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VIENNA, VA – Nov. 19, 2009 The REO & Distressed Asset Management Division of RE/MAX Prefer... today reported that, the nationwide default rate on home loans has risen to, over one in seven (1 in 7) borrowers, according to a Mortgage Bankers Association (MBA) survey released this morning. The MBA survey indicates that the foreclosure rate will likely continue to increase through early to mid 2010 as national unemployment rates are expected to continue to rise.

Unemployment remains “the principal problem,” according to the Mortgage Bankers Association, survey. Homeowners in delinquent status now include a larger portion of borrowers previously considered credit-worthy and even includes borrowers with home loans insured by the Federal Housing Administration.

This market syndrome is and has been, for several years, “collateral damage” said Clay Kime, General Manager of the REO and Distressed Asset Manageme... The “sub-prime” borrowers were washed out a long time ago. We are now dealing with the market consequences of credit-worthy homeowners who, faced with job loss, divorce, illness, relocation, etc. cannot financially extricate themselves from their homes and loans . . . when “forced to sell,” said Kime. Everyone . . . homeowners as well as banks, is having a “severe solvency/balance-sheet” problem, Kime went on to say.
Nearly 9.6 percent of borrowers were delinquent on their home loans during the Q-3 09, according to the MBA survey, and another 4.5 percent more were actually some formal stage of the foreclosure process. The MBA survey report shows that, about 14 percent of home loans or 7.4 million households were either in a delinquent status or in the formal foreclosure process during the quarter. This is approximately one-half of the 12-15-million foreclosures predicted by many economic experts over the next 3-5 years.

MBA’s Chief Economist, Jay Brinkman, stated "The outlook is that delinquency rates and foreclosure rates will continue to worsen before they improve."

The reported delinquencies are at the highest level recorded ever by the survey, which has been conducted since 1972. This rate of delinquencies is up nearly ten percent (10%) during the same period last year. Year-over-year increases in this index are of great concern to the administration.

MBA’s Brinkman said that if, as expected, unemployment rates peak by the middle of 2010, foreclosures could not reach their highest levels toward the end of 2010. He went further to say that even after peaking, foreclosure rates are likely to remain elevated as homeowners that have seen steep market price declines now owe more than their home is worth. There is no margin for error, or adverse financial change for most homeowners.

The late 2008 Credit Suisse study paints a darker potential, as the ALT-A and Option-ARM loans go through the already pre-defined re-set period, which does not climax until early 2011. Kime said that as long as interest rates remain low, the default rates are expected to remain low. But as interest rates rise, the interest rate indices to which these loans are tied will increase to the point that more than fifty percent (50%) of the borrowers for these loans will statistically default.

MBA’s survey revealed that the southern states, including California Nevada, Arizona and Florida, accounted for about 43.4 percent of the foreclosures commenced during the third quarter of 2009. Unfortunately both delinquency rates and foreclosure rates also grew in the Washington, DC metropolitan area..
The number of homeowners delinquent or in foreclosure in the District of Columbia rose t
o 10.3 percent during the third quarter, compared with 7.4 percent during the same period in 2008. In Northern Virginia, 9.9 percent of borrowers were delinquent with their mortgage payments compared with 7.0 percent last year. Suburban Maryland has the highest percentage of borrowers in delinquency or foreclosure, rising to 13.9

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Comment by Clay Kime, REOM, CDPE, RDCPro on November 23, 2009 at 10:54am
Yup! Yalc was there.
Comment by Dan Waterman on November 23, 2009 at 10:36am
Hey Clay,

Tell Yalc that he's quite the writer. I think I met him once on the balcony of the CREOBA penthouse in Fort Worth.

Dan
Comment by Susan Cook, RDCPro, CDPE, SFR on November 21, 2009 at 1:54pm
Who?? OH, I get it! clever... Figured it out but not before I check the Washington post's roster
Comment by Clay Kime, REOM, CDPE, RDCPro on November 20, 2009 at 10:55pm
Hey Dan,

Thanks for the kudos.

The interviewer for this piece was Yalc Emik, a nationally noted and beloved dyslexic journalist veteran in our market. I was privileged. (degelivirp)

I hope the worst of the housing and mortgage crisis is behind us, but the statistics are very grim. While it may denote prosperity for the REO industry, it is terrible news for homeowners and the economy as a whole.

If and when it happens, success will depend on a highly skilled and trained cadre' of professionals to efficiently serve banks, investors and the nation in the management, marketing and sales of these assets to transfer these properties - from weak (financial) hands - into strong (financial) hands.

So now the distinction of training, certification and experience of field agents are paramount to managers of distressed assets. Where else could there be found a trained, loaded and locked resource pool than the NFSTI REOMasters Network.

As you well know, we stand engaged and ready.

Regards,

Clay
Comment by Dan Waterman on November 20, 2009 at 1:44pm
Clay,

Great research and write-up! Who did this interview?

I read a bit about this the last week and here's some additional facts that I rolled across:

Why the REO industry has lagged: Moratoriums (short term and long), Overwhelmed lenders (surge in re-financing, mortgage mods, and defaults), Modifications (mandatory pre-trials imposed by government), & Asset write-downs (postponing foreclosure as long as possible to avoid a write-down, thus keeping portfolio books as high as possible...ergo, claiming a higher-than-actual net worth).

Shadow Market: The number of shadow properties eclipses the number of homes lost this year. Approximately 2.4 million homes lost next year due to foreclosure according to Mark Zandi of Moody's Economy.com. 2009 only saw 2 million.

Bank of America spokesperson Jumana Bauwens states that "the bank is projecting an increase in foreclosures in part because customers will not be qualifying for exiting loan-modification programs."

2nd Wave of Foreclosures versus Wave #1: Wave 1 included about 1.25 million (early 2005). Wave 2 is anticipated to see about 7 million total foreclosures. (Amherst Securities Group September 2009 study).

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