While there are certainly reasons to believe that the economy is starting to pick up and that a double-dip recession is unlikely, many analysts are warning that this is no reason to heave a sigh of relief just yet. In fact, the foreclosure problem still proves to be so huge that even as the economy stabilizes, it still presents some serious problems that could stall a full economic recovery[1].

Florida-based Lender Processing Services (LPS) has released a report that analyzed the recent market indicating that unpaid mortgages currently off the record will ultimately lead to further delays in the housing recovery. And though some areas show a decline in delinquent loans, the same areas are also experiencing problems as they become congested with foreclosures that are now back on the market as bank-owned properties (REOs). REOs and foreclosure properties are competing with each other and have very similar, if not identical characteristics, so overall home prices are likely to plummet as a result of this massive competition.

Though the number of properties moving to REO is declining – November has seen another drop as foreclosure sales have been pushed back by major lenders – the foreclosure inventory is seeing an opposite movement. For the fifth month in a row, the colume of the foreclosure inventory – comprised of loans that are already in the hands of an attorney but not in the final foreclosure stage – has been increasing. By the end of November, U.S. foreclosure inventory rate moved up to 4.08%. A total of 2,157,000 loans have been stuck in different stages of the foreclosure process. In October, the number was only at 2,090,000 loans or 3.92%.

All these may seem bleak, but there is still a silver lining: the LPS reports that new problem loans dropped 5.4% from October to November. This is very much opposite the usual trend towards the end of the year.

[1]http://www.dsnews.com/articles/lps-foreclosure-inventory-rises-for-fifth-straight-month-2011-01-04