Foreclosure Radar is not a good source to use to determine the size of shadow inventory

G

Geotpf_IHB

New member
I have had a difference of opinion with awgee and others as to the size of the shadow inventory. I think it's small to non-existant; awgee and others think it's large.



First, a definition. "Shadow inventory", for this discussion, includes only bank owned properties that the bank has already foreclosed upon and is sitting on, not selling or preparing to sell. Everybody agrees there are lots and lots of properties that are in pre-foreclosure; that is, those that are in default but have not gone to auction yet. That's not the matter in dispute; the number of actual bank owned properties is.



I believe awgee and others are using Foreclosure Radar to determine the number of bank owned properties. That is not the purpose of that website; the purpose is for people who are looking to buy houses at auction or REOs (flippers, for instance) to have a head up on the competition. They list REOs so that flippers can find out about them before they are put on the MLS, so they can pull the permits, examine the exterior of the properties, and maybe even express interest to the listing agent before the property is officially listed.



Foreclosure Radar makes no attempt to see if the REOs have been subsequently listed on the MLS, or even sold. They simply list every bank owned property taken back in the last 120 days. That's it. If a bank owned property sold during that time, they still list it as bank owned. If a bank owned property was taken back 121 days ago but not sold yet, they no longer list it (except in the archieves).



<a href="http://www.foreclosureradar.com/faq/why-does-your-site-indicate-there-are-less-opportunities-other-sites">Foreclosure Radar FAQ</a>



<i>Similarly, we only include Bank Owned opportunities for 120 days after the auction, as the bank will have likely listed the property in the MLS by that point. If you want to lookup properties over 120 days, you can still search our historical data.</i>



It can provide a metric of how many bank owned properties have been taken back in the last 120 days. But, without a source telling you how many had sold during that time period, that's not that useful. It also doesn't tell you how many bank owned properties exist overall, since it includes ones that were taken back within the last 120 days and resold, and does not include (except in the archieves) ones that were taken back 121 days ago or longer but not sold.



<b>The number of properties that Foreclosure Radar lists as bank owned is not the number of properties banks own.</b> The real number could be lower (because Foreclosure Radar lists properties that were foreclosed upon within 120 days but have already been sold by the bank), or higher (because Foreclosure Radar doesn't list properties that were foreclosed upon longer than 120 days ago).
 
Nice try to change the nature of what you said and how you were shown to be wrong, but no one said anything about "shadow inventory". Here is what you said, and here is where you are shown to be wrong, like usual.



[quote author="awgee" date=1254262158][quote author="Geotpf" date=1254259403][quote author="awgee" date=1254165316]From Dr. Housing Bubble:





<em>?Sept. 23 (Bloomberg) ? The crash in U.S. home prices will probably resume because about 7 million properties that are likely to be seized by lenders have yet to hit the market, Amherst Securities Group LP analysts said.



The ?huge shadow inventory,? reflecting mortgages already being foreclosed upon or now delinquent and likely to be, compares with 1.27 million in 2005, the analysts led by Laurie Goodman wrote today in a report. Assuming no other homes are on the market, it would take 1.35 years to sell the properties based on the current pace of existing-home sales, they said.?



If that isn?t enough to satisfy the doubting Thomas in you, take the word from Bank of America:



?(WSJ) we are going to see a spike from now to the end of the year in foreclosures as we take people out of the running? for a loan modification or other alternatives, says a Bank of America Corp. spokeswoman. Foreclosure sales had dropped to ?abnormally low? levels in response to government efforts to stem foreclosures, she adds.?



In other words, gear up for round two of the housing bubble burst courtesy of the shadow inventory. 7 million homes may seem like a gigantic number. The reason the number will be huge is because we are now seeing problems in housing due to more historical reasons like unemployment. Obviously a loan modification is pointless if someone doesn?t even have a job. When you have banks openly acknowledging that more inventory will be hitting the market it is time to prepare and get your facts straight on Alt-A and option ARM products. </em></blockquote>


Let's assume the banks do foreclose en masse and sell them as REOs. I think it would make sense for them to mostly wait until next spring to do so-do you all agree? REO inventory is still extremely small for now-I'll bet the earliest that that will change will be early spring, in time for prime house selling season. The banks would be foolish to release the flood during the winter. Maybe they can trickle them out over time.</blockquote>


REO inventory is still extrememely small for now? Are you serious? Where is REO inventory extremely small? Or relative to what or when?</blockquote>




[quote author="awgee" date=1254265220]According to Foreclosure Radar, there are 932 REO in the city of Riverside.

