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10 Jan, 2014

Borrowers possibly elude foreclosures


Thousands of defaulted borrowers across Florida could benefit from the state’s five-year statute of limitations on redressing debts, the Palm Beach Post reported.

The state’s common contract law says a person has five years to sue on a debt, with the right to collect that money expiring at the end of the time period. The state’s application of this law in foreclosure cases is unclear, the Post said, but in recent cases, judges have favored borrowers.

In Palm Beach County, there are more than 1,500 cases that are five years or older still in the system, according to the newspaper.

“These cases are out there, and we are educating our clients,” Hollywood-based attorney Ronnie Bronstein, who represents homeowners associations, told the Post.

In May, the firm won a $1 million condo for one of its clients because the bank missed a filing deadline by less than two weeks. The bank filed for foreclosure Nov. 8, 2007. When the lender failed to show up for trial in 2011, the case was dismissed.

Citing a lapsed statue of limitations, Palm Beach County foreclosure judge Rodger Colton ruled last month in favor of convicted fraudster and one-time condo king Bill Lilly and former fitness instructor Valerie Kaan, allowing them to keep their $8.4 million estate in the Sanctuary section of Boca Raton, as The Real Deal previously reported. [Palm Beach Post] — Emily Schmall

10 Jan, 2014

Under Water Homes are still rampant in S. Florida

One-third of homes in region worth 25% less than mortgage. Home prices are rising and foreclosure filings are dropping, but South Florida still has plenty of homeowners who are underwater on their mortgages.

The latest report from Irvine, Calif.-based RealtyTrac shows 33 percent of mortgaged residences in the tri-county area were considered “deeply underwater” in December 2013, the Miami Herald reported. The deeply underwater designation is for homes worth at least 25 percent less than their mortgages. South Florida ranked fifth nationally in the category.  This provides plenty of opportunities for today's investors.

28 Mar, 2012

Wanted: Young, Hip, Homebuyers

The flip is back. Despite a sluggish housing market and tight credit, hordes of short-term investors are once again raking in the profits, after scooping up, sprucing up and reselling properties. But this time, these sales aren't so quick, and investors are doing a lot more work to earn their cash.
     Unlike the quick-turnaround sales made during the housing bubble, which most experts blame for inflating it, today's flips require more than just a fresh coat of paint and new landscaping to justify a much higher price.
In many cases, investors are practically rebuilding severely damaged foreclosures and other distressed properties to guarantee a return. In the process, they're restoring some credibility to an investing niche that had become a dirty word during the bust.
"It's not like it was before, when you could buy something, sit on it for six months and make a profit," says Matt Manner, owner of Extraordinary Real Estate, an investment firm in northeastern Los Angeles. Now, he says, he spends three to six months actively fixing up a property to get the 20% return he's after.

