U.S. Foreclosure Inventory Bouncing Back After National Mortgage Settlement After peaking at more than 2.2 million in December 2010, U.S. foreclosure inventory including homes actively in the foreclosure process as well as unsold bank-owned homes steadily decreased to a five-year low of 1.3 million in May 2012, down 39 percent from the peak. But following the finalization of the National Mortgage Settlement in April 2012, foreclosure inventory has slowly increased to about 1.5 million as of the first quarter of 2013 up about 12 percent from the fiveyear low in May 2012 and up 9 percent from the first quarter of 2012. That increase from a year ago at a national level was driven solely by increases in pre-foreclosure inventory, comprised of properties that have had an initial default notice filed but have not yet completed the foreclosure process. Pre-foreclosure inventory in the first quarter of 2013 increased 59 percent from the first quarter of 2012 while inventory of homes scheduled for auction decreased 25 percent and inventory of bank-owned homes decreased 3 percent. The cumulative estimated market value of homes in foreclosure or bank owned was $200 billion as of the first quarter of 2013, up 14 percent from the $175 billion cumulative estimated value in the first quarter of 2012. 1
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Inventory Up in Many Judicial States But Down in Many Non-Judicial States Foreclosure inventory behavior was basically split down the middle at the state level, with 26 states posting annual increases in foreclosure inventory and 24 states, along with the District of Columbia, posting annual decreases in foreclosure activity in the first quarter of 2013. Not surprisingly, the inventory behavior correlated to the type of foreclosure process used in each state: judicial or non-judicial. Among the 26 states posting increasing foreclosure inventory from a year ago, 19 were states utilizing the judicial foreclosure process which has been more susceptible to backlogs of shadow foreclosure inventory being built up over the past few years due to more lengthy foreclosure timelines. There were some notable exceptions with the nonjudicial states of Washington and Arkansas posting annual increases of 39 percent and 28 percent respectively. Among the 24 states posting decreases in foreclosure inventory from a year ago, 19 were states with a nonjudicial foreclosure process, which tends to be more streamlined and less susceptible to delays. Foreclosure inventory was also split down the middle among the states with the highest inventory volumes, with five of those states posting annual decreases and five posting annual increases in foreclosure inventory from the first quarter of 2012 to the first quarter of 2013. 3
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35 Percent of Properties in the Foreclosure Process Have Been Vacated by Homeowner By cross-referencing address-level foreclosure inventory data with data from the postal service, RealtyTrac was able to analyze how many properties in foreclosure (not including bank-owned) were flagged as completely vacant or where the homeowner in foreclosure had moved in the first quarter of 2013. This was the first such analysis of the data in this manner and so there no comparison data is available for previous quarters. This analysis found that 35 percent of properties actively in the foreclosure process were flagged as vacant or were identified as a situation where the homeowner in foreclosure had moved. The percentage was 50 percent or higher in some states, including Indiana, Oregon, Washington and Nevada. Florida had by far the biggest number of owner-vacated foreclosures, with more than 90,000, followed by Illinois (31,668), California (28,821), Ohio (17,367) and New York (15,212). These owner-vacated foreclosures potentially represent situations where the homeowner has moved, expecting the property to be foreclosed and may not realize that it has not been foreclosed yet. This means the homeowner is still responsible for maintenance and property taxes. 5
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Listed Foreclosure Inventory Down, But Growing Shadow of Unlisted Foreclosures It probably comes as no surprise that, at the national level, listed inventory of homes in some stage of foreclosure or bank owned was down 43 percent in the first quarter from a year ago given the overall shortage of available homes listed for sale. But there were some states where listed foreclosure inventory actually increased from a year ago, including New York, New Jersey and Florida. In those three states, listed pre-foreclosure inventory accounted for the entire increase in overall listed foreclosures, while listed bank-owned properties decreased annually in all three states. Nationwide there was a 12 percent year-over-year increase in unlisted foreclosure inventory, driven by a 23 percent increase in unlisted pre-foreclosure inventory. Meanwhile unlisted bank-owned properties decreased 2 percent from a year ago. This so-called shadow inventory of homes that have started the foreclosure process but have not yet been listed for sale may provide hope in some markets hungry for more inventory. Many of these properties will be listed for sale as short sales in the next six to 12 months, or go through the foreclosure process and eventually be listed for sale as bank owned in the next 12 to 18 months. Some of the biggest increases in unlisted foreclosure inventory were in New York, Florida, New Jersey, Washington and Illinois. 7
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Gov t, Big Banks Listed on Most Foreclosure Inventory, Non-Bank Servicers See Big Increases RealtyTrac analyzed the foreclosing entity listed on foreclosure documents from initial default notice to the foreclosure deed transferring a property back to the beneficiary to find the institutions listed on the most active foreclosure inventory. Depending on the state and the type of foreclosure document involved, these entities may have been listed as the mortgage servicer, beneficiary, note holder, trustee (holding the mortgage in a trust), or plaintiff. The government-backed entities Fannie Mae, Freddie Mac and FHA/HUD accounted for the biggest portion of foreclosure inventory, with a combined 12 percent of the national total, followed by Bank of America with 11 percent, Wells Fargo with 10 percent and Chase with 7 percent. Inventory with Chase listed as the foreclosing entity increased 58 percent from a year ago, the fifth-biggest increase among the top 20 institutions in terms of total foreclosure inventory. Other entities posting some of the biggest increases in foreclosure inventory from a year ago included the nonbank mortgage servicers Nationstar Mortgage (101 percent) and Green Tree Servicing (89 percent), along with OneWest Bank (67 percent), and EverBank (61 percent). 9
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Most Foreclosure Inventory Built Since 1960, But Older Inventory Fastest Growing More than two-thirds of the properties actively in the foreclosure process or bank owned as of the first quarter of 2013 were built in 1960 or later, nearly equally split between about one-third that were built between 1960 and 1990, and one-third that were built in 1990 or later. That one-third of foreclosure inventory built in 1990 or later is most appealing to investors looking to buy foreclosures as rentals as those properties represent less of a risk for significant maintenance and repairs. Many investors as well as owner-occupant buyers will also be happy with the one-third of foreclosure inventory represented by properties built between 1960 and 1990, although they will likely require more repairs and upgrades upon purchase. Properties built before 1960 represent the most risk in terms of potential rehab, and likely are the least desirable to most buyers both owner-occupants and investors. Although these older properties account for just onethird of total foreclosure inventory, they are the fastestgrowing segment, increasing a combined 11 percent from a year ago while homes built in 1960 or later increased 6 percent from a year ago. 11
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Bulk of Inventory with Mid-Range Loan Amounts, But Sharp Increases on High and Low End More than 60 percent of foreclosure inventory in the first quarter of 2013 was comprised of properties with loan amounts under $200,000, while homes with outstanding loans between $200,000 to $400,000 represented an additional 30 percent of all foreclosure inventory. Homes with loan amounts under $100,000 represented a substantial 20 percent of all foreclosure inventory, with 5 percent having loan amounts under $50,000. On the high end, homes with loan amounts above $400,000 represented more than 9 percent of all foreclosure inventory, with only 1 percent having loan amounts above $1 million. Properties with loan amounts of $5 million or higher represented less than a quarter percent of all foreclosure inventory, but that segment saw the biggest year-over-year increase, up 126 percent. Foreclosure inventory on the very low end also increased significantly from a year ago. Foreclosure inventory of properties with loan amounts of $50,000 or below increased 62 percent from a year ago. 13
Sharp Increases on High and Low End Exclusive Report: Q1 2013 Foreclosure Inventory Update 14