In trying to keep my promise to post only NSDCC-related data, here’s a national article from G-S, with NSDCC relevance at the bottom. Hat tip to Aztec for sending this along:
As of 1Q, the number of seriously delinquent federally backed loans surpassed the number held by banks and private label securitizations and now accounts for the majority of seriously delinquent mortgages (seriously delinquent mortgages comprise loans in the foreclosure process as well as loans that are 90-plus days delinquent but not yet in foreclosure).
This shift is due to the persistently elevated level of seriously delinquent loans among Fannie Mae, Freddie Mac, and the Federal Housing Administration (FHA), in contrast with private-label and bank-held loans, where serious delinquencies peaked in 2009 and have declined significantly since.
The chart below shows the number of seriously delinquent mortgages backed by federal entities and the total mortgage market; the right axis shows seriously delinquent loans as a share of the total.
The federal share of REO property is also rising.
For 1Q, RealtyTrac estimates that total REO property held by lenders totaled 872,000. Of this, we know from monthly or quarterly financial statements that Fannie Mae, Freddie Mac, and the FHA hold roughly 300,000 of these properties on their books, and that this inventory has been rising by more than total REO inventories over the last year.
Over the next few quarters, the federally backed entities are likely to see their inventories of REO property become a larger share of the total.
The chart below shows the accumulation of REO property by the GSEs and FHA, which was on a trend to overtake private sector activity until it declined in 4Q, most likely due to legal irregularities in foreclosure processing (the chart relies on filings from the federal entities and assuming that the difference between this number and total REO filings reported by RealtyTrac are related to private label securities or bank portfolios).
However, the federally backed entities have not shown much sign of trying to hold properties back from the market. The FHA may be particularly constrained by costs, since it has been trying to raise its capital level after concerns last year that it would fall below required minimums. But the Treasury is providing temporarily open-ended financial support to the GSEs, so they do not have the same constraint. (though the administration would probably prefer to avoid further losses at the GSEs if possible). Despite federal support, the GSEs have not made any significant new attempts to hold supply off the market.
If they did want to reduce supply to help prices stabilize, the most obvious policy option would be continued efforts at loan modification, but activity in that area peaked at Fannie and Freddie in 2Q 2010, and was at around half that level as of 1Q. Another possibility that has been raised recently is that the GSEs could simply rent the properties they have accumulated, to avoid bringing a large amount of supply on the market. This could make sense from a financial perspective, given that recovery rates on distressed properties are low, rents are rising, and the rest of the GSE book of business would benefit from stabilization in home prices.
However, the intent of the GSEs appears to be the opposite. For instance, Fannie Mae is specifically excluding investors (and ultimately renters) from recently announced incentives that would provide closing cost assistance and a $1,200 bonus to real estate agents who close the purchase of an REO property.
Instead, 1Q marked the first quarter since 2009 that the GSEs and FHA were a combined net supplier of foreclosed properties to the market. Expectations from the GSEs are that their inventories of foreclosed properties will increase this year as servicers resume foreclosure activity following a temporary pause due to legal uncertainty around foreclosure paperwork.
The GSEs and FHA have a combined 1.8 million seriously delinquent loans. Until the acquisition of REO property declined in 4Q due to legal irregularities, there was around a 10:1 relationship between the number of seriously delinquent loans over the prior four quarters and the acquisition of REO property in a given quarter.
Assuming that something closer to this relationship returns once legal issues have been resolved, this implies that the federal entities should begin taking ownership of as many as 180,000 properties per quarter, or as many as 700,000 over the next year. If the GSEs and FHA remain a net supplier, this would mean an increase of about 300,000 in the number of foreclosed properties they sell per year, or about a 30% increase in total foreclosure sales from all sources compared with the last four quarters.
Fannie, Freddie, and FHA currently own over 1,400 properties in San Diego County – just not many in the North SD County Coastal region.
There are six SFR properties owned by the government-supported entities in North SD County Coastal:
Five in Carlsbad:
6104 Paseo Valiente
4510 Sierra Morena
3201 Via Cajita
One in Encinitas:
When you read stories about the government-sponsored entities increasing their REO production, don’t start thinking there will be a lot of new bank deals around the coast.
The locations of the REOs is an amazing study. How did Fannie/Freddie get stuck with all the junk?
It is probably due to the loan limits being much lower back then, and only the lower-priced properties qualified for Fannie/Freddie purchase.