Foreclosure Pipeline & Shadow Inventory

Whenever housing price index numbers come out, there is always a lot of discussion about whether the current month/quarter result is the beginning of or a part of a trend. The single largest unknown in these discussions is the foreclosure shadow inventory, the number of homes going into the foreclosure process, and those already in it but delayed due to slow processing and the robo-signing scandal.

Lender Processing Services this week reports that the average loan in foreclosure is 599 days delinquent. This is a record number for their regular monthly study of mortgage performance trends. At the end of July, LPS counted 2.2 million homes in foreclosure, as well as more than 1.9 million at least 90 days delinquent. Of these 90 day delinquent mortgages, more than 800,000 have not made a payment in more than a year.

Loans moving past the 90 day mark outnumber new foreclosure filings by 2-to-1. During the month of July, 207,223 loan foreclosures were initiated. Repeat foreclosures and repeat delinquencies are increasing as well. At the end of July, three-quarters of the 1.8 million 30-day delinquent mortgages were repeat delinquencies. Foreclosure starts outnumber foreclosure sales by 3-to-1.

An article at CNNMoney.com quotes numerous experts as saying that the Obama Administration must find a way to speed foreclosures up, not slow them down. Four years into the housing and mortgage crisis, there isn’t a light at the end of the tunnel, and many believe that only speeding foreclosures through the process and getting homes back on the market is the way to find that light.

Loans seem to enter into foreclosure and never come out. The answer isn’t in maintaining this continual overhang and threat to prices, wondering when these houses will hit the market. This makes buyers of all types hesitant to enter the market for fear they’ll be buying a falling asset value. More experts are now stating that foreclosure prevention efforts are only prolonging the problem, and the many repeat delinquencies seem to reinforce their position.

More analysts are now calling for a speedup in foreclosure processes, as well as a faster liquidation of the foreclosed homes languishing in the market. Of course, speeding foreclosures will require some dealing between the federal government and the states whose laws govern foreclosures.

For investors, it’s more about rental demand and the ability to buy cheap and rehab for a long term rental property with positive cash flow. There is plenty of opportunity for this strategy, and investors can afford to be picky about neighborhoods and future rental demand and appreciation potential. Keep reading.