A dark shadow over foreclosure recovery.

There is a shadow inventory of about 1.7 million houses that are poised to enter the real estate market. These are like dark clouds hanging over the housing recovery.

There are many reasons that are keeping the discounted REOs from the market – moratoriums and federal steps being taken to keep peo- pile of shadow inventory by 55% in the year that came to a close on 30th September as per the findings of First American CoreLogic based in Santa Ana.
By shadow inventories are meant those houses that have not been officially listed to enable trackers to detail them. These are inclusive of houses repossessed by the lenders by the foreclosure route or any other similar method. One year previously the number of houses pending official sale listing added up to 1.1 million.
Real estate professionals together with economists are debating how big will be the effect of these on the housing market if the lenders decide to enter them into the market the following year.

Some say that the lendesr are worried about the losses they will suffer if these houses entering the market depress prices further because of increase in supply far outstripping demand. Others are worried that the government would not be able to keep pace with the staggering default numbers brought about by unemployment and foreclosures.

Sam Khater of First American said, “One of the key questions is the timing, and a lot of the timing issues are really related to the administration’s HAMP program. If many of the loans that are delinquent are able to be successfully modified, and those loans perform, then that should alleviate this issue of the pending supply and shadow inventory.”

The success is not showing up. The latest figures released by the federal government indicated that very few loan modifications had been uplifted to the permanent status. Out of 700,000 mortgages only 31,382, calculating to fewer than 5% have been converted into permanent loans. Recently the Obama administration has set into motion new steps including threat of fines to make the attitude of the lending group to be more proactive.
Khater added, “Our forecast is that [home] prices will drop. We are basically expecting that the program will continue to proceed as it has in the recent past. There might be a slight improvement, but it is a drop in the bucket relative to the size of the pipeline of default that is coming up.”

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