Delinquent Foreclosures Flood Housing Market

By Alex Warne on May 5, 2011, 7:48 pm

As foreclosures have surged to record levels, banks and other mortgage firms have been caught ill-equipped to handle the ever-increasing workload, Treasury Department and Federal Reserve officials have repeatedly said. Due to years of under-investment by banks in their mortgage processing operations, regulators and experts have found. In another report Thursday, California housing analyst Clear Capital said that in the first quarter, 32.7 percent of homes for sale in the Dallas-Fort Worth area were previously foreclosed. Still, that’s much less than in markets such as Las Vegas, 53.7 percent; Orlando, Fla., 49.9 percent; and Phoenix, 47 percent.

Underwater

Borrowers lost 1.67 million homes in 2010 as some 27 percent of U.S. mortgage holders were underwater (owed more than their house was worth) by the end of 2010. 2.9 million homes received foreclosure filings in 2010, and there would have been more if not for court interference after it was discovered that some lenders hired inexperienced people to process foreclosures without following procedures and verification of facts (robo-signing). “Mortgage services and lenders continue to process foreclosures at an unusually slow rate, and although we expected foreclosure activity to drop in the first quarter, it fell more than expected,” said Ryan McMaken, Division of Housing spokesman. “That gives us hope for the future, but right now, foreclosure sales at auction aren’t going away.”

 

Loan Amounts

The rise in foreclosure inventory and decrease in delinquencies over the last six months have affected all loan types. The most dramatic drop in delinquencies has been in Agency Prime Mortgages. Delinquencies have declined by about 20 percent to a current rate of 4%. FHA/VA loan delinquencies dropped about 16 percent to 9.6 percent and subprime loan delinquencies while still standing at a 27.1 declined 15 percent.Foreclosures on borrowers with an option ARM loans have increased by 20 percent in the last six months to a 19 percent rate. Foreclosures of non-Agency Conforming Prime loans were up about 17 percent to 4.4 percent and Subprime loans increased 16 percent to 15.2 percent.