July 12, 2024
housing market
housing market

*This was submitted by Tod R. one of our subscribers:

You’re going to see how the government’s moratoriums and loss mitigation programs have affected foreclosures and shadow inventory.

Shadow inventory is made up of all the properties that are in foreclosure or headed toward foreclosure that haven t hit the market yet. There are 7 million homes in this shadow inventory category.  What the government isn’t telling you is that their moratoriums and loss mitigation programs created a huge surge of foreclosures that are about to pop.

Their effort to decrease foreclosures has backfired.

According to the National Association of Realtors, there were 3.6 Million unsold homes in September. You think there are a lot of homes on the market now? There are 7 Million more coming that the government has created in this shadow foreclosure inventory. That’s 2 times the amount of homes that are currently on the market now!

The government’s Making Home Affordable (MHA) modification program and FHA s Hope for Homeowners refinance program DO NOT WORK for borrowers that are too wealthy or owe too much on their homes. The number of foreclosures for high end and luxury homes in increasing and there are a ton of luxury homes in this shadow inventory.

So when can we expect to see the surge in foreclosures from this shadow inventory?

We are in the first phase of shadow inventory right now. The second wave will start in Mid-2010 and will continue into 2011 because the national foreclosure moratoriums ended in March and the government intensified its HOPE NOW Alliance program as well as its Home Affordable Modification Program (HAMP). These programs were released in the first week of March but the problem was that the servicers and lenders did not receive training until the middle of June. Then, the programs had to be updated because they weren’t effective and they became more complicated to implement effectively.

This created a huge amount of people that have not paid their mortgage and their houses have not been taken back by the lenders yet. Basically the government only delayed the inevitable foreclosure process but they made it worse because all of the homes will be entering foreclosure at the same time and with more debt owed on the mortgages.

Many of these homeowners have thrown their hands up and have vacated the houses.

The third phase of shadow inventory will be borrowers that have exhausted their options on long term government sponsored payment plans, forbearances, and failed modifications. These will show up in 2011 and continue into 2012 as their foreclosure time-lines were delayed or reset by the latest HAMP efforts.

As you can see, the biggest mass of foreclosures hasn’t even hit us yet!

San Diego real estate attorneys

1 thought on “Government Moratoriums and Loss Mitigation Programs Have Made Things Worse

  1. Tod R., you wrote a post entitled “Government Moratoriums and Loss Mitigation Programs Have Made Things Worse,” and provided a single sentence supporting that thesis:

    “Basically the government only delayed the inevitable foreclosure process but they made it worse because all of the homes will be entering foreclosure at the same time and with more debt owed on the mortgages.”

    Simply put: I’m unconvinced.

    No program without cramdowns could have tempered the foreclosure tsunami. Of course, the failing financial institutions propped up by our dollars could not have sustained the losses from cramdowns. So by the nature of the beast, the only reasonable goal was to provide workouts for some and to break the tsunami into smaller, more manageable waves – or phases as you’d like to call them.

    We should all know the importance of the overarching goal here: slow the momentum of the downward pressure on housing value and allow the bubble to deflate with minimal market convulsion. There is no other smart play here.

    I’m curious what you would have preferred? The mass of foreclosures to happen all at once during the recession or the cramdown of losses onto the banks to be further supported by the American taxpayer? I don’t consider the government programs smooth or efficient, but they are roughly serving their purpose. And for all of us – that’s better than nothing.

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