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The Tipping Point: Foreclosure Filings Jump as Investors Eye Exits

By       Message Mike Whitney     Permalink
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Do you really think there are enough first-time homebuyers out there in Mortgageland to fill that gap?

In your dreams! Keep in mind, that a lot of first-time homebuyers are collage grads who want to start a family and put down roots. Regrettably, nearly half of those potential buyers have been scrubbed from the list due to their burgeoning student loans which now exceed $1 trillion. These kids will probably never own a home, let-alone have a positive impact on sales in 2014. Ain't gonna happen.

Maybe this is why the banks are suddenly speeding up their foreclosure filings, because they want to offload more of their distressed inventory before prices fall. Is that it? Check out this article on Housingwire:

"Monthly foreclosure filings -- including default notices, scheduled auctions and bank repossessions -- reversed course and increased 8% to 124,419 in January from December, according to the latest report from RealtyTrac.

"This marks the 40th consecutive month where foreclosure activity declined on an annual basis, with filings down 18% from January...

"As a whole, 57,259 U.S. properties started the foreclosure process for the first time in January, rising 10% from December...

"This month's foreclosure starts increased from a year ago in 22 states, including Maryland (up 126%), Connecticut (up 82%), New Jersey (up 79%), California (up 57%), and Pennsylvania (up 39%).

"Scheduled foreclosure auctions jumped 13% in January compared to the previous month." (RealtyTrac: Monthly foreclosure filings reverse course, rise 8%, Housingwire)

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Like most articles on housing, you have to sift through the bullshit to figure out what's really going on, but it's worth the effort. The banks have been dragging their feet for 40 months now, slowing down the foreclosure process (and adding to the shadow supply of distressed homes.) in order to push up prices hoping to ignite another boom. Now -- after three and a half years of blatant collusion -- they've done a 180 and started speeding up foreclosures. Why?

It's because they agree with the above-mentioned "110 economists, real estate experts, and investment strategists" who think that "institutional investors" are going to call-it-quits and move on to greener pastures. That's going to push down prices, which means they're going to lose money. So they want to get ahead of the curve and dump more houses on the market before the stampede. That way, they lose less money.

Keep in mind, the banks are up-to-their-eyeballs in distressed inventory. Even conservative estimates of shadow backlog puts the figure of 90-day delinquent or worse, above 3 million homes. But if you review the gloomier prognostications, the sum could easily exceed 6 million homes, enough to suck the entire bleeding banking system into a black hole of insolvency. There was an interesting article on the topic in Bloomberg last week. It seems that, "bond king" Jeffrey Gundlach has been warning mortgage-backed security purchasers that they should to pay more attention to underlying collateral in MBSs (vacant homes, that is) which have been "rotting away" for "six years" or more. Here's a clip from the article:

"The housing market is softer than people think," Mr. Gundlach said, pointing to a slowdown in mortgage refinancing, shares of homebuilders that have dropped 13% since reaching a high in May, and the time it's taking to liquidate defaulted loans...

"About 32% of seriously delinquent borrowers, those at least 90 days late, haven't made a payment in more than four years, up 7% from the beginning of 2012, according to Fitch analyst Sean Nelson.

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"'These timelines could still increase for another year or so,' Mr. Nelson said, leading to even higher losses because of added legal and tax costs, and a greater potential for properties to deteriorate."
(Gundlach Counting Rotting Homes Makes Subprime Bear, Bloomberg)

Let me get this straight: The number of "seriously delinquent borrowers" has actually gone up in the last year? Not only that, but many of these people "haven't made a payment in more than four years"?

That's a mighty fine recovery you got there, Mr. Bernanke. Sheesh.

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Mike is a freelance writer living in Washington state.


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