by Calculated Risk on 5/22/2011 11:52:00 PM

From Eric Dash at the NY Times: Banks Amass Glut of Homes, Chilling Sales

The nation’s biggest banks and mortgage lenders have steadily amassed real estate empires, acquiring a glut of foreclosed homes that threatens to deepen the housing slump and create a further drag on the economic recovery.

All told, they own more than 872,000 homes as a result of the groundswell in foreclosures, almost twice as many as when the financial crisis began in 2007, according to RealtyTrac, a real estate data provider. In addition, they are in the process of foreclosing on an additional one million homes and are poised to take possession of several million more in the years ahead.

The lenders definitely hold a large number of REOs (Real Estate Owned), however the RealtyTrac estimate looks a little high.

Click on graph for larger image in graph gallery.

This graph from, economist Tom Lawler, shows an estimate of all the REO inventory at the end of Q4. Fannie, Freddie release their REO inventory quarterly, and FHA releases their data monthly. Lawler estimated the REOs for FDIC insured Banks & Thrifts using the FDIC Quarterly Banking Profile (QBP) - and the Private Label Securities (PLS) data is from Barclays.

We know the combined REO inventory for Fannie, Freddie and the FHA¹ decreased to 287,184 at the end of Q1 2011, from a record 295,307 units at the end of Q4 as shown in the second graph (FHA¹ data through February).

The pace of foreclosures is picking up, but so is the pace of REO sales. Freddie Mac noted REO sales were at record levels in Q1:

We expect the pace of our REO acquisitions to increase in the remainder of 2011, in part due to the resumption of foreclosure activity by servicers, as well as the transition of many seriously delinquent loans to REO.

REO disposition reached record levels in 1Q 2011 with over 30,000 homes sold ...

Fannie Mae also sold a record 62,814 REO in Q1, up from 38,095 in Q1 2010 and 185,744 for all of 2010. So Fannie and Freddie sold over 90,000 REO in Q1, and their combined inventory only declined by 16,185. They are foreclosing at record levels, but they are finally selling REOs faster than they acquire them.

Hopefully I'll have an estimate for total Q1 REO from Lawler soon - the Q1 FDIC QBP will probably be released this week - but it appears the RealtyTrac estimate is a little high and that REO inventory is starting to decline since the lenders are selling again.

Although REO inventory might be overstated in the story, the number of loans in the foreclosure process is much higher than 1 million. The MBA reported last week that 4.52% of homes with first-lien mortgages were in the foreclosure process. There are approximately 50,000,000 homes with first-lien mortgages, and 4.52% would be 2.25 million. There are another 1.8 million homes were the borrower is more than 90 days delinquent.

Although the numbers in the story may be a little off - one thing is clear - there is still a huge of glut of distressed homes in the pipeline.