For the past two and a half years, the boyish, Prius-driving 35-year-old and his financial partners have been scooping up dingy properties — such as the 400-square-foot shack with dangling fixtures and weed-choked front yard they recently acquired on Bank Street in northeastern L.A. — and turning them into three-bedroom, two-bath Craftsman bungalows with chic décor and modern, horizontal fencing that sell for between $400,000 and $500,000.
Manner and other flippers have "raised the bar on what things should look like," Los Angeles real-estate agent Tracy King says. "It's having an effect on regular sellers. They are really needing to step up." On our blog, 'Listed': The future of housing may be in your basement
Where do they find their bargains?
Manner and other investors, with names such as Better Shelter, Modern Bungalow and Urban Element, comb through listings in a particular area looking for a house with the right location, lot and structure to improve. Most concentrate on one area that they can get to know well, so they don't overspend on purchases or renovations.
While many of the homes they purchase are foreclosures, short sales and trustee sales, they also purchase badly beaten-up standard sales — properties that are so outdated and dingy that they can't find a buyer willing to take them on.
Find bargain homes for sale
"Most buyers can't see the potential of these houses," Manner says. "I can. I can take something and make it cool."
Most of these properties aren't in prime neighborhoods with award-winning schools and chic restaurants but are in emerging neighborhoods that are a short drive from employment centers and entertainment and that may have higher crime rates, says Steve Jones, owner of Better Shelter, which used to employ Manner as an agent. "My real-estate agent, Courtney (Poulos), who conducts the open houses, tells me, 'I don't have to sell the houses, what I'm selling are the neighborhoods,'" Jones says.
Indeed, for some of their clients, it's the first time they've heard of many of these neighborhoods, let alone thought of purchasing homes in them.
When Mike Van and his wife bought one of Manner's flips in the Glassell Park neighborhood of Los Angeles last year, they weren't familiar with the neighborhood, having rented in pricier areas near the beach and in Hollywood.
"I had lived in L.A. for 12 to 15 years and had never been to this part of town," says Van, 35, a digital advertising sales representative. "We knew that this was an area that was changing and shifting."
He also says the neighborhood had a gang problem before the city stepped up law enforcement in gang-heavy areas.
But, he says, "It reminds me of the way Venice used to be" before it was gentrified with tony restaurants and shops.
The buyers
Van is a perfect example of the buyer whom this new breed of flippers is targeting in Los Angeles and many other markets, including Phoenix, South Florida and Houston. These buyers want a home that looks as if it was ripped from the pages of a magazine, Manner says, but at a price well below what it would cost to purchase in a more established neighborhood. These are the early adopters, who are ready to move in and wait on the trendy restaurants and shops.
"I think who's buying our houses are people who have a proclivity to our design and have been priced out of the market for such homes," says Jones, a former store designer for surf company Quiksilver who is known to hit flea markets to find just the right casually chic objects and midcentury modern décor to stage his homes. "I mean, where else can you find a house that's done, done, done in the $400,000 range (in this area of L.A.)?"
On a recent day, Manner and his staff brought in 300 of these buyers to an open house, by pricing one of his made-over bungalows at a gimmicky $99,000 — well below his purchase price and less than a fifth of what he hopes to get for it. The taco "dude" catering the open house ran out of supplies in an hour, he said, and there were 12 offers on the property. The property, which was eventually relisted at $525,000, received three offers and is now in escrow for more than that amount, Manner says.
msnNOW: Are Americans becoming less polite?
Another spruced-up property went into escrow recently without hitting the multiple-listing service, despite its location next to a city sanitation facility.
Still, Manner's investments are not without risk. He lost money on two of the 17 properties that his firm rehabbed and flipped in the past year, and there have been delays that have cost him some of his profits. But he said the rewards generally greatly outweigh these risks.
Manner and his team of architects reach their hip, style-conscious buyers by restructuring the design of some older, cramped bungalows, putting in additions and other features that buyers can't or won't do themselves.
After taking a survey on social media, Manner added a walk-in closet and bigger bathroom to one of his properties in L.A.'s Highland Park neighborhood. "I think this is the biggest closet in Highland Park," he says, walking through the rehabbed house recently.
Other buyer must-haves in this creative area include home offices or studio space. And often, flippers such as Jones or Manner will create a larger master bedroom or knock down walls and put in more windows and French doors to create a brighter, more open floor plan than the home had previously.
Short-term investors such as these succeed, Los Angeles stager Michelle Drewry says, because they do what buyers think is impossible.
"Buyers don't really want to do a lot of work," she says. "If everything they see isn't how they would like, they think it's going to cost them three times as much (to change) as it probably would."
That's true, Van says. "As a first-time buyer, you don't know what the scale of work is going to be. It's very intimidating. These are turn-key homes."
After the makeover is complete, many flippers bring in a stager to add the art, couches, tables and other little touches that will sell the lifestyle, because staged homes can look bigger than an empty space, Drewry says.

02 Mar, 2012

Fannie Mae's rental partnership program

The Miami Real Estate Club learned that Fannie Mae waded further into the foreclosure pool on Monday as it released new details on its plan to sell its repossessed homes as rental properties.

The pilot program, first announced in August as an effort to clear the mortgage giant's backlog of foreclosures, is launching with an initial offering of 2,490 residential properties in some of the hardest-hit markets. The largest percentage of homes (23 percent) is located in Atlanta, with Los Angeles/Riverside and West Florida rounding out the top three. (View a breakdown of the properties below.)

