To Recover or Not to Recover

All over the US lenders are holding back REO inventory creating a false up rise in the housing market. We know this lets, look past it. My local newspaper this last Sunday ran an article stating 'The Road to the Housing Recovery.' I have said several times in the past I do NOT want to be a Prophet of Doom! But facts are facts, I was even manipulated a bit by several offers on every home, my solution, let's wait and see what I'm writing on my January 10th 2010 article. The title will likely say something like "I Told You SO!!"
The number of government repo homes is expected to increase further following the significant rise in the percentage of loans insured by the Federal Housing Administration in June, based on data released by the Mortgage Bankers Association.
Out of all home loans provided to homebuyers in June, FHA-insured home loans comprised 36 percent, the biggest FHA share of the home loan market since 1990.
In August 2005, FHA loans accounted for only 5.8 percent of the home loan market.
Analysts expect government repo homes to increase because of the rising trend in FHA loan default. Based on FHA data, the default rate increased to 5.65 percent in February this year, a substantial increase of nearly 23 percent from the default rate of 4.6 in October last year.
As of the last months of 2008, more than 4 percent of loans insured by FHA were delinquent by 90 days or more. These delinquencies increased the number of government repo homes.
Many housing analysts are worried that the factors that largely caused the current subprime mortgage crisis will also cause another crisis involving FHA loans and government repo homes. They pointed out current housing programs that enable many borrowers to get loans with zero down payments.
In many states, housing officials are providing financial assistance so borrowers can use the federal $8,000 tax credit to make their down payments and their closing costs.
The popularity of FHA loans exploded sharply since 2008, soaring by a staggering 314 percent nationwide. In the first two months of this year alone, 670,000 homebuyers took out FHA loans, compared to the 425,000 taken out in all the 12 months of 2007.
FHA officials expect to insure a total of 1.75 million of new loans in 2009, according to Meg Burns, head of the Office of Single Family Program Development at FHA.
Dennis Maag, a home lending regional vice president at JPMorgan Chase, said his mortgage firm has been carefully screening FHA loan applicants, putting its FHA default rate to only 0.4 percent.
Fifth Third has a 1.6-percent default rate and Huntington has a 2.4-percent default rate.
But FHA loan defaults in other mortgage banks are rising. Strategic Mortgage has a staggering 12.1-percent default rate nationwide while Countrywide Homes Loans holds a delinquency rate of 16.2 percent in Ohio.
To prevent another wave of government repo homes similar to what the subprime crisis caused, analysts said FHA must examine current FHA loan defaults and its loan insurance policies.
Despite signs that the real estate market is bottoming out, millions of homeowners are likely to find themselves in worse shape within the next two years.

In fact, here are a few numbers to think about.
Nearly half of the nation's 52 million mortgage borrowers will have negative equity by the end of the first quarter of 2011, up from the 14 million at the end of this year's first quarter, according to estimates in an Aug. 5 report by Deutsche Bank. With so many borrowers underwater – or owing more on their home than it's worth – the risk is high that they'll default and their homes will go into foreclosure, says Mark Zandi, the chief economist at Moody's Economy.com. (Moody's Economy.com estimates that 17.5 million mortgage borrowers will be underwater by early 2010.)

So what do you think is more realistic? A magical recovery during the largest recession since the Great Depression? Or... Lenders manipulating the public again?

-Christopher Rockey