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Investors Prepare: Eye Of The Storm

February 20, 2011

There have been many headlines recently announcing that foreclosures have declined in recent months. But while the stories are technically correct, they do not accurately reflect the current events.

Foreclosure statistics are affected by the issues with the challenges incorrect documentation which the banks have spent the last several months attempting to correct.

James J. Saccacio, CEO of RealtyTrac addressed this issue in a recent press release:

“We’ve now seen three straight months with fewer  than 300,000 properties receiving foreclosure filings, following 20 straight  months where the total exceeded 300,000. Unfortunately this is less a sign of a robust  housing recovery and more a sign that lenders have become bogged down in  reviewing procedures, resubmitting paperwork and formulating legal arguments  related to accusations of improper foreclosure processing.”

While these issues are being addressed, the number of foreclosures are still continuing to mount.

Mike Fratantoni, VP for single family research at the Mortgage Bankers’ Association said:

“While the foreclosure starts rate fell during the fourth quarter, the percentage of loans in foreclosure rose to equal the all-time high… As we predicted last quarter, the percentage of loans in the foreclosure process increased in the fourth quarter, largely due to the foreclosure paperwork issues that were being addressed in September and October. These issues caused a temporary halt in foreclosure sales, particularly in states with judicial foreclosure regimes…  With fewer loans exiting the foreclosure process through sales, the foreclosure inventory rate naturally increased.”

When will this inventory make its way to the market?

As soon as I see it releasing I will let you know. For know that is the million dollar questions. The challenges are continuing to build in the way of banks releasing these properties, but we know the banks would prefer to release it sooner rather than later.

Rick Sharga, a RealtyTrac spokesman said:

“We expect a spike in the first quarter.”

Just how many foreclosures (REO) can we expect this year?

This questions is also an unknown. Delinquency rates are showing improvement. Yet, if prices continue to decline, more homeowners will be likely to perform a strategic default (where homeowners simply walk away from their mortgage obligation). Another wave I’m concerned about is 2006 5-year Adjustable Rates Mortages(ARMs) that are coming due this year. Rates are low, but a rate increase this year could act as the second crisis of the housing market.

Housing Wire has reported:

Analysts said the number of REO properties could double over the next 12 months to 4 million from 2 million.

Bottom Line

Don’t be fooled by current headlines. Major foreclosure challenges still exist. We just happen to be in the ‘eye of the storm’. In Florida, we understand exactly what this term means…Enjoy it while it lasts, but prepare for the worst!

Much of this info is derived from the KCM Blog: One of the great Real Estate blogs.

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