Buyers can include corporations, investment trusts and even individuals, so long as they meet eligibility requirements and agree to rent the properties for a set number of years.

An Underwhelming Debut?

But after months of anticipation from REO investors and market analysts, some experts were unimpressed by the program's first offering.

An analysis of the available properties by analytics company Capital Economics found that 85 percent of the units are already occupied.

"Frankly, it doesn't really address what we hoped the REO scheme would address," Capital Economics analyst Paul Dales told AOL Real Estate. Namely, he said, their goal should be twofold -- to reduce the number of vacant homes on the market, which drive down home values, and to help lower the cost of renting by providing new rental units to the market. Neither of which is really tackled by the initial REO offering.

He does give the program the benefit of a doubt, though -- they may be trying to sell off the low-hanging fruit first. Selling properties with tenants already in them ensures a steady stream of income for the investor. Dales says that he suspects the strategy will shift toward moving more vacant properties, as soon as the program feels out its investor base.

Will Investors Bite?

Donna Robinson, an Atlanta-based REO specialist and consultant, doesn't think offering occupied properties is necessarily a bad thing -- it just leaves a lot of unanswered questions for investors.

"Most landlords aren't big, highfalutin investors," Robinson said, but those who do qualify for the program will have several questions about the quality of their inherited tenants, and the terms on the leases. And for those purchasing larger pools of properties, trying to standardize lease terms only becomes more involved as the distance between properties and the number of tenants grows.

The FHFA said it will make more details available -- presumably answering some of the above -- to prospective investors who pass through a "rigorous" qualification process and sign a confidentiality agreement.

What remains to be seen is the typical size of the foreclosure pools that the program hopes to unload on investors, and at what rate of discount. The nearly 2,500 properties released for sale in the initial offering represents only about 1 percent of all foreclosures owned by the government sponsored enterprises, which include Fannie Mae and Freddie Mac, according to Capital Economics. In August, there were nearly 250,000 foreclosures owned between Fannie Mae, Freddie Mac and the Federal Housing Administration.

Even under optimal conditions, an analysis of the program by Goldman Sachs suggested that the project would have "positive but modest" effects, with maybe a 0.5 percent increase in home values within the first year.

But if more buyers share the same zeal for the prospect of single-family investing as renowned investor Warren Buffet, the program could be off to a great start. Buffet recently told CNBC that he would buy up "a couple hundred thousand" single-family homes if it were practical, and for the right price, going so far as to say that houses are a better investment than stocks at the moment.

Whether or not his peers will pony up to clear the more-than-200,000 inventory of FHFA-managed home foreclosures remains to be seen, but the market waits for no one. The New York Federal Reserve Bank predicted another 3.6 million foreclosures nationwide over the next two years.



 


19 Feb, 2012

Housing prices post steep decline

Home prices posted a steep, month-over-month drop in November, falling 1.3%, according to the latest S&P/Case-Shiller 20-city report. Prices fell in 19 of the 20 cities the index covers.

Prices are down 3.7% from a year ago, and off 32.8% since they peaked in the summer of 2006. The index is currently only 0.6% above its March, 2011 low.

"Despite continued low interest rates and better real GDP growth in the fourth quarter, home prices continue to fall," said David Blitzer, spokesman for S&P.

Phoenix, one of the hardest hit metro areas in the country, was the only place to record a gain in November. Prices there rose 0.6% month-over-month but are down 3.6% from a year ago.

Home prices in Chicago posted the steepest decline of any city on the index, falling 3.4% month-over-month. Atlanta prices were down 2.5% and Detroit prices fell 2.4%.
Has Obama's housing policy failed?

The drop in home prices was more than housing bear Peter Morici, professor at the University of Maryland Smith School of Business, anticipated. He had forecast a 0.8% drop.

"We've had more robust sales activity in the housing market lately," he said.

Morici thinks recent home price weakness stems at least partially from the fact that more sellers have accepted the weak market conditions and are putting their homes up for sale. Retirees and other home owners had postponed sales, trying to wait out the decline.