There are 2398 properties with a Notice of Trustee Sale.

There are 2183 properties with a Notice of Default.</blockquote>
 
Which do you (and everyone else) consider more likely after the 120 days:



A - The bank has sold it

B - The bank has not sold it



I'm really asking as I have no idea. My guess would be B.



I do get frustrated when I try to search for specific addresses that are listed as bank owned and find they are not listed and no sale recent sale. As I have been watching trends on the website, I have noticed the Bank Owned shrinking every month and based on the small sample on properties I am interested in and have doublechecked to see if they sold or have been listed and its lead me to the conclusion a lot of the disappearing B's each month is just due to the 120 days being up. I will admit this is a very small and select sample though.



So I guess what I'm trying to say is I wish Foreclosureradar would keep the B's on there until the property is sold.
 
For every property sold within the 120 days, I can find two properties in the archives that are 120 days old that have not sold. I have been tracking foreclosures for over a year now, and banks on average take 120 days to sell a home. To bash FR and everyone here about about this and the fact it takes 120 days for a bank to churn a REO, just proves that someone is desperate to find some hope in their decisions.
 
[quote author="graphrix" date=1254274699]For every property sold within the 120 days, I can find two properties in the archives that are 120 days old that have not sold. I have been tracking foreclosures for over a year now, and banks on average take 120 days to sell a home. To bash FR and everyone here about about this and the fact it takes 120 days for a bank to churn a REO, just proves that someone is desperate to find some hope in their decisions.</blockquote>
I think the word you wanted to use is "delusions", not decisions. :p
 
When people speak of "shadow inventory" as some diabolical and manipulative scheme by banks to hide inventory they are sorely mistaken. In this sense there is NO SUCH THING as shadow inventory. I am in the employ of a leader in the electronic disposition of REO assets. 60% + of all foreclosure resales use our platform.



Before delving into the minds of REO sellers it is imperative to note that MANY MANY REO properties are already owned by non-bank entities, i.e. large investment groups (think Lone Star), property management conglomerates (think REDC), etc. I can tell you with 100% certainty that almost every bank wants desperately to sell these homes as fast as they can. If the REO property was already purchased as part of a bulk sale then the purchaser may be willing to hold onto that asset for the time being.



Now let's assume that a well known bank owns an REO property. Here is just a sliver of what they are dealing with:



1) Congressional pressure (even if it is just perceived) to modify mortgages

2) Foreclosure Moratoriums

3) Invalid foreclosures. This is happening quite often now with borrowers filing BK after the NTS notice but before auction.

4) There are REDEMPTION states like FL and MN where the borrower has a set number of days (90 days or more) to cure the account and save the home

5) There are CONFIRMATION states like OH that have the same effect in delaying resale

6) Evictions-- The eviction process is very costly and back logged. Banks have agents offer "Cash for Keys" sometimes in excess of 3% of the unpaid principal balance for the occupant to vacate the property. Evictions are also handled at the state and local level which is a nightmare.

7) Rental Agreements. In cases where an REO was a rental and it is occupied by a tenant, banks are being required to collect rent checks and honor the existing signed lease agreement. They cannot even order an eviction until the lease expires.

8) Code Violations

9) Repairs. Most banks that use our system are increasing the repairs done on properties. The rational being that as the pool of cash buyers/investors starts to dry up, the general population is in dire need of FHA financing. This type of financing can be quite restrictive inregards to the condition of the colateral.

10) Understaffed. Simply put many banks are not equipped to handle the sheer volume of transactions that are needed. Many use outsourcers to actually manage the day to day activities.
 
lm - As always, thanks for your input, and I am very glad to hear you got a job. Congratulations. Geo is a little behind and obfuscating the point. I think most of us stopped using the term shadow inventory to describe anything conspiratorial for all the reasons you mention. No one was talking about shadow inventory. Geo said the bottom is in and the number of REOs listed on the MLS is very small. You are an insider lendingmaestro. Tell us, historically speaking, is the number of REOs listed on the MLS very small, and in your opinion, what is the relative number of REOs listed on the MLS? Is it historically higher than normal or smaller than normal?
 
