no other option but to unload their unwanted inventory as fast a possible. Otherwise, they'll incur even more expenses - those involved with maintaining the properties, listing them and paying taxes on them.

With all that in mind I shall continue to shout that we need more US jobs! Working people buy homes!

I hope you all have a great week and should you know of someone needing a loan, please pass along my number. I still broker loans for commercial, manufactured, Jumbo, FHA and VA, as well as hard money. I look forward to working with you on your next sale.



Dan Shaw




928.710.9146 cell

480.248.1199 fax


This is not the opinion of Brad Bergamini, Realty Executives Northern Arizona or any of its affiliates.  This post is for informational purpose only and is not guaranteed and does not render as legal advice.  Buying and selling Real Estate in Arizona or Prescott Arizona is a serious task and should be consulted with personally with Realtor or Real Estate Attorney.  Please visit my website for contact information