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Discrepancy in Foreclosure Data May Create Confusion

There is a discrepancy with much of the foreclosure data being published, according to Brad Geisen, founder and chief executive officer of foreclosure.com here, which stopped posting its data a year ago.

This discrepancy creates confusion and presents a misguided direction of where the market is going, Mr. Geisen said during a webinar entitled, "The Truth Behind National Foreclosure Statistics."

"Properties are often counted multiple times. If a property has several liens it can be counted three different times during the foreclosure process. It makes things look a lot worse than it really is. Sometimes companies use bad data or expired data or an undefined time period," he said.

In some areas of the country, the foreclosure numbers have been so low, it is easy to get high percentage increases, sometimes as much as 200%, said Mr. Geisen.

He pointed out one graph, which showed that all default rates in 2007 were less than 1% of all loans. He said that amount is around to 2% now. "It's within the industry standard." Banks assume these will go into foreclosure. "The percentages get skewed. I don't usually like to use the percentage. I think the whole at a national level is not nearly as bad as it sounds," he said.

There is a lot of confusion out there between the two stages of foreclosures, which is a result of the way different data providers classify their numbers. Pre-foreclosures are often counted as foreclosures, but that is when the property has just started the foreclosures process, including notice of default, lis pendins, sheriff's sales and auctions.

Banks and servicers are working hard to provide loss mitigation and loan workouts to resolve pre-foreclosures and short sales are taking place to sell these homes. Based on its data, foreclosure.com calls a property a foreclosure once it has been foreclosed on and the bank owns it. These are real estate-owned assets or REO.

"I see a lot of data where pre-foreclosures and foreclosures are jumbled together," observed Mr. Geisen. "We trace the property through the entire process and separate the two out."

On a national level, he said pre-foreclosures have jumped and the overall inventory has gone up. That means, the industry is getting more pre-foreclosures every month, but they are selling off. He said they go through the process quicker or into foreclosure, and the borrower sells the home or pays off the loan to get out of the foreclosure process. "The market is absorbing them quicker than they are coming in, which is a positive sign," said Mr. Geisen.

From a national perspective, he said, in February, the country saw less foreclosures coming in than February 2007, but the inventory of foreclosures has not caught up with what is already out there. For instance, California isn't absorbing foreclosures as quickly as they come in.

The industry is getting back to the normal course of doing business, he said. The numbers do not justify a crisis, Mr. Geisen said. He considers it a credit crunch. The market had 10 years of appreciation occur in five years, he said. "We've had interest rates low. People had the ability to buy more property than they could afford. More people got into the real estate market, which created competition and moved prices up."

Now time has to catch up with the values, he said. Properties will go up again, but not everyone can wait. "People need to sell their properties, which is creating the correction we are seeing."

The subprime issue is not as significant as he sees it talked about every day. "I don't ever hear anyone talk about foreign investments in subprime paper. We only talk about paper that is still here. Over time, the banks had 10 years of profits at less than a 1% foreclosure rate."

He said loss mitigation, short sales and loan workouts have made it easier for the overall market to absorb foreclosures. "It's working. I see you can buy today at yesterday's prices. There are fabulous real estate opportunities out there. Looking into the future, it's just a matter of time until property prices go back up. Money is cheap. I can't say that enough. Everything is still affordable."

The market saw a major slowdown in November, December and January. The entire real estate market stopped, he said. But in February, things picked up and in March that should continue, he said. It will take time to absorb the inventory.

"In June, I think we will come back pretty strong. Elections are coming. By the time we hit the election, we are going to have a surge. By the time of the elections, I think a lot of the good deals will be gone."

Each market has its own particularities. There is major overbuilding going on in Miami, he said. That condo market has its own economic issues and it will take longer to recover. "I feel we've hit the bottom. Now we are in the absorption time. Property values will not go down anymore. Investors will gobble up properties. It's better for the investor now."

Mr. Geisen admits his "much rosier view" is how he truly sees it. "It's a little bit frustrating when the statistics that are published are unverifiable. Companies are painting these pictures. I am out in the market and I see things picking up. Sales are picking up. Appraisers are out there because homes are selling.

"November and December saw a screeching halt. It's come back and I don't see anyone talking about it."

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