"Sooner or later, you have to get rid of that house," he said.
Steal this house: 7 great foreclosure deals

Pat Newport, a housing market analyst for IHS Global Insight, agrees that's part of the story.

"People are a lot more flexible on price than they were three years ago," he said. "They're willing to lower their asking prices to move their houses."

He thinks a bigger contributor to the market malaise is sales of properties in foreclosure. Many homes sold these days are either short sales or homes that were repossessed from mortgage borrowers who could not pay their loans.
Foreclosures: America's hardest hit neighborhoods

"That probably explains the steep declines in Atlanta," said Newport. "That city has a large number of foreclosed properties."

Atlanta continues to be a standout for price drops. Its 2.5% November fall followed a 5% drop in October, a 5.9% plunge in September and a 2.4% slide in August. It also posted the weakest annual return, down 11.8%.

Other poor performers over the 12 months ended in November were Las Vegas, where prices were hard hit by foreclosure sales and fell 9.1%, and Seattle, which recorded a 6.3% decline. Detroit, up 3.8% and Washington, with a gain of 0.5%, were the only cities in positive territory for the past 12 months.

19 Feb, 2012

Believe it or not Sub-Prime bonds becoming desirable again

The Miami Real Estate Club found that investors' belief that the worst is over for the U.S. housing market is fueling renewed interest in once-toxic mortgage bonds that were at the heart of the financial crisis.

Prices of some distressed bonds backed by subprime home loans—those issued before the crisis to borrowers with sketchy credit histories—have chalked up double-digit percentage gains this year, with one prominent market index rising 14%.

The rally has drawn investors back to a corner of the credit markets that was pummeled from 2007 to 2009 and has been volatile since.

The latest upswing has some money managers setting up investment funds dedicated to buying beaten-down mortgage bonds, hoping to reap fat yields while waiting for the housing market to turn.

The recent resurgence in battered mortgage bonds that were left for dead during the crisis reflects how investors' appetite for risk is returning, even after many banks and hedge funds lost money last year on similar assets.

[SUBPRIME]

But this time around, investors say many subprime bonds are looking attractive because their prices reflect a doomsday scenario that may not materialize, even though the housing sector remains in the doldrums.

Market prices of subprime bonds reflect "extremely harsh assumptions for how borrowers will behave," said Jeffrey Wheeler, a portfolio manager at Smith Breeden Associates in Durham, N.C. Bonds that are yielding 7% to 9%—strong returns amid today's low interest rates—reflect very high default and delinquency expectations, and the actual outcome may not be as bad, he said.

The Federal Reserve Bank of New York recently sold subprime bonds it took on in the 2008 bailout of American International Group Inc., whose bets on mortgage debt brought the insurer to the brink of collapse. The New York Fed sold bonds with a face value of more than $13 billion to two Wall Street dealers via large-scale auctions, fetching more than $6 billion in cash. The banks—Goldman Sachs Group Inc. and Credit Suisse Group AG—in turn have been reselling the bonds to investors including hedge funds, insurance companies and pension funds looking to lock in high yields over the next several years.

The latest bounce in prices of risky mortgage debt comes amid strong rallies in stocks and corporate bonds, underpinned by investors' optimism that European governments and banks will work through their debt woes without destabilizing global financial markets.

To be sure, some observers warn that subprime bonds abruptly plunged last year and could again, particularly if the outlook for the U.S. economy deteriorates or the European debt crisis intensifies. "This market was the hardest hit last year," notes Chandra Bhattacharya, a Credit Suisse strategist who specializes in residential mortgage-backed securities.

Bonds like those sold by the New York Fed are backed by payments from large pools of home loans originated at the height of the U.S. housing boom to individuals with poor credit. Many of these borrowers have fallen behind on their loan payments or defaulted over the past few years. Some loan pools already have seen default rates exceeding 40%, a big reason many subprime bonds trade at a fraction of their face value, and their holders won't recover their full principal balance, despite the recent rally.

