A recently released study from LPS Applied Analytics shows the foreclosure crisis keeps getting worse. Here are some quick statistics from the report:
- Delinquency rates have surpassed the 10% level; factoring in foreclosures, the total non-current rate sits at 13.3%.
- Industry extrapolations indicate that over 7.2 million loans are currently behind on payments with an estimated nearly 1 million properties in REO status.
- Average number of days delinquent for loans in foreclosure has increased 63 percent from January 2008 to December 2009, rising from 249 to 406 days delinquent.
- Prime loans have experienced a worse pace of deterioration on a relative basis than subprime, FHA and all loans as a whole. Within prime loans, those with current unpaid principal balances between $417,000 and $600,000 have performed the worst.
- The percent of “new” serious delinquencies (from the population of loans that were current as of year-end 2008) sits at 4.64%, higher than any other year analyzed for the same period. Extrapolated counts result in approximately 2.3 million “new” 60-day delinquent loans from December 2008 to year-end 2009.*
I said a couple of years ago (check out old blog posts) that we were entering a huge market correction and all the government programs, bailouts, and subsidies to stop foreclosures would not and could not prevent the inevitable from happening.
When a borrower is in a house that is worth far less than what it is worth, one of three things will happen: (1) if the borrowers can afford to keep making payments they may wait the several years it will take for the market to recover, or the borrower will default (either voluntarily or involuntarily) and (2) the borrower will work out an alternative with the lender to avoid foreclosure, or (3) the property will go to foreclosure.
If the borrower attempts to work out an alternative to foreclosure, there are only two options: (a) stay in the house, or (b) leave the house. Despite all the efforts of the administration and all the talk by lenders, a modification to keep someone in the house is not sustainable unless the loan balance is reduced to the fair market value of the property and the payments are affordable. Because many loan modification programs do not offer principle balance reductions and many borrowers are in houses that no matter how the loan is modified, they cannot afford, the only viable option is to work out a deal with a lender that allows the seller to move and avoid a foreclosure – that’s a Short Sale.
Short Sales are critically important to the U.S. economy right now. They are perhaps the most honest and sustainable remedy to the foreclosure crisis.
It is well trained professional real estate investors who understand how to get these complicated deals done successfully. As the number of foreclosures continue to climb as illustrated by the latest LPS Applied Analytics data, the need for well trained short sale investors also continues to climb.
