Millions Of Foreclosures Could Threaten Real Estate Recovery

Calling the looming tide of millions of potential foreclosures the biggest threat to housing market recovery, Amherst Securities Group warns it is too early to declare the worst …

Calling the looming tide of millions of potential foreclosures the biggest threat to housing market recovery, Amherst Securities Group warns it is too early to declare the worst over.  The same report predicts that, by failing to deal with the critical issue of negative equity in properties, the federal Affordable Modification Program is unlikely to make an enduring impact. For more on this, see the following article from Property Wire.

The residential property market in the US will worsen as a delayed pipeline of foreclosed loans begins to liquidate, it is claimed in a new report.

Analysis by the Amherst Securities Group also indicates that the government’s Administration’s Making Home Affordable Modification Program (HAMP) will have no lasting effect on keeping delinquent loans current.

It says that signs of stabilization in the real estate market that are being hailed as a recovery may soon recede as an overhang of the shadow inventory of foreclosures waits to enter the market.

The general outlook that the housing market has bottomed is ‘premature’ optimism, according to the report.

‘The single largest impediment to a recovery in the housing market is the large number of loans that are either in delinquent status or in foreclosure that are destined to liquidate,’ said analyst Laurie Goodman.

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Amherst estimates that there is a ‘shadow inventory’ of around seven million housing units, or 135% of a full year of existing home sales, compared with 1.27 million in early 2005.

‘The backlog is due to high transition rates, low cure rates and a longer timeline for loan liquidation.

In other words, loans continue to transition into the delinquency/foreclosure pipeline at a rapid pace, but are moving out at a very slow pace,’ the report explained.

It said the loans are ‘destined to liquidate’ and will impact on the signs of recovery seen in recent months by pulling down house prices through distressed sales.

‘We are concerned that, in light of this housing overhang, the stabilization we have seen in home prices the last few months is temporary,’ Goodman added.

Despite efforts by servicers and the Administration to prevent delinquent loans from foreclosing, the federally-funded HAMP modifications will likely be a disappointment in the long-term, Amherst said.

HAMP, which allocates capped incentive amounts to servicers that pursue loan modifications, includes a three-month trial period to ensure borrowers can meet payments on the modified loan.

But it may take much longer than three months to determine the ultimate performance of HAMP modifications, Amherst said.

‘We have argued that HAMP modifications are unlikely to be successful in the long run as it does not address negative equity, the single most important determinant of default.

And the borrower will still face payment shock as the payments begins to ramp up after the five year period in which the payments are fixed,’ the report concluded.

This article has been republished from Property Wire. You can also view this article from
Property Wire, an international real estate news site.

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