We haven’t seen the worst of foreclosures yet

The Obama Administration issued its monthly housing market scorecard this week, and on the surface, it almost appears that the program is starting to gain traction.

But look a little deeper, and trouble is brewing.

Loan modification requests continue to outpace foreclosure filings, though only about a third actually receive permanent mods, according to the U.S. Treasury Department report.

Meanwhile, the number of foreclosure filings surpass completed foreclosures each month and the “Shadow Inventory” of homes held back from the market continues to grow, according to the Treasury report.

It’s like a massive tsunami wave building, building, building, just off shore but headed straight for us.

The latest scorecard issued by the Department of Housing and Urban Development and the Treasury Department is part of Obama’s housing stability program and outlines indicators that show the results of the plan to heal the housing market.

According the report, which can be found HERE:

  • Mortgage rates are at all-time lows with 30-year loans under 4.5 percent.
  • The number of sales, while seeing the expected drop following the expiration of the federal tax credit, are on the upswing year over year.
  • The inventory of homes has decreased and prices have increased in some areas.
  • Housing prices show signs of stabilizing. Economists shift housing market futures to “we’re at bottom” from “we haven’t hit bottom yet.”
  • And the crown jewel: Homeowner equity grew for the fifth straight month to about $7 trillion and the number of homeowners who are underwater on their mortgages dropped 300,000 from the previous month to about 10.97 million.

But I’m a little more concerned about these numbers.

  • From April 2009 through July 2010, 1.24 million homes have been lost to foreclosure, bringing the total to 2.5 million since 2007.
  • In that same time period, more than 3.35 million loan mods have been initiated. Of those, 1.33 million were Obama program HAMP modifications. But only 468,000 of those applications have been granted permanent status.
  • The HAMP process is so unwieldy and riddled with obstacles that only about 26,000 new applications were filed in August. A year ago, 100,000 people were applying every month. Homeowners, seeing the lackluster results, appear to be simply walking away.
  • About 4.3 million homeowners are “seriously delinquent” on their mortgages.
  • We’re on track for more than 3 million foreclosure filings in 2010.
  • Five-year option ARM resets don’t peak until September 2011.
  • Here’s the real snake hiding in the grass: Vacant units held off the market grew again in August to 3.75 million! That’s 50 percent more than the total number of homes that have been taken back by the bank.

There are three obvious options for this shadow inventory.

  • The banks somehow miraculously figure out which of the myriad investors actually will get paid on each home and release those assets for sale. Prices drop hard, but we hit real bottom, real fast. And real healing can actually begin.
  • The banks release the homes slowly and continue to artificially prop up prices, and we float around for the next 10 years while they clear out the inventory.
  • The banks become property magnates and landlords.

Other people are much more qualified than I to pick the best solution here, but there comes a point when you have to take your medicine. The question boils down to philosophy: Is government intervention more effective than the free market and its inherent rules?

History will show us the answer to that question. Americans will be waiting and debating.

In the meantime, I’m putting on my hip waders and moving my belongings upstairs. Because high water is coming.

(Brian Bean is a real estate broker and ambassador for Helping A Million Homeowners, a nationwide organization that is committed to helping alleviate the financial stress that so many homeowners face today. He can be reached directly at Brian@DreamBigRealEstate.com.)

Brian Bean
Real Estate Professional

Short Sale Genius Elite

I’ve been specially trained to negotiate short sales with an emphasis on Deficiency Waivers

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