Analysis

Foreclosure Filings Increase By 21%

A massive supply of delinquent loans continues to loom over the housing market, and many of those delinquencies will end up in the foreclosure process in 2010 and beyond as lenders gradually work their way through the backlog.

Recent data from RealtyTrac showed over 3.9 million foreclosure filings, including default notices, scheduled foreclosure auctions and bank repossession were reported on 2.8 million properties in 2009, up 21% from 2008 and 120% from 2007.

"As bad as the 2009 numbers are, they probably would have been worse if not for legislative and industry-related delays in processing delinquent loans," said James Saccacio, chief executive officer of RealtyTrac, Irvine, Calif.

"After peaking in July with over 361,000 homes receiving a foreclosure notice, we saw four straight monthly decreases driven primarily by short-term factors: trial loan modifications, state legislation extending the foreclosure process and an overwhelming volume of inventory clogging the foreclosure pipeline."

Despite all the delays, foreclosure activity still hit a record high for the company's yearend 2009 Foreclosure Market Report, capped off by a substantial increase in December, Mr. Saccacio said.

The Years in Review

2009 and 2008

It was the worst of times. It was the worst of times. That sort of says it all, doesn't it?

Before we get into the state of the market (and a brief overview of what went wrong) let's state the one "positive" that seems obvious but hasn't been said all that much: there is always going to be a need for home mortgage lenders and servicers. But as of this writing it's unclear - to say the least - what the future holds for the industry. A year from now there's a good chance the question will not have been answered either. (We'll address the future of mortgage banking later on in this white paper.)

The Biggest `Untruth' About the Mortgage Crisis: That it was caused by CRA loans made to lower income citizens living in cities. Just visit new home developments in the Inland Empire of California. Not too many inner city borrowers there - but lots of stated-income loans.

Indeed, predicting the future is a fool's game and predicting when exactly the mortgage and housing industry will turn - and what the outlook will be for mortgage professionals - is probably the most foolish endeavor of them all. Still, it needs to be done. And there's no point in discussing (for too long) how we, as a nation and industry got into this mess. The short story is this: Wall Street, in its thirst to increase profits, discovered the subprime residential business and embarked on a liquidity spree by providing warehouse lines of credit to too many undercapitalized subprime lenders. The Street - Bear Stearns, Lehman Brothers, Merrill Lynch, take your pick - funded these companies and then turned around and securitized their loans. The reason for the fall: loan quality. Wall Street and the wholesalers feeding them product threw residential mortgage standards out the window. This may sound like a gross over exaggeration, but during the `boom' years just about any loan applicant with a pulse could obtain a mortgage, be it stated-income, alt-A, payment options ARMs, and various other nontraditional loan types. (Note: Bear and Lehman are now dead. See what happens when you play with fire?)

Macro Environment

Mortgage Employment

Existing Home Sales | Housing Starts | New Home Sales

Source:Bureau of Labor Statistics/MortgageStats.com

Metropolitan Areas

Top Metropolitan Areas by Lending Volume

All Metropolitan Areas