From Foreclosuretruth.com (Foreclosureradar.com's blog)-There is no shadow inventory (and no politcal will to foreclose)

G

Geotpf_IHB

New member
Great blog post:



<a href="http://www.foreclosuretruth.com/blog/sean/shadow-inventory-confusion-reigns">Shadow Inventory-Confusion Reigns</a>



<em>There is currently no shadow inventory of bank-owned (REO) properties. What?s more, a surge in REO properties is not likely anytime soon.



If this sounds familiar, it?s because I?ve said it before, here and here and other places. However, it still seems to be news (see the recent WSJ article) and despite the fact that the most recent CA Foreclosure Report from ForeclosureRadar.com runs the numbers, some still insist the shadow is there.



First, let?s be clear about what shadow inventory is. These are homes that the bank has already foreclosed on, but which, for no apparent reason, aren?t listed. The implication is that banks are holding REO properties back from the market to restrict supply and prop up prices. This actually seemed like a distinct possibility a year ago when the banks were clearly holding more inventory than they were listing. But that is no longer the case. In the past year, they have resold far more than they?ve taken back, eliminating any possibility that a shadow remains.



Some observers, who earlier this year warned that this shadow inventory would deluge the market with REO listings, have now redefined shadow inventory to include properties that should be foreclosed on. They continue with misguided warnings of a deluge of REO listings any moment now.



Not so. These properties are not lurking in the shadows at all. We know exactly which properties are in trouble and where they are in the process. Using ForeclosureRadar.com you can easily see every potential REO listing, from Notice of Default to Notice of Trustee Sale, for the next six to nine months. In addition, even if banks reversed course and started foreclosing aggressively today, it would be months before we saw those listings as it takes time to evict the homeowner, clean up and list the property.



What?s more, they?re not going anywhere. These properties aren?t grinding through the pipeline to foreclosure and into the shadow inventory. They?re not moving at all because we as a society lack the political will to foreclose. Because the national focus is targeted on keeping homeowners in their homes, the drain is bigger than the spigot ? REO properties are selling faster than distressed properties are being foreclosed on.



As a result, the pendulum has swung to the other side. Instead of a glut of properties hitting the market, as so many have warned, we currently don?t have enough inventory for those who want to buy homes, and homeowners are still in trouble because the so-called solutions (foreclosure moratoriums, loan modification, refinancing) don?t fix the real problem, which is negative equity.



No more conspiracy theories. We need to abandon the obsession with shadow inventory, which distracts us from the national discussion we should be having. With the current lack of inventory, its time to force banks to clean up their balance sheets by dealing head-on with the trillions in negative equity that remains, either though loan modifications that reduce principal balances to near current value, short sale, or, if necessary foreclosure. These are the only solutions that deal with the core problem of negative equity. It?s time for ?extend and pretend? to end.</em>
 
They may be correct and there may be no shadow inventory, but FR is wrong about a the accuracy of their service. They do not list every property with an NOD or NTS. And some properties go REO without FR ever posting it. And for whatever reasons, there are properties which sit for up to a year as REO, are not showing on FR and are not listed for sale. If you want proof, try 6 Via Presea, 92679. How long was 3 Palomino, 92679 REO before it was listed? I can find others, but these are first that comes to mind. 8 Hubbard, 92679 was scheduled for trustee sale on 11/05/09 and FR never showed it. There are others. FR is not accurate and neither is the person who is saying that absolutely there is no shadow inventory. He can not see what he does not know about.



I really do not care how you define shadow inventory. It is irrelevant. What is relevant is that there are REOs not on the market and have been REOs for quite some time. What is relevant is that lenders postpone trustee sales for months and somtimes more than a year. It matters not what you call it. It exists.







