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In one of today’s government reports at least two positive stats can be

• Foreclosure starts dipped 2.6% in the third quarter vs. the second quarter.
• For the first time this year loan modifications – started in Q3 – were 4% greater than completed foreclosures in the period. 

Unfortunately, other than those facts the report was fairly bleak.

The Office of Thrift Supervision and the Controller of the Currency reviewed 34.6 million first lien mortgage loans, or roughly 60 percent of all outstanding mortgages, from nine banks and five thrifts.

Some more positive facts:

• The lenders reviewed started 281,298 foreclosures in Q3, down 2.6% from Q2 but slightly higher than Q1.
• Of those lenders reviewed they initiated 133,106 loan modifications in the third quarter, up 83% from the first quarter and the 4% higher than the 127,738 completed foreclosures in Q3. In the first half of the year foreclosures surpassed loan modifications.

When a lender or loan provider agrees to change a loan’s term (by cutting the interest rate, extending the term, etc.) to make it more affordable it is considered a loan modification.

Sadly out of the borrowers getting the loan modifications, more than half started missing payments within six months.

Out of the loans that were modified in the first quarter, 37% were delinquent again in three months, and 55% were delinquent again in six months.  Loans modified in the second quarter fared even worse with 40% of borrowers becoming delinquent within three months.

Across the credit spectrum delinquencies increased, from prime (good credit) to Alt-A (fairly good credit often combined with stated income) to subprime (low credit score) through subprime.  The chart shows the proportion of loans 60 days or more past due, by type and by quarter.

The newest O.C. home market report says the following facts about distressed properties (which are properties that are listed as bank-owned foreclosure or short sales where lenders take less than they are owed):

• The number of distressed properties on the market is down 7.2% from last year with 5,379 on the market as of Thursday.
• Currently distressed properties account for 46% of the O.C. inventory of homes for sale.
• Short sales account for 76% of the distressed inventory while the remaining 24% are foreclosures.

“Since June, distressed properties have made up at least 50% of demand. Currently, two-thirds of demand is a distressed property. There is tremendous demand for distressed properties. Even though it is the Holiday market, the expected market time for all foreclosures is at 1.54 months, a DEEP SELLER’s market. It is hard for the lay person unfamiliar with the Orange County housing market to understand, but there is tremendous competition for distressed properties. The average sale to list price ratio for foreclosures is 101%, meaning that on average they are selling for above their list price.” – Steve Thomas

The chart shows a selection of the O.C distressed property market: total inventory listings; distressed property listings; and the share distressed listings have of total inventory supply on a percentage basis in each niche.

Statistics show that the 11,842 homes listed for sale as of Thursday marks a two-year low for Orange County homes.

It was mentioned that because many sellers took a year off it was an interesting year for inventory.

• In 2008, by the end of March inventory had reached its peak with 15,617 homes.  This was only a 4.5% increase from where the year’s home supply started.
• By September of 2007 the supply had grown 54% from the beginning of the year reaching 17,898 homes.
• The inventory grew 117% from the start of 2006 to August 2006 peaking at 16,006 homes.

It was noted that the demand for housing – specifically the new deals opened to buy – increased from 998 homes in January to a high of 3,060 in June.   The decrease in demand, down to 1,997 ad of Thursday, was referred to as a seasonal slowdown.  This slowdown still puts the demand up 94% from a year ago.

“Market time” is a benchmark that tracks how many months it generally takes to sell the entire inventory in the local MLS for-sale listings based on the current trend of pending deals being finalized.  Based on this theory:

• At the current pace it would take a buyer 5.93 months to by all the homes for sale vs. 5.34 months two weeks vs. 15.05 a year ago vs. 7.51 two years ago.
• 5.00 months is the market time for homes listed under a million dollars vs. the homes listed for more than $1 million dollars which have a market time of 27.71 months

The chart lists the data as of Thursday, for listings; deals pending; market time in months vs. 2 weeks ago, a year ago and 2 years ago.

It’s important to note that in a year where the amount of homes for sale in Orange County has fallen 24%, a new crop of sellers has popped up in some expensive communities near the beaches. 

Looking at statistics that have to do with home-inventory 2007 vs. 2008 It was concluded that five of the six Orange County communities who showed a rise in their homes-for-sale inventory were beachside: Corona Del Mar, Laguna Beach, Newport Coast, Seal Beach and Newport Beach.

This was no fluke! The weakness in beach-close communities was also found when looking at the stats for the town’s with the largest percentage drops in demand for O.C. homes for the year, as measured by new escrows opened. In a year where demand for housing in O.C. practically doubled Laguna Beach, Seal Beach and Newport Beach were three of the five demand losers. 

Note: The charts detail the best and worst O.C towns – in terms of percentage change of supply and demand from Dec ’07 to Dec ’08.

Credit Suisse predicts that roughly 16% of U.S. households with mortgages or over 8 million mortgages will go through foreclosure over the next four years.

If the recession is severe analysts Rob Dubitsky and Lang Yang write that foreclosures could reach 10.2 million.

If banks successfully modify the loan process to assist the borrowers with their mortgages - something the analysts doubt - the number of foreclosed mortgages drops to 6.3 million.

Although those are huge numbers, 32% of all owner-occupied households, or roughly 23.9 million, have no mortgage at all, according to census data.

By the end of this year Credit Suisse estimates 1.8 million mortgages will have entered foreclosure.

This following is a clip from the report:

Despite some initial signs that subprime foreclosures were near a plateau, the combination of severe weakening in the economy, continued decline in home prices, steady increase in delinquencies, particularly in the prime mortgage space, ensure that foreclosure numbers, absent more dramatic intervention, will march steadily higher. While loan modifications and similar interventions (such as the Hope for Homeowners FHA refinancing program) could help to reduce the march of foreclosures, the proliferation of generally timid loan mod programs with confusing loan features raises significant doubt as to whether the current loan mod momentum is sufficient to reduce foreclosures materially. Further, though mortgage walkaways have been important, the disease hasn't infected the general population. However, should the downward spiral in home prices, neighborhood condition and equity deterioration continue, more and more mainstream borrowers are likely to walk away from their homes. Thus far, the population of subprime borrowers in the US is relatively small. However, the severe recession that appears more and more likely, coupled with the collapse of confidence in housing and resultant foreclosures and the impact on credit scores, risks transforming the US into a subprime society. That is, the deeper the foreclosure crisis penetrates into the gene pool, the greater the percentage of American consumers with impaired credit, and therefore limited ability to access credit. Therefore, foreclosures aren't only a housing-related phenomenon and should foreclosures spread, a large percentage of of the population could suffer impaired credit, which in turn would hurt credit availability.