Minneapolis Housing Market Absorbs Shadow Inventory

Minneapolis Housing Market Absorbs Shadow Inventory As Buyers Purchase Up Foreclosed Homes

Housing analysts have the dodging task of predicting the emergence of a shadow inventory, the catalog of homes that are wobble on the edge of foreclosure prevention or are in the beginning stages, destined to be bought by the banks and then re-marketed to home buyers and investors waiting to grab a deal.

November Housing's Scorecard announced that 1.3 million homeowner assistance actions have taken place through the Making Home Affordable Program, which reduces the number of homes facing risk of foreclosure and reduces lurking shadow inventory. Home Destination, a Minneapolis residential Realtor, a professional with RE/MAX Results and Certified Distressed Property Expert, works to help families avoid foreclose and stay in their homes.

Foreclosed Home Pipeline Teetering On Becoming Shadow Inventory

Housing still has over 5,300,000 mortgages in the foreclosed home pipeline that could alter our shadow inventory. Rising home values make it easier for banks to unload these properties via short sales and other mechanisms. According to recent reports from RealtyTrac, the 5,300,000 homes in the foreclosure pipeline is still a big concern and the fact that nearly 100,000 are being put back into this bucket each month is concerning. Each month, housing analysts research and report on the number of homes nationwide in foreclosure or held by banks. The implication is that if we can just find a cure for these loans and homes that drag on the economy – whether by matching buyers with homes or helping the borrowers stay put – the economy recover faster.

White House Scorecard gains that reduce foreclosure risks include:

More than 1.1 million homeowners have received a permanent modification through HAMP, having reduced first lien mortgage payments by a median of approximately $542 each month – more than one-third of their median before-modification payment – saving a total estimated $16.2 billion in monthly mortgage payments.

Nearly 100,000 second lien modifications started through the Second Lien Modification Program, and over 80,000 homeowners exited their homes through a short sale or deed-in-lieu of foreclosure with assistance from HAFA.

Homeowners currently in HAMP permanent modifications with some form of principal reduction have received approximately $8 billion in principal reduction.

Permanent Home Loan Modifications

Permanent modifications helping homeowners avert foreclosure feature the following modification steps:

• 97.1% feature interest rate reductions

• 60.9% offer term extension

• 32.0% include principal forbearance

"The Administration remains focused on continuing to improve standards for the mortgage industry to help families avoid foreclosure," said Treasury Assistant Secretary for Financial Stability Tim Massad. "We continue to push the industry to provide better service to homeowners while expanding the range of solutions available to families facing mortgage concerns."

Homes Turned Into Rental - Shadows of the Shadow Inventory

High demand in the rental market has pushed some homeowners into converting their homes into rental properties for homes for lease since they are unable to sell their homes, or determine that they can not sell these homes without enormous loss. Since these homes are not officially part of the shadow inventory, their impact remains questionable. No one knows quite for sure what what happen if a high enough number of homeowners wait until the right moment and then place their properties for sale en mass, thereby diluting the housing market.

Home Defaults That Become Neighborhood Blights

Distressed properties are not only afflicted by their default status or their underwater negative equity status. They additionally add concern due to their frequent state of disrepair. Too often they become the blight of otherwise exceptional real estate neighborhoods, effecting the value of near properties.

According to a writing for BusinessWeek, Peter Coy says, "These are the most dangerous assets in the massive shadow inventory portfolio of properties. Most banks have not put these wrecked homes on the market for a variety of reasons, or at least not yet. There is no question that many real estate investors and flippers would love to purchase these homes, but in doing so they will manage to depress the price recovery currently underway. There is enough evidence to worry about the shadow inventory potentially wrecking the positive gains experienced by the housing sector in part of 2011 and all of 2012.

Factors Lurking Under The Surface Of Shadow Inventory

The housing market remains fragile to a certain degree. While it is the smile in the economy in 2012, the housing recovery is highly dependent on other macroeconomic factors such as unemployment, builder optimism, and consumer optimism. These are factors which are subject to volatility, which the housing market depends on to thrive, in the same manner it influences the economy. Should many properties in the shadow inventory come on the market at the same time deep periods of unemployment or low consumer optimism are widespread, it could bring a little tumble in the housing recovery.

If homeowners' mortgage tax exemption expires, it could wobble the $25 billion National Mortgage Foreclosure Settlement that five national lenders struck with 49 states and the federal government in March. That deal requires banks to use the bulk of the penalties for borrower aid, including at least $10 billion in principal reduction. Lenders have completed settlement requirements by forgiving approximately $2.6 billion on nearly 22,000 mortgages under the settlement, or around $117,000 per homeowner.

Upward Trend Carry Current Shadow Inventory?