Still, at current prices, investing in certain subprime bonds carries "limited downside and possibly substantial upside," said Joe Walsh, president of Amherst Securities Group, a broker-dealer that focuses on mortgage debt. Since the start of the housing downturn, U.S. home prices have slumped nearly 33%, and many economists expect declines of as much as 5% more.

"The probability of a collapse in housing or another significant leg down has diminished," says Joshua Anderson, a portfolio manager at Pacific Investment Management Co. The Newport Beach, Calif., firm, a unit of Allianz SE, has some funds that hold residential mortgage bonds.

Canyon Partners LLC, a money manager founded by bond experts from the former "junk"-bond shop Drexel Burnham Lambert, and CQS, a London hedge-fund firm founded by U.K. millionaire Michael Hintze, recently launched new investment funds to take advantage of bargains in distressed mortgage debt. Canyon, in a recent report, said some mortgage bonds with "20%+ return potential" have very low risk of losses and high yields, and could chalk up gains as more investors recognize value in the bonds. A spokeswoman for the firm declined to comment.

Market prices for individual subprime bonds are difficult to track, because there are thousands of securities with varying characteristics, and most don't trade often. Many traders follow an index of credit default swaps that tracks values of subprime debt. That index, known as the ABX, is up 14% this year, after dropping 30% from March to November 2011, and recently traded at about 50 cents on the dollar, according to data provider Markit.

"The price reflects the risk" that defaults among loan pools backing some bonds could be as high as 60% or 70%, said Steven DeLaney, a managing director and mortgage-debt analyst at JMP Securities in Atlanta.

But the prices of many bonds haven't kept pace with the index in recent months, a reason many investors see value. According to Amherst data, a generic subprime bond issued in 2006 would fetch about 33 cents on the dollar lately—down from 45 cents in the spring of 2011, but up from 30 cents at its trough last year.

27 Jan, 2012

The proposed real estate transfer tax that was in the Obamacare bill may not be what it was first thought

Shortly after the federal government enacted sweeping healthcare reform earlier this year, there was considerable concern over a last-minute addition to the legislation: a 3.8 percent tax on investment income of upper-income households to help shore up Medicare. The tax takes effect in 2013.

Among the concerns expressed among consumers and business people, including real estate professionals, both then and today, is that the tax amounts to a transfer tax on real estate. Not true, NAR Director of Tax Policy Linda Goold says.

Here’s how the tax works. For individuals earning $200,000 a year or more and married couples earning $250,000 a year or more, certain investment income above these income levels might be subject to the 3.8 percent tax on a portion of that income. I say “might” because whether the tax applies or not depends on many factors having to do with the kind and amount of the investment income the household receives.

Investment income includes capital gains, dividends, interest payments, and, for those who own rental property, net rental income.

 

Importantly, the $250,000 (for individuals) and $500,000 (for married couples) capital gain exclusion on the sale of a principal residence remains in place. So, if you’re a married household that sold a house for a $500,000 gain (that’s gain, not sale proceeds), that amount remains excluded from your income calculation.

Let’s take a look at a married couple that has $325,000 in adjusted gross income (AGI), plus $525,000 in capital gains from the sale of their house.

This household would be considered upper-income by most standards. Not only is their income relatively high, at $325,000 (adjusted gross income, or AGI), but they’re receiving a $525,000 gain on their house sale. Presumably, they bought their house years ago and it’s appreciated over the years, so upon selling it, their gain is a relatively high $525,000.

For this household, only $25,000 in investment income would be subject to the 3.8 percent tax. That would amount to $950. That’s because it’s the $25,000 over the $500,000 capital gains exclusion that’s taxable.

Before they would know that, though, they would have to do a calculation that involves their adjusted gross income. They would have to add their capital gain of $25,000 to the amount of their income above the $250,000 income trigger (for married couples).  Since their income is $325,000, they would add the $25,000 to $75,000 ($325,000 – $250,000), which would equal $100,000. Then they would compare the $25,000 to that $100,000, and apply the tax to the lesser of the two, which is the $25,000. Thus, $25,000 x 3.8%  = $950.

So, you have a household that had income of $850,000 for the year, and its tax on investment equaled $950.

