Two separate studies by John Burns Real Estate Consulting Inc. and Standard & Poor's Financial Services LLC, both conclude that most efforts to modify loans with easier terms will delay, not prevent, the loss of homes to foreclosure. The John Burns study estimates that five million houses and condominiums will go through foreclosure or related procedures that put them on the market over the next few years. That would represent the bulk of the estimated 7.7 million households behind on their mortgage payments. The problem is concentrated in Arizona, California, Florida and Nevada. The shadow inventory is equivalent to 27 months of sales in Orlando, 24 months in Miami and 18 months in Las Vegas, the study estimates. John Burns, chief executive of the consulting firm, said investor demand for foreclosed homes remained strong. Thus, he said, prices were likely to be about level over the next few years, despite the looming foreclosure supply, if the economy continued to recover and mortgage interest rates didn't rise sharply. But if the economy slumped anew and interest rates jumped, he said, "that's going to cause prices to fall further." The S&P study also says that the "overhang" of foreclosed homes expected to go on the market points to lower home prices. Some borrowers are catching up on payments after having their loan terms modified, but S&P says current trends suggest that 70% of such borrowers eventually will redefault. Loan servicers, firms that collect payments and handle foreclosures, seem to have "nearly exhausted the supply of plausible candidates for loan modifications" and will find that many loans are "unredeemable," the S&P study says. As a result, servicers increasingly are looking to arrange "short sales," in which homes are sold for less than their loan balances. http://www.banksolid2.com/
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