Note: The FHA released the February Monthly Report. The report shows the FHA REO inventory was at 68,801 at the end of February, up 54.2% from February 2010! From economist Tom Lawler:



HUD finally got around to releasing the February Monthly Report to the FHA Commissioner, and while the report clearly continued to have “data reporting” problems, the REO section of the report – IF correct – suggests that FHA has some serious REO inventory management problems.



Here are data from various monthly reports on FHA-insured SF property “conveyances,” property sales, and SF REO properties.



FHA SF Property Sales, Conveyances, and REO Inventory Sales Conveyances REO Inventory 9-Dec 6,748 7,393 41,166 10-Jan 5,827 7,440 42,971 10-Feb 6,091 7,835 44,605 10-Mar 8,307 9,538 45,680 10-Apr 7,826 7,745 45,795 10-May 7,719 6,878 45,215 10-Jun 8,893 8,487 44,850 10-Jul 8,508 8,341 44,944 10-Aug 7,686 9,810 47,007 10-Sep 7,439 11,411 51,487 10-Oct 7,289 9,908 54,609 10-Nov 5,817 6,752 55,488 10-Dec 2,749 7,728 60,739 11-Jan 2,632 7,709 65,639 11-Feb 4,221 7,383 68,801

Recall that the above table does not appear to be stock/flow consistent, mainly because there are occasionally “adjustments,” which I am not showing.According to this report, the pace of FHA property sales began to slow significantly last November, was virtually at a crawl in December and January, and remained shockingly low given the inventory levels in February. As a result, the reported inventory of FHA REO has exploded upward to 68,801 at the end of February from 54,609 at the end of October and 44,605 at the end of last February.I can’t recall any time in recent history when the FHA has “let” REO inventories jump at the pace observed since last summer, and if the numbers in the commissioner report are correct, it suggests that there may be a FHA REO property management “issue.” Last August HUD announced that it was launching the third generation of its REO Management and Marketing program, with new contracts that would “streamline HUD's operations, capitalize on the expertise of its potential vendors, and provide flexibility to meet changing market conditions in the REO industry.” Under “M&M III” the functions of the maintenance of REO properties and the marketing of REO properties was separated. I have no idea if this change has been responsible for the alarmingly slow sales pace of FHA REO, but someone should look into this.