This is a simplification. Other tax issues could come into play. But it shows that the tax applies to just a portion of investment income for certain upper-income households and that the capital gains exclusion remains untouched.

Nobody likes taxes, and this tax was inserted into the legislation at the 11th hour as a “pay-for,” that is, as a revenue generator to help offset some of the costs of the reform. It’s expected to generate $325 billion over eight years.

NAR has prepared a brochure that looks at how the tax might apply under eight income scenarios: 1) sale of principal residence (which we just looked at), 2) sale of a non-real estate asset, 3) gain, interest, and dividend from securities, 4) real estate investment income, 5) rental income as sole source of earnings, 6) sale of second home with no rental use, 7)  sale of inherited investment property, and 8. purchase and sale of investment property.

 It’s written in plain language and I think you’ll find it organized efficiently, so you can see at a glance the potential considerations for the different scenarios. Of course, it’s just guidance: each household’s situation will be different, so you would want to suggest to your customers and clients that they consult with a tax advisor to make sure the tax is applied correctly in their case.

02 Jan, 2012

Mortgage rates end the year under 4%

The Miami Real Estate Club learned that the average fixed mortgage rates in the U.S. over the past week finished the year near all-time lows, with the 30-year home loan at 3.95%.

According Freddie Mac's weekly survey of mortgage rates, the rate for a 30-year fixed-rate mortgage has been at or below 4% for the past nine consecutive weeks and only twice in 2011 did it average above 5%.

The 30-year fixed-rate mortgage averaged 3.95% for the week ended Thursday, up from 3.91% the previous week and below 4.86% a year ago. Rates on 15-year fixed-rate mortgages averaged 3.24%, up from 3.21% last week and below 4.20% a year earlier.

Five-year Treasury-indexed hybrid adjustable-rate mortgages, or ARM, averaged 2.88%, up from 2.85% yet below 3.77% of a year ago. One-year Treasury-indexed ARM rates averaged 2.78%, up from 2.77% in the prior week and below 3.26% last year.

To obtain the rates, 30-year and 15-year fixed-rate mortgages required payments of 0.7 percentage point and 0.8 percentage point, respectively. Five-year and one-year adjustable rate mortgages required an average payment of 0.6 percentage point. A point is 1% of the mortgage amount, charged as prepaid interest.

02 Jan, 2012

Leaders speak up regarding Miami's commercial real estate market

The Miami Real Estate Club read that there is an overall sense of growing optimism, including leaders in real estate.

In 2011, San Antonio-based The Lynd Co., which has offices in Miami and Doral, bought $400 million in distressed real estate notes including a 490 unit apartment building in Miami Gardens.

The company, which has owned 34,000 residential units and 10 million square feet of commercial, will continue to look to invest in distressed assets in 2012 in all areas including multifamily, student housing, condos, hospitality and other commercial real estate, said A. David Lynd, President/COO of Lynd.

Lynd said he expected to grow its construction division next year and plans to open a new office in California in 2012.
Stanley Tate and Sergio Rok

Lynd isn’t the only company looking to distressed assets for opportunity: Stanley Tate and Sergio Rok, which sold their stake in the Omni Center in 2011 for more than $160 million, plans to continue their distressed asset investment strategy.

“We will continue down the same path whereby we source deal flow from our current stream of institutional relationships and then carefully select one-off transactions that afford us the ability to professionally perform our due diligence prior to closing the transactions,” the partners said in response to emailed questions. “This format has allowed us to acquire over 10 assets in two-plus years. We see no slow down for 2012. In fact , we anticipate a large surge in opportunities from the CMBS markets.”
Michael Internoscia, Pordes Realty

Commercial development, especially multi-family assets, were some of the first to recover from the recession and will continue to be a hot sector for institutional buyers, investors and developers in 2012.

The interest is part of the reason Pordes Realty, which has operated as a residential brokerage, launched a commercial division in 2011.

Michael Internoscia, senior VP of Pordes Realty, said 2012 will focus in part on establishing and growing that commercial business through careful broker-relationship management.
James C. Roberts III, Jim McDonald, Suddath

Industrial is another sector that was very active especially toward the end of 2011, with existing assets traded and lots of new products announced. Positive growth in the industrial sector and commercial overall are some of the variables spurring moving company Suddath to position itself to hire additional drivers, movers and warehouse personnel in the coming year in South Florida, said James C. Roberts III, manager, marketing and communications for Suddath.

