Only 30% of foreclosures on market
RealtyTrac Senior Vice President Rick Sharga said major banks currently hold
roughly 1 million REO, or homes repossessed through foreclosure, but only 30%
have actually made it onto the market. According to its year-end report,
foreclosure filings reached a new high in 2010 and should climb even higher this
year, possibly surpassing 4 million filings. And that's not counting the more
than 5 million delinquent loans that have yet to enter the initial stages of the
foreclosure process, Sharga said.
The major kink in the housing market's recovery, and for the macro economy
overall, is the work left to be done on homes currently in the foreclosure
process, those about to enter it and the amount of repossessed homes the banks
must shed. Striking a proper balance on how to mange this shadow inventory of
foreclosures is vital for the banks to show a healthy balance sheet while not
dumping too many distressed properties onto the market, further dragging down
home prices and values.
A recent study from Morgan Stanley showed the shadow inventory, those properties
facing imminent default, evolving from mostly subprime and Alt-A loans to
containing more prime loans as elevated unemployment levels have pushed more
homeowners behind on their mortgage. Analysts said that some 8 million
repossessions would need to be liquidated over the next five years before the
market stabilizes. Adding to the problem are recent issues the banks are having
processing the paperwork. In October, the banks had to hold up foreclosures to
refile affidavits signed improperly in many states, pushing more than 250,000
foreclosure cases into 2011.
Reports recently showed that the problem may have spread to the notices of
default as well. And in the 23 states where lenders must foreclose on a
homeowner through the court system, backlogs of cases have formed month-long
delays. A court clerk in Florida, one of the states with the longest
traffic jams, told him between 500,000 and 600,000 cases are yet to be heard.
Sharga said he's encouraged by the uptick in demand for REO's. "We've seen more
traffic on our site, and even more buyers raising their hand asking for help
from a Realtor," he said. "This means they're getting serious about buying
again." He also said that the most traffic comes from Southwestern states and
Florida.
