Foreclosures Are Rising

Foreclosed Home
Foreclosed Home

The new foreclosure wave is here.

Yes, banks are ramping up loan modifications and ramping up short sales and ramping up deeds in lieu of foreclosure, but the plain fact is that as the systems are oiled, the loans are moving through faster, and the pig in the python is showing its face.

We won't get the numbers until next week, but sources tell me they will likely be a new monthly record.

Tens of thousands of loans have been hitting the "notice of trustee sale" bin, and that means they are coming to foreclosure.

The actual foreclosure numbers have been down recently because of all the modification efforts, but as we see more loans not qualifying for modifications and more loans defaulting on modifications, the foreclosure numbers rise.

And this is just the beginning.

All the uniform policies and practices that the government has put in place, whether on modifications or short sales, will quicken the process. Foreclosures, which can now take 2 years plus to complete, will happen in less than a year, start to finish.

Clearly the Administration knew of the impending rise in foreclosures, as it revamped its modification, refinance and short sale programs last month, increasing incentives all around and pushing for principal write down. The big question of course is how will the new wave affect home prices, especially in the hardest hit markets.

I pushed Fannie Mae's chief economist Doug Duncan on this in an interview today on the mortgage giant's new National Housing Survey. He cited the over 5 million mortgages out there that are seriously delinquent, and said that while the 30-day delinquencies seem to have peaked, "certainly some of the foreclosure backlogs are working their way through the system at this point." He also said home prices will dip again before hitting bottom later this year.

Yesterday we saw a big bump in the Realtors' Pending Home Sales Index, but my sources tell me that was largely driven by contracts on short sales, which have a far lower rate of closing than regular sale contracts. Estimates are that only about 35 percent of short sale contracts go to closing versus 80 percent of conventional sale contracts.

The home buyer tax credit deadline is 24 days away, and that is pushing some of the numbers up, but not as much as some had hoped.

Credit Suisse's Dan Oppenheim noted an uptick in buyer traffic in March thanks to the credit, but his survey of real estate agents found, "buyers remain hesitant due to employment concerns. Most of the demand occurred at the low-end of the market."

Questions? Comments?