“Despite a seasonal slowdown similar to what we’ve seen in each of the past four years, November’s numbers suggest a new set of incoming foreclosure waves, many of which may roll into the market as REOs or short sales sometime early next year,” said James Saccacio, co-founder of RealtyTrac. “Overall foreclosure activity is down 14 percent from a year ago, the smallest annual decrease over the past 12 months, and some bellwether states such as California, Arizona and Massachusetts actually posted year-over-year increases in foreclosure activity in November.

“Scheduled foreclosure auctions reached a nine-month high in November, corresponding to a recent surge in default notices that began back in August,” Saccacio continued. “Many of the new defaults that started the foreclosure process over the past few months are now being scheduled for public foreclosure auction.”

Barclays goes on to estimate that home prices will rise slowly after this triple dip occurs. “Long run home price measures suggest that prices are close to equilibrium” and they are estimating the bottom of the market after this triple dip occurs.

Delays associated with foreclosures have, for the moment, prevented an overcorrection in home prices by limiting the amount of REO inventory on the market.

REO inventory levels are still elevated with close to 4 million homes seriously delinquent or in foreclosure.  The glut of foreclosed homes in the pipeline should eventually cause REO supply to far exceed REO demand.  This supply-demand imbalance could remain well into 2013 and 2014 according to the research firm.  Barclays says price gains will be constrained by the amount of REO supply that will be placed on the market in the next few years. At the same time demand for these homes will be “highly dependent” on the state of the economy, Barclays stressed.  (source: Carrie Bay, DSNews.com)

You can track the current number of REO properties in the Tri-Lakes MLS on our Real Estate Portal: http://www.cooperappraisal.net/portal.html

REO sales may not peak until 2013 (source: Jon Prior, HousingWire)

The sale of properties repossessed through foreclosure may not peak until 2013, keeping home prices from a meaningful recovery for some time, analysts estimated Monday.

Nearly half of the more than 552,000 REO properties liquidated in the first half of 2011 were held by private banks. In the years ahead, the government — including the Department of Housing and Urban Development, Fannie Mae and Freddie Mac — will begin taking a majority of the activity.

In 2013, REO sales could reach 1.48 million properties, according to estimates from Bank of America Merrill Lynch analysts, a 10% increase from projected amount in 2012.

“We do not expect to see anywhere near the downward pressure on home prices that we had back in 2008, since the expected percent changes in liquidation volumes are so much smaller,” BofAML analysts said. “But home prices are starting from a negative point, so the implication is that home prices will continue to decline as the foreclosures transition through the pipeline.”

Most of the projected increase will come as the government begins to unload its backlog. The government-sponsored enterprises and HUD, analysts estimate, will liquidate roughly 595,000 properties in 2013 alone.

Total REO liquidations wouldn’t drop below 1 million until 2015, according to BofAML.

The Obama administration beganwork last month developing new strategies for selling this mass of properties, which may involve renting more of them. The Federal Housing Finance Agency is also workingonaway to refinance more underwater borrowers to entice them from walking away.

“I would essentially rent the house back to those who are living in them now,” said Susan Woodward, an economist with Sand Hill Econometrics. “I don’t think it makes a lot of sense to push 4 million people out of their homes when they’re victims of a slower economy they had nothing to do with.”

Other analysts were skeptical of anyone who could predict accurately what the GSEs or Washington would do, especially after the elections in 2012.

“Do they really think that the government under any administration would let 500,000 homes hit the market and crash prices all over again, six years after the first crash?” said Scott Sambucci, chief analyst at Altos Research.

He said even if unemployment improved by a full percentage point or two — which he said would be a stretch — the market would still struggle to meet such a supply influx.

“It would crash the market, so no, it’ll never happen,” Sambucci said.

Daren Blomquist at RealtyTrac, which monitors foreclosure filings across the country, said the sale of REO is on track to reach 825,000 by the end of 2011.

“We do expect the REOs to pick back up in 2012 as lenders push through some of the foreclosures delayed by processing and paperwork issues,” Blomquist said, adding the inventory needed to be sold could reach well into the millions.

If half of the 800,000 mortgages currently somewhere in the foreclosure process and another half of the 1.5 million loans in serious delinquency end up REO, it could mean an additional, 1.15 million properties that would need to be liquidated — not including new foreclosures that enter the process, according to RealtyTrac.

“That’s very possible given continued high unemployment rates and high underwater rates,” Blomquist said. RealtyTrac estimates roughly 27% of all outstanding mortgages are worth more than the underlying property.

Woodward said refinancing borrowers, in negative equity or not, down to current market rates could result in a total savings for U.S. households at $250 billion annually. When asked if private investors would return to fund the future mortgage market after such a radical change, she said they would.

“I think the whole world would see this as a one-time fix. We did similar extreme things during the Great Depression,” Woodward said.

Investors themselves, though, showed little confidence they would take on such a risk again. In fact, most aretrying to keep the government involved in the housing market for the future, to keep risks as low as possible. Otherwise, foreign investors would flee.

While the estimates on how many REO will be sold in the future are extremely difficult to nail down, the size of the best projections share a common and threatening scale. Analysts said major refinancing schemes or new strategies for liquidating REO on a local level would need to be completed soon to rescue house prices from the still increasing pressure of mounting foreclosures.

“The need for policy support would therefore be considered urgent,” the BofAML analysts said.

