As foreclosure filings continue their year-over-year growth of 19 percent in October, short sale investors may wonder if now is the time to invest or if their investment dollars would be better spent later. Despite the dismal news that foreclosure filings grew 19% compared to a year ago, close inspection indicates overall foreclosures have declined three months in a row. Some of the hardest hit states - and most popular short sale locations - including Nevada and Florida, actually saw year-on-year declines.  But frankly, I would argue that those “declines” are simply because banks are attempting loan modifications that will likely not be successful in the end. So, what is the real status of foreclosures? Here are a few facts to keep in mind when trying to decide whether to take the plunge now or later:

Highest Foreclosure States as of October 2009:

•    Nevada - 1 out of every 80 units
•    California - 1 out of every 156 units
•    Florida - 1 out of every 168

Highest Foreclosure Cities as of October 2009:
•    Las Vegas
•    Major Cities Throughout California - several including
Merced, Stockton, Modesto & Others

•    Cape Coral/Fort Myers
•    Orlando/Kissimmee

Total filings for Q3 of 2009: 937,000 filings...

Total notice of default filings for 2009: 3.8 million excluding Q4.

Number of adjustable rate mortgages scheduled to reset by 2012: 10 percent of all mortgages with the peak occurring in the second half of 2011. Remember, it can take several months to a full year before lenders take a property back. Number of ARM borrowers that are currently delinquent on their mortgages: 20 percent.

Value of ARM loans due to reset by 2012: $1 Trillion dollars.
While the above information may seem to indicate a wait-and-see approach, it must be weighed carefully against the following information:

Low Reserves: The FHA or Federal Housing Administration announced on November 12 that their insurance reserves had fallen below their congressional mandate to only $3.6 Billion, down a full 72 percent from a year earlier and representing only 0.53 percent of the $685 billion in loans insured by the organization.

Translated to plain language = without intervention it could become more difficult to obtain FHA loans and banks holding high number of FHA insured loans are likely to further increase lending standards to offset the additional risk. Since FHA combined with Freddie and Fannie now underwrite 90 percent of all new mortgages, expect continued tightening of credit terms into the foreseeable future.

Bank Failures & FDIC: While not comparable to the S&L Crisis which eventually lead to the closures of hundreds of small lenders, the 120 U.S. banks that have failed this year have already depleted the FDIC funds; at the end of Q2 2009, the FDIC only had $10 Billion in reserves to "insure" over 4.8 Trillion in deposits...a dismal ratio of only 0.22 percent.

Low Rates: Despite the bad news, interest rates remain near historic lows making it more financially feasible to finance a short sale for long or short term investment potential.