<img src="http://www.doctorhousingbubble.com/wp-content/uploads/2009/10/mortgage-reset-chart-eye-of-the-hurricaine.png" alt="" />
 
Of course nobody knows at this point how many of those loans in the '2nd wave' category will actually have the chance to reset and turn into an REO. A combination of loan workouts, lease programs, and short sales may cause this '2nd wave' to feel more like a ripple. LOL
 
[quote author="SoCalRealtor" date=1257524369]Of course nobody knows at this point how many of those loans in the '2nd wave' category will actually have the chance to reset and turn into an REO. A combination of loan workouts, lease programs, and short sales may cause this '2nd wave' to feel more like a ripple. LOL</blockquote>
Either that or extend the foreclosure mess until 2019.
 
Funny, I show the math month after month that shows the REO sales from the MLS have never kept pace with the foreclosures from DataQuick. I also know that Foreclosure Radar misses quite a few properties. I, like awgee, know of several properties that are sitting as REO from more than six months ago. Someone's data is not accurate here, and when you are focused on a more micro level vs. a macro level it is easier to study and know a micro area than it is to know a macro area. Of course there might also be some bias in hoping this is true when you have recently purchased a house, because you want this to be true. No one wants to make a mistake. Lets see how the next year pans out... who wants to bet against me?



Got jobs?
 
[quote author="graphrix" date=1257526695]Funny, I show the math month after month that shows the REO sales from the MLS have never kept pace with the foreclosures from DataQuick. I also know that Foreclosure Radar misses quite a few properties. I, like awgee, know of several properties that are sitting as REO from more than six months ago. Someone's data is not accurate here, and when you are focused on a more micro level vs. a macro level it is easier to study and know a micro area than it is to know a macro area. Of course there might also be some bias in hoping this is true when you have recently purchased a house, because you want this to be true. No one wants to make a mistake. Lets see how the next year pans out... who wants to bet against me?



Got jobs?</blockquote>
unemployment - 10.2%
 
[quote author="SoCalRealtor" date=1257526705]Maybe even through 2036 LOL. It won't matter though, I heard the world was going to end in 2012....</blockquote>
You joke about the resets and recasts being a ripple and not a wave, but seriously, reality may be neither. Foreclosures could just keep coming and keep affecting the re market the way they always do, which is downward pressure with neither a wave nor a ripple, but just a constant pressure.

The folks who amaze me though are those who deny or want to believe that there are not many, many more foreclosures coming. I wish I could get my children to watch and understand this stuff, as it is such a fascinating study in mass psychology, but alas, they could care less.
 
[quote author="awgee" date=1257546673][quote author="SoCalRealtor" date=1257526705]Maybe even through 2036 LOL. It won't matter though, I heard the world was going to end in 2012....</blockquote>
You joke about the resets and recasts being a ripple and not a wave, but seriously, reality may be neither. Foreclosures could just keep coming and keep affecting the re market the way they always do, which is downward pressure with neither a wave nor a ripple, but just a constant pressure.

The folks who amaze me though are those who deny or want to believe that there are not many, many more foreclosures coming. I wish I could get my children to watch and understand this stuff, as it is such a fascinating study in mass psychology, but alas, they could care less.</blockquote>


I feel the same way. The comments on the blog denying shadow inventory and the belief that we are past the foreclosure crisis is amazing to me. Nobody bothers to dispute the data or bring other data, it is generally just a hocus-pocus wave of the hands and the foreclosure inventory overhang simply disappears.
 
[quote author="Geotpf" date=1257515147]Great blog post:



<a href="http://www.foreclosuretruth.com/blog/sean/shadow-inventory-confusion-reigns">Shadow Inventory-Confusion Reigns</a>



<em>There is currently no shadow inventory of bank-owned (REO) properties. What?s more, a surge in REO properties is not likely anytime soon...



First, let?s be clear about what shadow inventory is. These are homes that the bank has already foreclosed on, but which, for no apparent reason, aren?t listed. </em></blockquote>


He is changing the definition of shadow inventory to suit his point. The backlog of inventory is not largely held on the books of lenders, most of it is in the form of bad loans that are not being processed into foreclosures.