[quote author="lendingmaestro" date=1254283173]The bottom is NOT in. All of my aforementioned points indicate a bottom far into the future.</blockquote>
I edited my last post. Could you please reread it?
 
[quote author="awgee" date=1254282478]lm - As always, thanks for your input, and I am very glad to hear you got a job. Congratulations. Geo is a little behind and obfuscating the point. I think most of us stopped using the term shadow inventory to describe anything conspiratorial for all the reasons you mention. No one was talking about shadow inventory. Geo said the bottom is in and the number of REOs listed on the MLS is very small. You are an insider lendingmaestro. Tell us, historically speaking, is the number of REOs listed on the MLS very small, and in your opinion, what is the relative number of REOs listed on the MLS? Is it historically higher than normal or smaller than normal?</blockquote>


Not sure about historical numbers since records have been shattered already this year. I know that in the last three months REO sale volume has declined quite a bit by about 25% to 35% and new foreclosure volume was down starting in late June. This is not because of any cure other than forestallment of foreclosure through legislation, BK, modifications, etc. The banks that we deal with are ramping up for greater volume in the coming months. I believe the US smashed all time records on foreclosures in the 1st or second quarter of this year; however the all time record in deliquent mortgages was set AFTER that. That is truly scary. If delinquincies lead to foreclosure and we just set a new record for delinquincies, the transitive property of mathematics tells us we will see a new record in foreclosures.



We have recently leveraged our proprietary electronic management system for REOs to launch our Short Sale platform. This is now highly desired by our REO clients. The banks desperately need to stem the tide of foreclosure costs, which can be in excess of 20% of the property. What many people do not realize is that when you compare dollar for dollar the preservation and carrying costs of properties, lower vauled homes can be more costly. They are more likely to be rentals or in depressed areas, damaged/vandalized, etc. I think that after 3 years banks are starting to realize that a sooner and smaller loss is better than a delayed one of greater magnitude.



This action in and of itself indicates where the banks believe the market is going. The more time and money invested in short sale automation, the more dire their predictions for future prices. Even if they forecast leveling off or even increases in prices, the carrying costs of these assets are too great.



There are 2 sides of the REO equation and we haven't discussed the other side: financing. If you exclude the cash buyers and bulk investors, a very large percent of buyers require FHA financing. There is no other way. There is a back log of loans in pipelines everywhere--many times it is taking more than 60-70 days to fund loans. Tight financing coupled with job losses all but guarantees foreclosures. The NAR and main stream media will continue to say prices are going up. They are using the median price and as more higher priced homes get discounted the median price will increase even though prices are going DOWN.
 
I'm not sure what lenders you've been hearing about, but loans are easily funding within 30 days now, both FHA (although closer to 30) and jumbo. Six months ago 45-60 days; now, 15-45 max.
 
As always, that depends on where you go. FHA deals can rarely be done in less than 30 days. There are some places you can get loans done in less than 2 weeks.



FYI...I just did a search on my system and found 4 active REO's for sale in Irvine. Incidentally I found FIFTY ONE properties in "unavailable" status. I can see notes such as property pending litigation, or title issue, Or requesting lien release.
 
[quote author="lendingmaestro" date=1254289256]As always, that depends on where you go. FHA deals can rarely be done in less than 30 days. There are some places you can get loans done in less than 2 weeks.



FYI...I just did a search on my system and found 4 active REO's for sale in Irvine. Incidentally I found FIFTY ONE properties in "unavailable" status. I can see notes such as property pending litigation, or title issue, Or requesting lien release.</blockquote>


Tell them to hurry up! I'm tired of dealing with short sales... I wish there were more bank owned properties available.
 
[quote author="RoLar_USC" date=1254289821][quote author="lendingmaestro" date=1254289256]As always, that depends on where you go. FHA deals can rarely be done in less than 30 days. There are some places you can get loans done in less than 2 weeks.



FYI...I just did a search on my system and found 4 active REO's for sale in Irvine. Incidentally I found FIFTY ONE properties in "unavailable" status. I can see notes such as property pending litigation, or title issue, Or requesting lien release.</blockquote>


Tell them to hurry up! I'm tired of dealing with short sales... I wish there were more bank owned properties available.</blockquote>


I think that what lm is saying is that the banks are trying to engage more short sales because they are less expensive than foreclosures.
 