It remains to be seen just how the current shadow inventory will impact the current upward trend in housing. Banks are selling into some fierce momentum, and offering lease-to-own options more often, but housing's positive effect on the overall economy is still tepid. Most importantly, household income growth has been missing in 2012, but is now showing slow improvements. Completed bank repossessions are still running at about 50,000 per month and foreclosure filings are close to 100,000. This housing bounce as we have mentioned is coming from a combination of low interest rates, Wall Street investors, and foreign money. Economist would prefer seeing this coming largely from middle income family being able to find quality loans for single-family homes.

S&P Dow Jones Home Price Indices, the leading measure of U.S. home prices, November 27, 2012 report says home prices continued to rise in the third quarter of 2012. To the degree that consumer confidence impacts home buying and home prices, it bears weight as well on our shadow inventory. Stable home prices circumvent degradation of homeowners equity – throttling mortgage delinquencies, short sales and foreclosures – effectively removing the major downward pressure on home prices. Foreclosures and short sales normally sell at a discount to existing appraisals – and re-establish appraisals at this new level., creating a limiting effect and low appraisals limits on future mortgage amounts. In reverse, our increase in home prices indirectly fends off shadow inventory.

Foreclosure Filing Up 3% Over Last Month And Down 19% Yearly

Last week RealtyTrac® released its U.S. Foreclosure Market Report™ for October 2012, showing foreclosure filings, which include: default notices, scheduled auctions, and bank repossessions, were reported on 186,455 U.S. properties in October, up 3 percent from September but still down 19 percent from October 2011. The report also shows one in every 706 U.S. housing units with a foreclosure filing during the month. The slight monthly increase could be lurking shadow inventory, depending on homeowners aggression and ability to pull above it.

“People want to own, and when the opportunity comes back for people to be able to buy their own homes, they will. Let’s not forget — the American dream is not to rent a home. It’s to own a home. And that’s not changing anytime soon.” ~ Richard Anderson, managing director at BMO Capital Markets

Difficulties In Forecasting the Impact of Shadow Inventory

The so-called "shadow inventory" is known to be a major drag on the US housing prices. It is composed of homes in which the owner is either very delinquent on the mortgage or is in the foreclosure process. Too many homes end up in the market at depressed prices, putting downward pressure on the overall housing market. Predicting the timing and the number of shadow inventory homes that will actually end up hitting the market - particularly those that become distressed properties for sale is challenging. Being influenced by so many variable, diagnostics turn out to be quite difficult because there are multiple paths that a delinquent mortgage could take. Those wearing the hat find it nearly impossible to quantify the full impact of shadow inventory on the US housing prices going forward.

Shadow Inventory Includes Foreclosed Homes In the Pipeline

Broadly speaking, it refers to all the homes in the foreclosure pipeline that will eventually flow in to the market but aren't there yet. In practical terms, the definition of shadow inventory varies considerably depending on which analyst you ask, and there is truth to be gleaned from each of their carefully calculated studies.

Goldman Sachs 3 Reasons Why Delinquent Homes Don't Always Translate Into A Foreclosure Liquidation And Shadow Inventory

Delinquency History's Vary During Foreclosure Timeline

Lender Processing Services (LPS) data show that 40 percent of foreclosure starts filed in recent months consist of "recycled or repeat foreclosures" versus "new foreclosures". More than half of the monthly transitions from being current to being 30-day delinquent are from mortgages that have delinquency history during the past 12 months, causing a variance in month to month reporting.

Lender Service Responses Vary

Transitions between different performance states are heavily dependent on government policies, where it is left to the state, and lender and servicer responses to government policies. For example, transitions from being delinquent to being current will increase when more loan modifications are implemented. Conversely, transitions from being current to being delinquent will decline when refinancing qualification aren't gripped so tightly.

Many In Process Foreclosure Are Averted

Not all foreclosure filings are foreclosure completions. Even before the robo-signing scandal broke out and the foreclosure moratorium took effect in the fall of 2010, a mortgage was as likely to pull out of foreclosure status due to the homeowner managing to obtain a loan modification, or other idiosyncratic reasons as via foreclosure completions.

If Facing Foreclosure, Get Help ASAP

Fannie Mae extends an added messages to distressed homeowners facing foreclosure; get help as soon as possible. "We're taking this step in support of families who have faced financial challenges and gone through a foreclosure," said Terry Edwards, Executive Vice President of Credit Portfolio Management, Fannie Mae. "The holidays are a chance to be with loved ones and we want to relieve some stress at this time of year. We encourage homeowners having difficulty to reach out for help as soon as possible."

Foreclosed Homes Absorbed Into Rental Housing

Minneapolis housing is seeing an increase in the rental market as families move out of their foreclosed homes and into single family rentals, which investors are offering at record numbers. This keeps the homes owned and occupied, off the market and with someone tending tending, leaving minimal impact on the overall real estate market.