Housing Market Still Suffers Mortgage Hangover
NEW YORK (TheStreet) -- I recently wrote that quarterly data from the Federal Deposit Insurance Corp. reveal more signs of stress in the banking system.
One of stressful line items in the FDIC's Quarterly Banking Profile for the first quarter of 2012 was "Other Real Estate Owned."
In that article I stated that OREO peaked at $53.2 billion in the third quarter of 2010 and was still seriously elevated at $44.8 billion at the end of the first quarter of this year.
On Thursday we learned from RealtyTrac that 26% of all existing-home sales in the first quarter were distressed properties, including bank-owned homes from OREO. This was up from 22% in the fourth quarter of 2011.
As banks whittle away at OREO, the Federal Housing Finance Agency, which is the conservator of Fannie Mae(FNMA) and Freddie Mac(FMCC) , shows that mortgage loan delinquencies have been declining in the graph below.
The graph shows that even though delinquencies have declined, they remain elevated.
Subprime mortgages remain in the banking system, with 32.9% of Subprime ARMS and 23.2% of other Subprime Loans still driving defaults and foreclosures as these mortgages are difficult if not impossible to refinance.
With all loans delinquencies elevated there will likely be new bank-owned homes entering OREO on banks balance sheets. So far, distressed home sales have allowed the FDIC-insured banks to continue to decrease OREO as they have for the past six quarters.
The sale of bank-owned homes is one factor that's keeping downward pressures on home prices, as shown in the latest S&P Case Shiller Home Price Indices:
The S&P Case-Shiller Home Price 20-City Composite shows that home prices declined 2.6% in the first quarter of 2012 year over year.
Home prices are now at their lowest levels since the housing bubble popped in mid-2006.