Tuesday, August 09, 2011

Freddie Mac Seriously Delinquent Loans and REO by Selected States

by Bill McBride on 8/09/2011 10:59:00 AM

Yesterday I posted a graph for REO inventory through Q2. (REO: Real Estate Owned by lenders)

And on Sunday, I noted that REO is only a part of the problem. A bigger part of the problem is the large number of seriously delinquent and in-foreclosure loans. See: Mortgage Delinquencies and REOs

Although delinquencies and foreclosure activity is higher than normal in all states, a few states stand out. The following data is from the Q2 Freddie Mac SEC filing:

Freddie Mac Single Family Portfolio, Serious Delinquencies and REO
 CaliforniaFloridaIllinoisArizonaNevadaAll States
Portfolio UPB (billions)1$285 $109 $91 $45 $20 $1,805
Seriously Delinquent (billions)$13.388$15.099$5.071$2.673$2.770$77.840
Serious Delinquency Rate3.8%10.6%4.5%4.6%10.6%3.5%
REO Inventory (billions)2$2.163$0.751$0.772$0.610$0.338$10.830
REO compared to Portfolio0.8%0.7%0.8%1.4%1.7%0.6%
Negative Equity330.9%46.1%21.7%49.6%62.6%22.7%
1 UPB: Unpaid Principal Balance.
2 Based on UPB at time of REO acquisition.
3 Negative Equity source: CoreLogic.

I marked a few numbers in red. Although Freddie Mac has the most REO in California, the percent of REO in California is only slightly above the national average compared to the portfolio size. Nevada and Arizona have the most Freddie Mac REOs compared to the portfolio (Nevada is almost triple the national rate).

Look at the serious delinquency rate. Now Florida and Nevada stand out. In general judicial foreclosure states have more loans in process, but Nevada is a non-judicial state!

I've also added negative equity data from CoreLogic (percent of properties with a mortgage that owe more than their home is worth). Nevada, Arizona and Florida really stand out.

Although Florida doesn't have an especially high number of Freddie Mac REO, there are many more coming. Nevada has both a high number of REO and a high delinquency rate. The timing of the eventual recovery in housing depends on clearing out this backlog of REO and seriously delinquent loans - so I think California will recover long before areas like Florida and Nevada.

Also: I noted this yesterday, but this is important. Freddie Mac had been expecting REO acquisitions to increase in the 2nd half of 2011, now they are expecting the delays to continue all year. From their SEC filing: "The pace of REO acquisitions slowed in Q2 2011 due to delays in the foreclosure process. We expect these delays will likely continue through the remainder of 2011."