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Loan Applications Down, Says HUD

by Peter G. Miller
August 14th, 2008

The latest figures from RealtyTrac show that foreclosure numbers continue to mount.

In July, says the company, “foreclosure filings — default notices, auction sale notices and bank repossessions — were reported on 272,171 U.S. properties during the month, an 8 percent increase from the previous month and a 55 percent increase from July 2007. The report also shows one in every 464 U.S. households received a foreclosure filing during the month.

“Bank repossessions, or REOs, continued to be the fastest growing segment of foreclosure activity in July, posting a 184 percent year-over-year increase — compared to a 53 percent year-over-year increase in default notices and an 11 percent year-over-year increase in auction notices,” said James J. Saccacio, chief executive officer of RealtyTrac. “The sharp rise in REOs, combined with slow sales, has resulted in a bloated inventory of bank-owned properties for sale. RealtyTrac now has more than three quarters of a million properties in its active REO database, a number that represents approximately 17 percent of the inventory of existing homes for sale reported in June by the National Association of Realtors.”

Given the vast increase in foreclosures you might think that people with toxic loans would be rushing to refinance with FHA mortgages. In fact, during the last two weeks of July FHA loan applications actually fell by 9.5 percent when compared with the first half of the month.

Loans to delinquent convention borrowers rose 37.2 percent. This would be great news if the numbers were not so puny. Only 137 delinquent conventional borrowers refinanced in the first half of the month while 188 managed to refinance with an FHA loan in the second half.

That’s a total of 325 delinquent conventional borrowers who were able to refinance during the entire month of July.

No one expects that FHA financing can be used to resolve all the troubled loans issued during the past few years. But while more than 8,700 families a day were getting foreclosure notices during the month, HUD managed to refinance just 10.48 loans per diem from troubled conventional borrowers.

Is this really the best we can do?

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