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Good news, bad news in foreclosure activity

In the For Crying Out Loud Department, we have yet another reason the housing market is straining to reach normalcy: there aren’t enough foreclosures.

Not that Rick Sharga wishes mortgage default on anyone — and he acknowledges that the nation has been through a collective financial tragedy.

But the executive vice president of, an online real estate company, said the extraordinary reliability of recent mortgage borrowers actually has a downside, and lenders could and should take a little more risk to help rev up the marketplace.

  • Mary Umberger
  • Mary Umberger

At the recent National Association of Real Estate Editors meeting in Houston and in a later edited interview, Sharga explained his view of where housing is going.

Q: First, the inarguably good news: You believe the nation’s legendary foreclosure mess is behind us?

A: Yes, the pig has finally made it almost through the python. At the peak of the crisis, we were looking at about 14.5 percent of all loans being either delinquent or in the process of foreclosure. In a “normal market” that number is between 4 and 5 percent.

Right now, we’re roughly at 7.5 percent of all loans, so we’re down by half from the peak but almost twice as high as normal. In the next two to three years, that number should work its way down to the norm.

Q: How could there be a downside to that?

A: The vast majority of the loans that are delinquent right now were made before 2010.

They’re delinquent but not in foreclosure. However, they’re so delinquent that there’s no way to salvage them. These borrowers haven’t made a payment in two to three years.

On the other hand, the loans that have been made in the last three years aren’t going into default at all.

We’re seeing pretty much historically unprecedented loan performance — historically speaking, about 1percent of loans will be in foreclosure in a given year, and now we’re looking at about half of that.

Short of a borrower getting hit by a meteorite on the way home, nobody is missing payments.

And this suggests that we probably have over-tightened credit. Not that we want more people in default, but we know that people are having a hard time getting loans. Loan standards are just too tight.

That’s one reason it’s going to take time for the market to normalize.

Q: You also talked about the influence of hedge funds and other extremely deep-pocketed investors on the rental market. For a couple of years, they’ve been famously buying single-family homes by the hundreds, fixing them up, then renting them out.

Some market observers say these institutions’ affection for single-family rentals is on the wane — but you say that marketplace is just evolving. How so?

A: The single-family rental market, as a category, is going to continue to grow. The institutional players are slowing down, but not stopping.

Blackstone, one of the largest hedge funds, has announced it’s only going to buy $30 million worth of houses a week, down from $100 million a week. They’re not leaving the marketplace.

But that opening is going to lead to the entry of a new category of investor.

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