I have defined shadow inventory as those people who have defaulted but have not become foreclosures. Many of these have not been served NODs and they are gaming the system. I see it day after day on the blog, and many know people who are doing this or are doing it themselves.



Here is where magical thinking comes in. If you can get people to acknowledge that the number of defaults is much higher than the number of foreclosures we have seen wash through the system, then this inventory will evaporate through the magic of loan modifications. The reports of 6.6% cure rates must be wrong, I guess?
 
<strong>First, let?s be clear about what shadow inventory is. These are homes that the bank has already foreclosed on, but which, for no apparent reason, aren?t listed.</strong>



I have never seen such a narrow definition of Shadow Inventory....



Geo can you find anyone else that is not in RE that would define Shadow Inventory in such a narrow manner.
 
[quote author="IrvineRenter" date=1257557393][quote author="Geotpf" date=1257515147]Great blog post:



<a href="http://www.foreclosuretruth.com/blog/sean/shadow-inventory-confusion-reigns">Shadow Inventory-Confusion Reigns</a>



<em>There is currently no shadow inventory of bank-owned (REO) properties. What?s more, a surge in REO properties is not likely anytime soon...



First, let?s be clear about what shadow inventory is. These are homes that the bank has already foreclosed on, but which, for no apparent reason, aren?t listed. </em></blockquote>


He is changing the definition of shadow inventory to suit his point. The backlog of inventory is not largely held on the books of lenders, most of it is in the form of bad loans that are not being processed into foreclosures.



I have defined shadow inventory as those people who have defaulted but have not become foreclosures. Many of these have not been served NODs and they are gaming the system. I see it day after day on the blog, and many know people who are doing this or are doing it themselves.



...

</blockquote>


IR,



This is a great point. I keep hearing about large numbers of deadbeats living rent-free for 12, 18, or even 24 months because lenders aren't bothering to start the foreclosure process--if that's not "shadow inventory" <em>then what is it?</em>
 
[quote author="graphrix" date=1257526695]Funny, I show the math month after month that shows the REO sales from the MLS have never kept pace with the foreclosures from DataQuick. I also know that Foreclosure Radar misses quite a few properties. I, like awgee, know of several properties that are sitting as REO from more than six months ago. Someone's data is not accurate here, and when you are focused on a more micro level vs. a macro level it is easier to study and know a micro area than it is to know a macro area. Of course there might also be some bias in hoping this is true when you have recently purchased a house, because you want this to be true. No one wants to make a mistake. Lets see how the next year pans out... who wants to bet against me?



Got jobs?</blockquote>


Actually Geo already bet against you when he bought a house in the Inland Empire, so the game is afoot!

Too bad it'll probably be 2019 before you can tell a winner because...i expect slow flat line decline instead of spikeyness.
 
Time will tell. Nobody knows what the future holds. We could recover a lot harder and faster than all of you think. I'm not pretending to be in LA LA land about the problems still in existence, but it seems like everyone is so fast to believe and buy into negativity VS the possibility that something good might actually happen. I do hope however that we get more property to sell, right now we're having a hard time finding homes for our buyers. It's a cut-throat bidding WAR out there. More inventory would be a Godsend.



PS. Follow me on twitter, TWEET TWEET www.twitter.com/brandonlocascio
 
All,



I think that this narrow definition is the appropriate definition of "shadow inventory" for one main reason - banks only really control the properties that they own (post foreclosure). All of the other homes in the pipeline are basically unavailable supply. We can forecast them, talk about them, debate then and even take pictures of them. But until they are legitamitely on the market for sale in a reasonable transaction (both time and price), they are not available. Thus, by my definition, they are not inventory, shadow or otherwise.



