Wednesday, November 09, 2011

Housing: REO and Mortgage Delinquencies

by Bill McBride on 11/09/2011 12:11:00 PM

Yesterday Fannie Mae reported their third quarter results. Fannie's REO inventory fell to 122,616 houses from 135,719 at the end of Q2. Fannie's REO inventory has declined for four straight quarters.

Below is a graph of Fannie Mae REO acquisitions (completed foreclosure or deed-in-lieu) and dispositions (sales).

Note the slowdown in REO acquisitions in Q4 2010, and the increase in sales.

Since sales have been higher than acquisitions, REO inventory has been falling. However there are many properties delayed in the foreclosure process, and acquisitions will pick up when the mortgage servicer settlement is reached.

Fannie Mae REOClick on graph for larger image.

If we just looked at REO inventory, we might think that the situation is getting better pretty quickly. However there are a large number of properties in the "90 days delinquent" and "in foreclosure" buckets.

The second graph shows the delinquent and REO buckets over time. The delinquency data is from LPS, and the REO estimates are based on work by Tom Lawler and my own calculations.

Delinquency and REOThe dashed lines are "normal" historical levels for each bucket. The 30 day bucket is only slightly elevated (as of September), and the 60 day buckets is somewhat elevated. But the glaring problems are in the 90 day and in-foreclosure buckets.

There are 4.1 million seriously delinquent loans (90 day and in-foreclosure). This is about 3.1 million more properties than normal. Probably when the mortgage settlement is announced, some of these loans will cure as part of the settlement with loan modifications that include principal reduction, but many of these properties will become REOs fairly quickly.

So even though REO inventory is declining, there are still many more to come.

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