Saturday, April 17, 2010

Foreclosure Pipeline Is Full to Bursting

The foreclosure pipeline will be full for years to come. That precludes any "recovery" in housing valuations as supply will swamp demand.

Last August, I wrote a story for AOL/Daily Finance titled Housing bottom premature. The clue? Foreclosure pipeline full. The backlog of distressed mortgages has only grown larger since then.

As Mish noted, Foreclosure activity hit a record in the first quarter of 2010.

According to, foreclosure filings — default notices, scheduled auctions and bank repossessions — were reported on 932,234 properties in the first quarter, a 7 percent increase from the previous quarter and a 16 percent increase from the first quarter of 2009.

Meanwhile, the heavily hyped Federal program to stave off defaults via massaging the terms of mortgages is failing spectacularly: Defaults Rise in Loan Modification Program.

According to this New York Times article, about seven million households are behind on their mortgage payments. As I noted here yesterday, there are about 51 million mortgages in the U.S., so that means about 14% of all mortgage holders are in some stage of default. About 1 million are already in the foreclosure pipeline (as noted above) while a pool of 6 million defaulted/delinquent mortgages awaits entry into the pipeline.

While the numbers are imprecise, media reports suggest about one-quarter of all mortgage holders are "underwater," meaning that their homes are worth less than their mortgages balances.

As this chart illustrates, negative equity (owing more than the house is worth, hence negative equity) drives foreclosures.

If 25% of mortgage holders are underwater, and 14% are delinquent/in default, then we can expect the number of defaulted mortgages to rise as negative-equity homeowners throw in the towel and stop paying their mortgages.

Rising foreclosures, falling home valuations and increasing defaults form a positive feedback loop. Rising foreclosures pressure home valuations as hundreds of thousands of homes come to market. This decline in valuations increases the negative equity of mortgage holders who are already underwater, and pushes more owners into the negative equity pool where most will eventually capitulate and default on their mortgages. Thisincreases the pool of mortgages in the foreclosure pipeline, insuring more homes will be dumped onto the market in the future, and so on.

Anyone who sees a rising pool of millions of delinquent mortgages as the foundation of a recovery in housing valuations isn't considering the feedback loop which is now firmly in place.

If you haven't visited the forum, here's a place to start. Click on the link below and then select "new posts." You'll get to see what other readers and contributors are discussing/sharing. is now open for aggregating our collective intelligence.

Order Survival+: Structuring Prosperity for Yourself and the Nation and/or Survival+ The Primer from your local bookseller or from or in ebook and Kindle formats.A 20% discount is available from the publisher.

Of Two Minds is now available via Kindle: Of Two Minds blog-Kindle

Thank you, John R. ($20), for your ongoing much-appreciated generosity to the site. I am greatly honored by your support and readership. Thank you, David K. ($50), for your continuing exceedingly generous donations to the site. I am greatly honored by your support and readership.

Terms of Service

All content on this blog is provided by Trewe LLC for informational purposes only. The owner of this blog makes no representations as to the accuracy or completeness of any information on this site or found by following any link on this site. The owner will not be liable for any errors or omissions in this information nor for the availability of this information. The owner will not be liable for any losses, injuries, or damages from the display or use of this information. These terms and conditions of use are subject to change at anytime and without notice.

Our Privacy Policy:

Correspondents' email is strictly confidential. This site does not collect digital data from visitors or distribute cookies. Advertisements served by third-party advertising networks such as Adsense and Investing Channel may use cookies or collect information from visitors for the purpose of Interest-Based Advertising; if you wish to opt out of Interest-Based Advertising, please go to Opt out of interest-based advertising (The Network Advertising Initiative)
If you have other privacy concerns relating to advertisements, please contact advertisers directly. Websites and blog links on the site's blog roll are posted at my discretion.

Our Commission Policy:

As an Amazon Associate I earn from qualifying purchases. I also earn a commission on purchases of precious metals via BullionVault. I receive no fees or compensation for any other non-advertising links or content posted
on my site.

  © Blogger templates Newspaper III by 2008

Back to TOP