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IRVINE, Calif. (


) -- Foreclosed homes accounted for nearly 26% of all residential home sales in the United States during 2010 according to RealtyTrac, and regulatory data for the largest U.S. holding companies shows their efforts to clear foreclosed properties from their balance sheets have stalled.

During 2010, roughly 832 thousand homes were sold that were in "some stage of foreclosure," according to the RealtyTrac report, which was a decline of 31% from 2009 and a decrease of 14% from 2008. During the fourth quarter, there were about 149 thousand foreclosure sales, declining 22% from the previous quarter and 45% from a year earlier.

RealtyTrac CEO James Saccacio said "foreclosure sales in the fourth quarter faced the twin headwinds of the expired homebuyer tax credit," and the "foreclosure documentation controversy, which hit in the fourth quarter and temporarily froze sales of foreclosures from several major lenders."

Foreclosure sale prices average 28% below "the average sales price of properties not in the foreclosure process," according to the report, increasing from an average 27% discount in 2009. Saccacio said that "in the short term a high percentage of foreclosure sales will continue to weigh down home prices."

The states with the highest percentage of foreclosure sales during 2010 according to RealtyTrac were Nevada, where 57% of all residential sales were foreclosed properties, followed by Arizona, with foreclosures making up 49% of all residential sales. That is followed by California, where 44% of all residential sales were foreclosed properties.

Financial reports for the largest banks confirm the slowdown in foreclosure sales.

According to year-end regulatory data supplied by SNL Financial,

JPMorgan Chase

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had $23.1 billion in one-to-four family mortgage loans for which the collateral property was in some stage of foreclosure as of December 31 - the most for any U.S. bank holding company.

Bank of America

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placed second with $20.6 billion in one-to-four family mortgages in foreclosure, followed by

Wells Fargo

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with $17.9 billion and


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, with $7 billion in foreclosed one to fours.

An interesting data point for the "big four" is the amount of negative amortization included in the principal balance of the mortgage loans on their books. Negative amortization is the result of one of the sillier mortgage products being peddled during the real estate boom: option-payment adjustable-rate mortgages. These loans gave borrowers the option of making a monthly payment for less than the previous month's accrued interest. The unpaid interest would then be tacked onto the principle.

The negative amortization "feature," combined with shoddy underwriting and declining home values was a perfect storm for banks with large option-arm portfolios, including Countrywide, which was acquired by Bank of America in July 2008, and Wachovia, which inherited most of its option-ARM portfolio from Golden West, which it acquired in 2006. Wells Fargo acquired Wachovia at the end of 2008.

The good news is that negative amortization exposure is declining. As of December 31, negative amortization included in closed-end one-to-four family mortgage balances for Wells Fargo totaled $2.4 billion, declining from $3.5 billion at the end of 2009. For JPMorgan Chase, the negative amortization totaled $1.4 billion as of December 31, declining from $2 billion a year earlier. For Bank of America, the negative amortization total was $858 million as of December 31, down from $1 billion at the end of 2009.

Citigroup has zero negative amortization exposure.


Written by Philip van Doorn in Jupiter, Fla.

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Philip W. van Doorn is a member of TheStreet's banking and finance team, commenting on industry and regulatory trends. He previously served as the senior analyst for Ratings, responsible for assigning financial strength ratings to banks and savings and loan institutions. Mr. van Doorn previously served as a loan operations officer at Riverside National Bank in Fort Pierce, Fla., and as a credit analyst at the Federal Home Loan Bank of New York, where he monitored banks in New York, New Jersey and Puerto Rico. Mr. van Doorn has additional experience in the mutual fund and computer software industries. He holds a bachelor of science in business administration from Long Island University.