“We budgeted for a minimum 15 percent increase in business in 2012,” said Jim McDonald, senior VP of branch operations and current interim GM/president of South Florida branches.

19 Oct, 2011

REO Sales may not peak till 2013

The Miami Real Estate Club learned that the sale of properties repossessed through foreclosure may not peak until 2013, keeping home prices from a meaningful recovery for some time, analysts estimated Monday.

Nearly half of the more than 552,000 REO properties liquidated in the first half of 2011 were held by private banks. In the years ahead, the government — including the Department of Housing and Urban Development, Fannie Mae and Freddie Mac — will begin taking a majority of the activity.

In 2013, REO sales could reach 1.48 million properties, according to estimates from Bank of America Merrill Lynch analysts, a 10% increase from projected amount in 2012.

"We do not expect to see anywhere near the downward pressure on home prices that we had back in 2008, since the expected percent changes in liquidation volumes are so much smaller," BofAML analysts said. "But home prices are starting from a negative point, so the implication is that home prices will continue to decline as the foreclosures transition through the pipeline."

Most of the projected increase will come as the government begins to unload its backlog. The government-sponsored enterprises and HUD, analysts estimate, will liquidate roughly 595,000 properties in 2013 alone.

Total REO liquidations wouldn't drop below 1 million until 2015, according to BofAML.

The Obama administration began work last month developing new strategies for selling this mass of properties, which may involve renting more of them. The Federal Housing Finance Agency is also working on a way to refinance more underwater borrowers to entice them from walking away.

"I would essentially rent the house back to those who are living in them now," said Susan Woodward, an economist with Sand Hill Econometrics. "I don't think it makes a lot of sense to push 4 million people out of their homes when they're victims of a slower economy they had nothing to do with."

Other analysts were skeptical of anyone who could predict accurately what the GSEs or Washington would do, especially after the elections in 2012.

"Do they really think that the government under any administration would let 500,000 homes hit the market and crash prices all over again, six years after the first crash?" said Scott Sambucci, chief analyst at Altos Research.

He said even if unemployment improved by a full percentage point or two — which he said would be a stretch — the market would still struggle to meet such a supply influx.

"It would crash the market, so no, it'll never happen," Sambucci said.

Daren Blomquist at RealtyTrac, which monitors foreclosure filings across the country, said the sale of REO is on track to reach 825,000 by the end of 2011.

"We do expect the REOs to pick back up in 2012 as lenders push through some of the foreclosures delayed by processing and paperwork issues," Blomquist said, adding the inventory needed to be sold could reach well into the millions.

If half of the 800,000 mortgages currently somewhere in the foreclosure process and another half of the 1.5 million loans in serious delinquency end up REO, it could mean an additional, 1.15 million properties that would need to be liquidated — not including new foreclosures that enter the process, according to RealtyTrac.

"That's very possible given continued high unemployment rates and high underwater rates," Blomquist said. RealtyTrac estimates roughly 27% of all outstanding mortgages are worth more than the underlying property.

Woodward said refinancing borrowers, in negative equity or not, down to current market rates could result in a total savings for U.S. households at $250 billion annually. When asked if private investors would return to fund the future mortgage market after such a radical change, she said they would.

"I think the whole world would see this as a one-time fix. We did similar extreme things during the Great Depression," Woodward said.

Investors themselves, though, showed little confidence they would take on such a risk again. In fact, most are trying to keep the government involved in the housing market for the future, to keep risks as low as possible. Otherwise, foreign investors would flee.

While the estimates on how many REO will be sold in the future are extremely difficult to nail down, the size of the best projections share a common and threatening scale. Analysts said major refinancing schemes or new strategies for liquidating REO on a local level would need to be completed soon to rescue house prices from the still increasing pressure of mounting foreclosures.

"The need for policy support would therefore be considered urgent," the BofAML analysts said.

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