[quote author="awgee" date=1254290238][quote author="RoLar_USC" date=1254289821][quote author="lendingmaestro" date=1254289256]As always, that depends on where you go. FHA deals can rarely be done in less than 30 days. There are some places you can get loans done in less than 2 weeks.



FYI...I just did a search on my system and found 4 active REO's for sale in Irvine. Incidentally I found FIFTY ONE properties in "unavailable" status. I can see notes such as property pending litigation, or title issue, Or requesting lien release.</blockquote>


Tell them to hurry up! I'm tired of dealing with short sales... I wish there were more bank owned properties available.</blockquote>


I think that what lm is saying is that the banks are trying to engage more short sales because they are less expensive than foreclosures.</blockquote>


That is correct.
 
[quote author="lendingmaestro" date=1254289256]As always, that depends on where you go. FHA deals can rarely be done in less than 30 days. There are some places you can get loans done in less than 2 weeks.



FYI...I just did a search on my system and found 4 active REO's for sale in Irvine. Incidentally I found FIFTY ONE properties in "unavailable" status. I can see notes such as property pending litigation, or title issue, Or requesting lien release.</blockquote>


Isn't that what most mean now when they say shadow inventory. For every REO that is listed, there are dozen that are off market for some reason not related to their being 'sold'.
 
[quote author="No_Such_Reality" date=1254305873][quote author="lendingmaestro" date=1254289256]As always, that depends on where you go. FHA deals can rarely be done in less than 30 days. There are some places you can get loans done in less than 2 weeks.



FYI...I just did a search on my system and found 4 active REO's for sale in Irvine. Incidentally I found FIFTY ONE properties in "unavailable" status. I can see notes such as property pending litigation, or title issue, Or requesting lien release.</blockquote>


Isn't that what most mean now when they say shadow inventory. For every REO that is listed, there are dozen that are off market for some reason not related to their being 'sold'.</blockquote>


That's sort of my point. I've seen no proof of this, and Foreclosure Radar isn't a good source to prove it.
 
<em>"I love how some pundits argue that the shadow inventory will cause no problem on the markets or even, that it doesn?t exist."</em>



From <a href="http://www.doctorhousingbubble.com/shadow-inventory-case-study-inventory-in-the-shadows-twice-as-big-as-normal-resale-inventory-in-los-angeles-and-not-on-the-mls-or-for-public-viewing-foreclosures-and-distress-properties-clogging-t/">Dr. Housing Bubble on shadow inventory</a>
 
[quote author="awgee" date=1254430694]<em>"I love how some pundits argue that the shadow inventory will cause no problem on the markets or even, that it doesn?t exist."</em>



From <a href="http://www.doctorhousingbubble.com/shadow-inventory-case-study-inventory-in-the-shadows-twice-as-big-as-normal-resale-inventory-in-los-angeles-and-not-on-the-mls-or-for-public-viewing-foreclosures-and-distress-properties-clogging-t/">Dr. Housing Bubble on shadow inventory</a></blockquote>


It seems that, in that post, the good Doctor is including properties in default but not yet foreclosed upon as being part of the shadow inventory. I agree that there are a lot of that type, but at least some of those properties will not become bank owned.
 
[quote author="Geotpf" date=1254431993][quote author="awgee" date=1254430694]<em>"I love how some pundits argue that the shadow inventory will cause no problem on the markets or even, that it doesn?t exist."</em>



From <a href="http://www.doctorhousingbubble.com/shadow-inventory-case-study-inventory-in-the-shadows-twice-as-big-as-normal-resale-inventory-in-los-angeles-and-not-on-the-mls-or-for-public-viewing-foreclosures-and-distress-properties-clogging-t/">Dr. Housing Bubble on shadow inventory</a></blockquote>


It seems that, in that post, the good Doctor is including properties in default but not yet foreclosed upon as being part of the shadow inventory. I agree that there are a lot of that type, but at least some of those properties will not become bank owned.</blockquote>


Considering the current 6% cure rate I've cited several times, what's a reasonable number to estimate "some"?
 
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