by Calculated Risk on 5/23/2011 05:01:00 PM

Last night we discussed the NY Times article: Banks Amass Glut of Homes, Chilling Sales

I pointed out that the RealtyTrac estimate of 872,000 REO (lender Real Estate Owned) was probably too high, and I also noted that there are approximately 2.25 million homes currently in the foreclosure process. There are another 1.8 million homes with the borrower more than 90 days delinquent - so there is more to come.

I'd like to add these two table to hopefully clarify the situation. The first table shows REO inventory in Q1 2011 by Fannie, Freddie, FHA, PLS (Private Label Securities). Tom Lawler sent me the FHA data (released today) and the PLS data (an estimate from Barclays Capital).

Single Family REO Inventory: Number of Properties
	Q1 2011	Peak Quarter	Peak
Fannie Mae	153,224	Q3 2010	166,787
Freddie Mac	65,159	Q3 2010	74,897
FHA	68,997	Current quarter	68,997
PLS	171,566	Q3 2008	436,270
Subtotal	458,946	Q3 2008	570,634
Banks & Thrifts	???

Note: The banks and thrifts will be added when the Q1 Quarterly Banking Profile is released this week. Last quarter the total of all REO was close to 600 thousand, and this quarter will probably be a little lower.

The peak for PLS was in Q3 2008, and their REO inventory has been declining steadily. It now appears both Fannie and Freddie are selling more REO than they are acquiring.

However it is important to note that foreclosing isn't the only solution. Some loans are cured by the borrower, other loans are modified (with various methods), and some homes are "short sales" with the lender agreeing to sell for less than the amount owed.

Single Family Activity in Q1 2011
	Freddie	Fannie	FHA	Total
REOs Acquired	24,709	53,549	23,739	101,997
REOs Sold	31,628	62,814	15,581	110,023
Mods and Short Sales1	62,641	78,079	60,0002	200,720

¹Includes a few deed-in-lieu of foreclosure that become REO.
²Estimated based on last 6 months.

First, the F's (Fannie, Freddie and the FHA) will probably foreclose on close to 500 thousand homes this year since they are picking up the pace. So they will also sell 500+ thousand homes this year - they sold 110,000 in Q1 alone.

But notice that modifications and short sales are twice the number of foreclosures. So if the F's foreclose and sell 500 thousand homes, they might modify/short sell another 1,000,000 (this is mostly modifications, and of course short sales are distressed sales too, but they usually sell for more than REO).

If we add in the PLS and banks and thrifts, the lenders will probably make significant progress on delinquencies this year (and again in 2012). Of course some of the modifications will redefault and end up as REO too, but I just wanted to make sure everyone knows that all of these properties won't end up as REO.