Bank Owned Foreclosures Predicted to Reach 7 Million

The number of bank owned foreclosures has been predicted to reach 7 million in the coming months by Laurie Goodman and her fellow analysts at Amherst Securities Group LP.

Amherst analysts based their forecast on the pace of mortgage defaults, the number of delinquent borrowers who are unable to update their accounts and the shift in the mix of traditional sales and foreclosures.

According to Amherst analysts, there is a vast shadow inventory of foreclosure properties that are not being seized or released to the market by lenders because of various reasons such as mortgage modification efforts, changes in state laws, hesitation by lenders to maintain foreclosed properties and control of non-performing assets in financial statements.

Amherst also explained the increases in the Standard & Poor’s/Case-Shiller house price index for 20 of the largest cities in the country in May and June as a result of changes in the percentage of foreclosure sales and conventional sales and not as a result of the improving situation of the housing market.

The Amherst analysts also said that the seemingly favorable seasonal indicators would soon disappear in the coming months and the soaring number of bank owned foreclosures will set in.

Amherst is an Austin, Texas-based market maker and dealer of agency securities, mortgage-backed securities and fixed-income investments. It is also an underwriter for Freddie Mac, Fannie Mae and Federal Home Loan Bank System. Laurie Goodman, meanwhile, is the former chief of fixed-income studies at UBS Securities whose team was cited by Institutional Investor in 2008.

In addition, the forecast made by the Amherst analysts is another affirmation of the earlier forecast made by Barclays Capital analysts. Barclays predicted during the first months of this year that the housing market recovery will be dampened by suppressed supply, either from homeowners who were able to put off selling their properties during the slump or from banks that decided to put off foreclosure actions or REO sales.

Glenn Boyd and his fellow Barclays analysts said this month that home prices will drop further by 8 percent, a significant decreased from their previous depreciation prediction of 13 percent.

Both groups of Amherst and Barclay analysts said that the pent-up supply of bank owned foreclosures will impede the recovery of housing markets across the country, except in places where all other economic factors are going well.

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