No Shadow Inventory of Bank Owned Homes

Discovery Bay, CA, October 13, 2009 - ForeclosureRadar (www.foreclosureradar.com), the only website that tracks every California foreclosure and provides daily auction updates, issued its monthly California Foreclosure Report for September 2009. This month's report features not only a new look, but an important new statistic - Bank Owned (REO) Inventory. By looking at the number of foreclosures the banks have taken back and subtracting those that have since resold, we are able to show the number of foreclosures the banks have held as inventory over time. That inventory steadily increased through September 2008, at which point the number of properties banks resold regularly exceeded the number they took back at trustee sale. With 90,365 properties in inventory, banks currently carry about 4.77 months of supply, however, it takes the banks on average 7.33 months to dispose of a bank owned home, thus current inventory is less than should be expected from normal operations given current foreclosure volumes. Bottom line - there is no "shadow" inventory of bank owned homes being intentionally withheld from the market.

Foreclosure Filings

Notice of Default
Prior Month	Prior Year
1.08%	123.44%
Notice of Trustee Sale
Prior Month	Prior Year
-5.10%	64.97%

Foreclosure filings in September were relatively flat from the prior month, though considerably higher year over year due to the dramatic drop in filings in September 2008, after CA Senate Bill 1137 went into effect requiring lenders to contact borrowers before filing a Notice of Default. In addition to SB 1137, Freddie Mae and Fannie Mac went into conservatorship, and U.S. Treasury Secretary, Henry Paulson, announced the Troubled Asset Relief Program one year ago, both of which have since had impacts on foreclosure filings.

8-Apr	8-May	8-Jun	8-Jul	8-Aug	8-Sep	8-Oct	8-Nov	8-Dec	9-Jan	9-Feb	9-Mar	9-Apr	9-May	9-Jun	9-Jul	9-Aug	9-Sep
45,241	43,852	43,580	41,860	43,504	16,746	17,361	21,854	43,974	40,580	49,799	58,623	47,337	42,202	47,094	47,528	37,018	37,417
30,358	35,239	36,212	40,125	37,329	19,674	26,402	28,466	28,448	24,890	21,146	34,559	31,556	43,355	30,711	40,757	34,202	32,457

---

Foreclosure Outcomes

Back to Bank (REO)
Prior Month	Prior Year
-8.61%	-40.61%
Cancellations
Prior Month	Prior Year
-13.47%	35.85%
Sold to 3rd Party
Prior Month	Prior Year
3.27%	215.38%

Overall foreclosure sales remain depressed since government intervention began September 2008, though the percentage of foreclosures being sold to 3rd parties, typically investors, has risen dramatically. Despite expectations that cancellations would have started rising dramatically as homeowners successfully completed 3 month trial periods under the Home Affordable Modification Program, we instead see cancellations decreasing with no clear sign to date that the program is having any impact on foreclosures.

8-Apr	8-May	8-Jun	8-Jul	8-Aug	8-Sep	8-Oct	8-Nov	8-Dec	9-Jan	9-Feb	9-Mar	9-Apr	9-May	9-Jun	9-Jul	9-Aug	9-Sep
22,455	25,059	23,788	27,987	25,372	22,098	13,289	15,256	15,599	14,528	16,405	9,198	12,129	15,849	19,690	14,608	14,359	13,123
3,934	4,135	4,730	5,791	5,672	6,359	11,269	8,287	6,437	6,707	6,897	6,345	6,700	7,151	8,670	10,809	9,984	8,639
517	697	761	979	1,063	1,073	812	948	832	887	1,258	1,087	1,648	2,295	2,685	2,682	3,277	3,384

---

Foreclosure Inventories

Scheduled for Sale
Prior Month	Prior Year
6.92%	137.03%
Bank Owned (REO)
Prior Month	Prior Year
-2.76%	-41.80%

The number of properties on the brink of foreclosure continues to increase and has more than doubled from a year ago. With a smaller percentage of scheduled foreclosures actually being sold due to postponements at trustee sale, while at the same time seeing strong sales of bank owned (REO) properties, banks have managed to reduce their inventory by 41.8 percent from a year earlier. With the banks reselling an average of 18,943 homes a month in the 3rd quarter, and an average time to resell of 7 months (given the time taken for eviction, repairs and resale), we believe there is essentially NO shadow inventory of bank owned homes at this time. Moving forward there are more loans which are delinquent, in default, and scheduled for trustee sale than ever before, which would typically lead to a significant rise in foreclosure sales. We do not believe this increase is likely in the near future given the continued political pressure on banks not to foreclose.

8-Apr	8-May	8-Jun	8-Jul	8-Aug	8-Sep	8-Oct	8-Nov	8-Dec	9-Jan	9-Feb	9-Mar	9-Apr	9-May	9-Jun	9-Jul	9-Aug	9-Sep
47549	51859	59518	64598	69428	59226	59695	64237	67841	69374	64177	82390	92002	111824	113141	124874	131300	140382
111752	124310	133532	144596	152614	155269	147076	145226	139028	135073	133143	120427	110177	104528	101932	94878	92932	90365

---

Foreclosure Discounting

Foreclosures continue to be sold at trustee sale at considerable discount to both the outstanding loan balance and the current estimated fair market value. As we saw in foreclosure outcomes, the lure of an average 20.5 percent discount to fair market value has dramatically increased the number of properties sold to 3rd party investors. At the same time it is very clear why more properties aren't purchased at auction - with banks pricing the properties they end up taking back as REO an average 23 percent more than the current market value.

---

Foreclosure Sales by Loan Origination Date

Q1ʼ04	Q2;04	Q3ʼ04	Q4ʼ04	Q1ʼ05	Q2ʼ05	Q3ʼ05	Q4ʼ05	Q1ʼ06	Q2ʼ06	Q3ʼ06	Q4ʼ06	Q1ʼ07	Q2ʼ07	Q3ʼ07	Q4ʼ07	Q1ʼ08	Q2ʼ08	Q3ʼ08	Q4ʼ08
134	225	246	381	473	909	1,195	1,366	1,141	1,392	1,535	1,714	1,593	1,271	789	442	211	145	61	20

Nearly 91 percent of foreclosure sales in September were for loans that were made between January 2005 and December 2007. With property values now well below 2004 levels in many parts of the state, it remains surprising that relatively few loans made in 2004 have been foreclosed on. Also notable is the decline in foreclosures on loans that were made after the significant credit tightening that began in August 2007.

---

Foreclosure Activity By County

	Notice of Default	Notice of Trustee Sale	Back to Bank (REO)	Sold to 3rd Party

---

CALIFORNIA FORECLOSURE REPORT METHODOLOGY
Rankings are based on population per foreclosure sale. NDF indicates the number of Notices of Default that were filed at the county, and NTS indicates filed Notices of Trustee Sale. Sales indicates the number of properties sold at foreclosure auction. Percentage changes are based on monthly Sales. The data presented by ForeclosureRadar is based on county records and individual sales results from daily foreclosure auctions throughout the state-not estimates or projections.