REO stands for real estate owned within the real estate/banking industry. Before the banks take full ownership, the homes and home owners go through what is a lengthy process called foreclosure. The number of homes entering the foreclosure process fell sharply in July compared to a year ago, but homes continued to flow out the other end of the foreclosure pipeline in the form of sales to new owners.
Lenders repossessed 92,858 homes in July, up 9 percent from June and 6 percent from a year ago figures show. It was the eighth month in a row where bank repossessions were at a higher level than the same time a year ago.
The monthly tally of homes becoming "real estate owned" (REO) has been higher only once since May of this year. But the number of homes beginning the foreclosure process when lenders served their owners with default notices was essentially flat from June to July, at 97,123. That's a 28 percent decline from the same time a year ago, and a 32 percent reduction from the April 2009 peak.
A total of 325,229 were subject to some sort of foreclosure-related filings in June, including default notices, scheduled auctions and bank repossessions, up 4 percent from June but down nearly 10 percent from a year ago.
Not all homes that are subjected to a default notice complete the foreclosure process, as some owners are able to get current on their loans again, or negotiate a loan modification or short sale. Our research shows that default notices have declined on a year-over-year basis for six consecutive months, suggesting that there is light at the end of the foreclosure tunnel.
But, it may be some time before the reduction in homes starting the foreclosure process translates into reductions in homes reaching the end of the foreclosure pipeline to be repossessed by lenders.
According to statistics collected from loan servicers, homeowners who were in the foreclosure process in June were behind on their loan payments by 461 days on average, up from 251 days in January 2008. If that trend holds, many homes entering the foreclosure pipeline today may not show up in lenders' REO inventory for a year or more.
The 10 states with the highest rates of foreclosure-related filings were Nevada (one filing per 82 homes), Arizona (1 in 167), Florida (1 in 171), California (1 in 200), Idaho (1 in 240), Michigan (1 in 241), Utah (1 in 242), Illinois (1 in 269), Georgia (1 in 320) and Maryland (1 in 335).
What does this all mean to the average home buyer or seller? The inventory of homes for sale, aided by the continued flow of REO’s to the market will remain high in our area for the foreseeable future. Prices will remain stagnate for the remainder of 2010 and will gradually rebound as the inventory of homes for sale at a discounted rate shrinks up to more normal levels starting in 2011.