Tuesday, November 08, 2011

Fannie, Freddie and FHA REO Inventory declines in Q3

by Bill McBride on 11/08/2011 05:45:00 PM

Important: REO inventories have declined over the last few quarters. This is a combination of more sales and fewer acquisitions due to the slowdown in the foreclosure process. However there are many more foreclosures coming (I'll have more on this later).

From Fannie Mae today: Fannie Mae Reports Third-Quarter 2011 Results

Fannie Mae today reported a net loss of $5.1 billion in the third quarter of 2011, compared to a net loss of $2.9 billion in the second quarter of the year. The company’s third-quarter loss was driven primarily by two factors: $4.9 billion in credit-related expenses, the substantial majority of which were related to its legacy (pre-2009) book of business; and $4.5 billion in fair value losses driven primarily by losses on risk management derivatives due to a significant decline in swap interest rates during the quarter. These losses were partially offset by $5.5 billion in net revenues.
...
The Acting Director of the Federal Housing Finance Agency (“FHFA”) will submit a request to Treasury on Fannie Mae’s behalf for $7.8 billion to eliminate the company’s net worth deficit.
The combined REO (Real Estate Owned) inventory for Fannie, Freddie and the FHA1 decreased to 226,961 at the end of Q3 from 249,501 units at the end of Q2. The "F's" REO inventory decreased 23% compared to Q3 2010 (year-over-year comparison).

1 FHA is for August, not Q3. The FHA is having system problems and hasn't reported for September yet.

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

This graph shows the REO inventory for Fannie, Freddie and FHA1 through Q3 2011.

The REO inventory for the "Fs" increased sharply in 2010, but may have peaked in Q4 2010. However there may be a new peak when the foreclosure dam eventually breaks - however I expect quite a few modifications as part of the settlement, and probably a bulk REO selling program from Fannie and Freddie.

I'll update the FHA data when it is released, and add the PLS and FDIC REO inventory.