Are Foreclosure Numbers Inflated?

Here's some interesting info making the rounds this week on the current state of Foreclosures:

If you listen to the news, you'd be lead to believe that a large portion of American homeowners are foreclosing on their homes, but is this really true? Are we being given accurate accounts of the foreclosure rates? In fact, according to an article in the January - February 2008 issue of Personal Real Estate Investor, the numbers being reported are grossly misleading. Turns out that "scoop beats accuracy".

Foreclosures are reported based on the number of filings. A filing is simply "the process of filing any legal document that marks a stage in the process from delinquency and NOI to the far from inevitable seizure, sale, and loss of a home by the delinquent borrower." In some states there are up to 2 filings and in others up to 3 filings. Then the number of filings is multiplied by the number of loans on the home. Therefore, if you have 3 filings and 2 loans on your home, that foreclosure is counted SIX TIMES! RealtyTrac, a company known for counting and tracking foreclosures, is working on a system to be more accurate. Rather than count filings, they have a way to count just addresses. This new method has decreased the number of published foreclosures by upwards of 30%.

In addition to the miscounted filings, there are the properties that never result in full foreclosure and seizure by the bank. These foreclosures either end in the homeowner coming to an agreement with the bank, or a third party sale, or the borrower simply finding a way to make their payments. These situations aren't deducted from the original number reported. In fact, only 40% of homes that begin the process of foreclosure actually end up in seizure by the bank.

The facts are:

• More than 94.4 percent of all mortgages in the U.S. are current (per the Mortgage Bankers Association, 12/06/07).
• 
  4.9 percent of the total mortgage market is subprime loans with ARMs and of those 14.82 percent are in some stage of foreclosure. That's 15 percent of 5 percent?
• 
  The net effect as of 12/06/07 is that .078 percent of all homes in the U.S. have gone to absolute foreclosure. This is still less than a rounding error.

Needless to say, while foreclosures are up from past years, they are not as common as we are all lead to believe. Of course, the "scoop" supports all the news regarding the "dire housing" market, but the truth is comforting.

"America, We are being Misled", by Andrew Waite from Personal Real Estate Investor.
If you would like to read the entire article, you can contact me and request a copy.