June 24, 2017

FHA Foreclosed Home Inventory Climbs By 30%

The latest Monthly Report to the FHA Commissioner shows that the supply of FHA repossessed homes continues to surge.

At the beginning of July 2011, FHA owned properties swelled to 53,164.  The value of the properties held by the FHA totaled $6.74 billion.

For the year to date current fiscal year which covers the period from October 2010 to July 2011, the number of foreclosed properties held by the FHA increased by 30% to 51,487 from 39,599 in the prior period.

During July 2011, the FHA sold a total of 11,739 properties and took possession of 6,509 properties resulting in a July month end inventory of 48,507 properties.  During the past 10 months of the FHA’s fiscal year ending September 30, the FHA sold a total of 80,449 homes while taking possession of 76,318 properties.

Click on chart for larger image

Contributing to the nationwide glut of unsold homes was a 1.3% decline in pending home sales in July.  The all time low in interest rates has done little to encourage a boom in housing as potential home buyers worry about losing their jobs.  The relentless drop in housing values also provides little incentive to purchase a home.  Why buy today when prices will be lower in the future?

Peak sales of existing homes occurred in 2005 when annual sales reached 7.1 million homes.  In 2010, the sale of existing homes plunged to a 13 year low of 4.9 million homes.  Adding to the gloomy outlook for housing, the Mortgage Bankers Association reported that during August mortgage applications fell to the lowest level since December 1996.

Based on rising FHA delinquency rates, the inventory of FHA owned property seems destined to increase for the foreseeable future. As of July 2011, the number of FHA defaults totaled 598,921 and the number of seriously delinquent loans has risen by 7%.  The FHA currently insures 7.2 million mortgages of which 8.3% are seriously delinquent.

The default rates on single family FHA loans have reached astonishingly high levels in a large number of locations.  Punta  Gorda, FL comes in first with a default rate of almost 20%.  There are 50 cities with a default rate in excess of 10% with Gary, IN coming in the lowest at 10.3%

A high default rate ultimately results in losses to the FHA and taxpayers and delays recovery of the home real estate market by increasing the inventory of foreclosed homes that must ultimately be sold at distressed prices.  Numerous analysts have criticized the FHA for approving thinly qualified applicants who make a very small or zero down payment, have high debt to income ratios and little or no savings after moving into their newly purchased home.   A recovery of the home real estate market ultimately depends on home ownership by borrowers who are able to comfortably handle the mortgage payments and other expenses that come with owning a home.