Today I was reading a Mortgage News Blog post from The Truth About Mortgage, and my hopes for a vanishing of foreclosures for Dallas, Collin, and Denton County homes dissipated.
You see, there are so many foreclosures out there, in different stages of foreclosure, the industry has devised a plan on releasing them into full foreclosure at different controlled times so that they do not all hit the market at once and overwhelm our market. The number of foreclosures out there is so great, it would drop the average sale price of a home in all areas greatly… if they were all dumped onto our buying streets and neighborhoods. In the industry, the inventory of homes that are going to be released at a slow drip over time is called “shadow inventory”. (there is your trivia education for the day)
Reports disclose that presently 7.5 million home loans are set for foreclosure or are delinquent, and another 1 million are in possession of a lender, which is termed REO in our industry.
For other reasons than the aforementioned ‘shadow inventory’, more than 31% of loans that are delinquent for 6 months are not in any process of foreclosure yet…many times because the backlog of foreclosures have created more work than the lenders can handle and they just put them off until they get to them. Now get this, and it doesn’t surprise me either, 22% of homes that are delinquent 12 months or greater are not in foreclosure proceedings yet. I have a friend who had a neighbor renting a home where the owner had not made a mortgage payment on the home for over a year, and therefore she was consulted by her attorney that she didn’t have to pay rent until the REO lender contacted her…she was rent free for a LONG TIME!
At the start of the new year, in January of 2010 alone, 346,000 new loans in American went delinquent. This helps support the argument that so many foreclosures were due to bad appraisal practices or inexperienced loan officers putting home owners in risky loans, because these delinquent loans are from a majority of fixed and fully amortized loan programs…not interest only ARM’s. Let me also say, I do believe that poor appraisals coupled with mortgage fraud schemes and inexperienced loan officers did play a part in the poor market, just not to the extent the media and governing bodies of Real Estate think…they needed a villain.