Friday, May 06, 2011

Total Fannie, Freddie, FHA REO inventory declined in Q1, Fannie and Freddie REO Sales at Record Levels

by Bill McBride on 5/06/2011 09:20:00 PM

Special Note: Because of late reporting at the FHA, this graph only includes FHA REO through February. Also see: Lawler: Monthly Report to Commissioner Suggests Serious REO Inventory Problem at FHA

The combined REO (Real Estate Owned) inventory for Fannie, Freddie and the FHA decreased to 287,184 at the end of Q1 (see FHA special note above) from a record 295,307 units at the end of Q4. The REO inventory increased 37% compared to Q1 2010 (year-over-year comparison).

Fannie Freddie FHA REO Inventory Click on graph for larger image in new window.

This graph shows the REO inventory for Fannie, Freddie and FHA through Q1 2011 (FHA through Feb 2011).

The REO inventory for the "Fs" increased sharply in 2010, but may have peaked in Q4 2010. The pace of foreclosures is picking up, but so is the pace of REO sales. Freddie Mac noted REO sales were at record levels in Q1:

We expect the pace of our REO acquisitions to increase in the remainder of 2011, in part due to the resumption of foreclosure activity by servicers, as well as the transition of many seriously delinquent loans to REO.

REO disposition reached record levels in 1Q 2011 with over 30,000 homes sold, two-thirds of which were sold to owner occupants, or buyers who intend to live in the home.
Fannie Mae also sold a record 62,814 REO in Q1, up from 38,095 in Q1 2010 and 185,744 for all of 2010.

So Fannie and Freddie sold over 90,000 REO in Q1, and their combined inventory only declined by 16,185. The are foreclosing at record levels, but they are finally selling REOs faster than they acquire them.

This will go on for some time. From Fannie Mae:
[G]iven the large current and anticipated supply of single-family homes in the market, we anticipate that it will take years before our REO inventory is reduced to pre-2008 levels.
Also, this is just a portion of the total REO inventory. Private label securities and banks and thrifts also hold a substantial number of REOs.

As Freddie noted, the pace of foreclosures will pick up this year, and so will the pace of REO sales. This will keep pressure on house prices (see this graph from Clear Capital comparing house prices and REO saturation).

Here are the earlier employment posts (with graphs):
April Employment Report: 244,000 Jobs, 9.0% Unemployment Rate
Employment Summary, Part Time Workers, and Unemployed over 26 Weeks
Employment: A dirty little secret and more graphs
Employment Graph Gallery

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