Roughly 10.4 million mortgages, or one in five outstanding home loans in the U.S., will likely default if Congress refuses to implement new policy changes to prevent and sell more foreclosures, according to analyst Laurie Goodman from Amherst Securities Group.

At the end of the second quarter, more than 2.7 million long-delinquent loans, others in foreclosure and REO properties sat in the shadow inventory, more than double what it was in the first quarter of 2010 (Click to expand the chart below). With the market averaging roughly 90,000 loan liquidations per month, it would take 32 months, nearly three years, to move through the overhang.

And that number is contingent on no other loans going into default.

“Many analysts looking at the housing problem mistakenly assume it is limited to loans that are currently non-performing (or 60-plus days past due). Such borrowers have a high probability of eventually losing their homes. However, the problem also includes loans with a compromised pay history; these are re-defaulting at a rapid rate,” Goodman told a Senate subcommittee Tuesday.

Under a reasonable estimate, which is calculated with more conservative market conditions than what is currently being experienced, Goodman found nearly 2 million re-performing mortgages would default again and another 3.6 million already troubled loans to default as well.

The rest of the 10.4 million estimate is made of always-performing loans at various stages of negative equity. Of the 2.5 million always-performing mortgages with loan-to-value ratios above 120%, nearly half will default. Even 5% of the always-performing mortgages that have some equity left will default, as well, Goodman said.

In August, the Obama administration asked the housing industry for ideas on how to more efficiently sell or unload this overhang, and the Senate heard testimony from various housing players Tuesday. Each, including Goodman, said the government should target private investors.

Robert Nielsen, chairman of the National Association of Homebuilders, said government programs should be revamped to assist small and local businesses in rehabbing and unloading these properties.

Nielsen said Fannie, Freddie and the FHA should avoid bulk sales to large investors that have no stake in the neighborhoods in which these properties are located.

“Local and small businesses that have a stake in the future of the affected communities should be the driving force behind the disposition of the REO inventory. This will result in the creation of jobs and the stabilization of neighborhoods,” Nielsen said.

NAHB also urged Congress to extend the current conforming loan limits for Fannie Mae, Freddie Mac and the FHA, which are due to be lowered on Oct. 1.

Stan Humphries, chief economist for Zillow, said the rental market is currently booming and would be able to handle a mass conversion of foreclosures into rentals by investors, but the government, he said, would be wrong in upsetting this dynamic.

“Investors smell a distinct opportunity in this situation: The chance to buy an asset cheaply and rent it out dearly. In fact, close to one-third of the purchases of existing homes this year have gone to all-cash buyers, the bulk of whom are real estate investors,” Humphries said. “Any plan that may upset this balance – such as Fannie and Freddie getting into the rental market and creating competition – will have a chilling effect on private investment in the one segment of the housing market that is performing well.”

But with a Congress currently gridlocked on nearly every issue, none of the panelists so clearly described the looming housing problem and the consequences of continued inaction like Goodman.

“To solve the housing crisis you must create 4.1 million to 6.2 million units of housing demand over the next six years,” she said.

 In the Tri-Lakes market, our foreclosures have slowly been increasing.  On our website (Cooperappraisal.net) we are keeping a running tally to keep an eye on just exactly how many foreclosures we have for sale in our Mls system.  With 149 REO properties still “active” and only 134 a month ago, we can see the rise right here at home.

 The declining values and overall poor condition of the real estate market will not stop its slide until a majority of these foreclosures are “flushed” away.  When there are less than 50 foreclosed properties available, it is our opinion that the slide will stop and the declines will stabilize.

The issue appears to be that there is a “wrench” in the gears. For some two or more years now, the Federal government has been scrutinizing those national banks under OCC auspices. I’ve heard many bankers hear “why did you give this guy a loan” from examiners. The answer is he’s been a 10 year client and never missed a payment, good business and not really a credit problem. Instead the examiners look at the local banker like he is from Venus and effectively ask the banker to show his client the door.

The Federal governments concern is that the commercial market would crash just like the residential did. They sent the examiners out to take the pulse of every bank so that they would know when the “heart attack” was about to happen…and maybe in some way prevent it. Easily understandable that the over sight pendulum would swing to the other extreme based upon the lack of foreshadowing of the residential (credit default swap) “stroke” that came without warning.

So you’ve got the Federal government with its fingers on every loan file effectively stopping the blood circulation at the bank on the corner of “Main Street”, USA.

The public relations department of the Federal government is telling everyone that they are going to ease up restrictions and help small businesses get loans and try to boost employment. The reality is that the current lending environment is keeping the economy in a sleeper hold and cutting off the blood circulation almost to the point that the real estate market is about to pass out.

So what will the future bring ???

Maybe those pioneers at Microsoft are the heart specialist that we need to get the gears working together again and get the machine we call the economy back in first gear….

http://online.wsj.com/article/SB10001424053111904480904576498442951766826.html

It appears that one small bank has decided to surrender its banking charter to get out from under the thumb of Federal regulators. Main Steet Bank from Kingwood Texas is hoping that by closing their doors, turning in their charter, selling their four branches to another bank and then re-opening as a non FDIC lender will solve the problem. The chairman of Main Street Bank is hoping that moving away from the state banking system will enable him to make the loans he wants to his small business customers. (see WSJ article above)

Microsoft co-founder Paul Allen is helping Main Street Bank re-open through a private investment firm. When completed, they won’t be able to call themselves a bank or be eligible for FDIC insurance, but they will be able to do business the way they want to with their small business and local customers.