24% of FHA Loans written in 2007 in Default.  20% of FHA loans written in 2008 are in default.

Recap of findings of the latest RealtyTrac report:

* The foreclosures surged 15% as compared to one year ago.
* For Every 409 U.S. homes – 1 is now facing default.
*Over 87,000 homes were repossessed just in January 2010 alone. That’s a 31% increase over January of 2009.
*The  number of pending foreclosures will increase by nearly 40% to a record  high of 3.5 million as compared to the old record of 2.8 million in 2009.
*Home values plunged even further by 17% in December 2009.
*Fannie Mae  conventional loan delinquency rates have  more than doubled from 2008 year end to 5.3% by the close of 2009.

20% of homes underwater

Real estate website Zillow.com says one of every five U.S. home owners owed more on their mortgage than their home was worth in the fourth quarter.  The percentage of American single-family homes with mortgages in negative equity rose to 21.4% in the fourth quarter from 21% in the third quarter, according to the Zillow Real Estate Market Reports.  U.S. home values declined again in the fourth quarter, as the Zillow Home Value Index fell 5% year-over-year and down 0.5% quarter-over-quarter, to $186,200. It was the 12th consecutive quarter of year-over-year declines, the reports showed.  ”The prevalence of markets in or near a double-dip situation shows that we are not yet at the bottom, in terms of home values,” Stan Humphries, Zillow chief economist, said in an interview.

The overwhelming opinion is rates will go up sometime next year.   If teh feds do not support the low rates buying MBS than it would be fair to say non-fed investors will demand a higher return.  If you have an opinion please share it in the comment section.

The pace at which homeowners are falling behind on their mortgages is declining, however, the overall delinquency rate hit another record.

The meltdown continues!

Shadow Inventory is a term that refers to unsold foreclosures.  These are homes being held back from the foreclosing bank and not yet placed on the market for sale.  No one really knows how large the problem is the banks and the public are facing.

There are various statistics available from DataQuick, RealtyTrac and also ForeclosureRadar.   In the San Francisco Bay Area 9 Counties it is estimated approx. 35% or more of foreclosed homes  have not been listed for sale yet – representing approx. 20,000 homes and possibly as high as 100,000 homes.   It is possible  that a similar trend is happening in the Vancouver – Portland area.  Perhaps not quite as severe, however.

There are several speculative reasons for this “shadow inventory of unsold bank owned homes”.    The system may be overwhelmed by the amount of homes on the books that need to be processed for resale.  The banks may be holding bank on listing too many for sale – preventing a free fall of home prices.  The banks may be holding back to create an illusion that their balance sheets aren’t as bad as they really are.

In addition to this shadow inventory there is another huge wave of foreclosures to hit the market.  These are homes that have been placed under a moratorium which halted the foreclosure process in order to try work out’s with the homeowners via loan modifications of various types.   In essense this will be a wave upon another wave.. or 2 waves back to back.. whichever way you want to look at it.

Here is a quote by Patrick Newport, a U.S. Economist with Global Insight – a Mass. research firm:

“The problem is that no one knows how extensive (the shadow inventory) is,” “It’s a wild card. If it’s a really big number, you’ll see prices drop a lot more and deeper problems for the financial system.”

FHA has become the loan of choice. A high percentage of new purchase loans are being issued by FHA lenders.  The main reasons being they allow a lower fico score than conventional loans and the down payment is only 3.5%.  + The seller can contribute up to 5% towards closing costs.

On the other hand it is causing a new problem.  The deliquency ratio of FHA loans has increased causing many people to believe this may be considered the new “sub prime”. By not requiring buyers to put down sizable amounts to purchase their home it brings into question the viability of the borrower.  Perhaps this is why we are seeing minimum fico score requirements on the rise.

Case Shiller Home Price Index is a leading information source for what is going on in the housing market.  The January report shows that sales prices across the nation continue to decline.

While the low interest rates and low prices are  bringing many buyers to the market in search of bargain prices there appears to still be more downside for home sellers.

What does that mean to real estate agents?  I means they will need to price their listings below the current market value. Since it could take 2 -3 months for a short sale approval it would be wise to determine the month over month decline percentage in your area and multiply that by let’s say 3 months..So, if your area is declining at 12% a year you may want to reduce your list price by 3% from recent comps.

This, of course, is not an exact science but it is a start in the right direction.