I understand that there will be thousands of these coming down the pike in the next few years and that will affect the market but as an actively looking buyer, they're useless. With all of the eveidence presented on this blog over the last couple of years, its obvious that a "home owner" that doesn't want to sell, doesn't have to. They can tie up a property for anywhere from 2 to 3 years with very little cash or effort. I know because I've been involved with 3 attempts to purchase properties where the owners have taken steps to hold onto the properties. In the end, I couldn't buy any of them, even if the bank wanted to sell them to me. Thus, they really weren't inventory.



I'm not saying that banks aren't playing games. What I'm saying is that counting inventory that should be on the market as part of available supply is incorrect. And from comments from Lending Maestro, ModGuy, etc. - it sounds like banks are processing FCs relatively quickly when they can (maybe even including short sales now). This leads me to believe that there are very few actually bank owned properties sitting vacant and not for sale while the bank waits for better conditions, deals, support or whatever. My bet is that the vast majority of properties that actually go back to the bank or auction, end up on the market shortly after the transaction.



Until properties actually reach that point, they are simply not inventory so we shouldn't count them. Maybe we need a new term but "shadow inventory" should not include any properties that are not actually available for sale.



My $ 0.02



FH
 
Oh crap, the NAR agrees with me ...



Seriously, I think that the best term to describe properties that are in the pipeline but not actually controlled by the banks is "prospective supply", "future supply" or "bubble supply."



FH
 
[quote author="trrenter" date=1257560433]<strong>First, let?s be clear about what shadow inventory is. These are homes that the bank has already foreclosed on, but which, for no apparent reason, aren?t listed.</strong>



I have never seen such a narrow definition of Shadow Inventory....



Geo can you find anyone else that is not in RE that would define Shadow Inventory in such a narrow manner.</blockquote>


It seems to be a fairly new term, (within the last couple years), so the definition so far is left to each user of the term. That is why I was saying I do not care what you call it, there re a whole bunch of foreclosures comin' down the road and it matters not a twit if you call it shadow inventory, a wave, a trickle, or whatever suits your fancy. I remember a few years ago when we were talking about the foreclosures that were coming and everyone said how it wasn't gonna happen for one reason or another. It happened and prices decreased. At the time I remember writing something to the effect; it does not matter whether or not you acknowledge the train approaching, if you stand on the tracks you will still get ...
 
[quote author="Fishhead" date=1257570830]All,



I think that this narrow definition is the appropriate definition of "shadow inventory" for one main reason - banks only really control the properties that they own (post foreclosure). All of the other homes in the pipeline are basically unavailable supply. We can forecast them, talk about them, debate then and even take pictures of them. But until they are legitamitely on the market for sale in a reasonable transaction (both time and price), they are not available. Thus, by my definition, they are not inventory, shadow or otherwise.



I understand that there will be thousands of these coming down the pike in the next few years and that will affect the market but as an actively looking buyer, they're useless. With all of the eveidence presented on this blog over the last couple of years, its obvious that a "home owner" that doesn't want to sell, doesn't have to. They can tie up a property for anywhere from 2 to 3 years with very little cash or effort. I know because I've been involved with 3 attempts to purchase properties where the owners have taken steps to hold onto the properties. In the end, I couldn't buy any of them, even if the bank wanted to sell them to me. Thus, they really weren't inventory.



I'm not saying that banks aren't playing games. What I'm saying is that counting inventory that should be on the market as part of available supply is incorrect. And from comments from Lending Maestro, ModGuy, etc. - it sounds like banks are processing FCs relatively quickly when they can (maybe even including short sales now). This leads me to believe that there are very few actually bank owned properties sitting vacant and not for sale while the bank waits for better conditions, deals, support or whatever. My bet is that the vast majority of properties that actually go back to the bank or auction, end up on the market shortly after the transaction.



Until properties actually reach that point, they are simply not inventory so we shouldn't count them. Maybe we need a new term but "shadow inventory" should not include any properties that are not actually available for sale.



Most of the articles that I have read discussing shadow inventory use that definition.



My $ 0.02



FH</blockquote>


We could call it Pent Up Supply just like the NAR has all the Pent Up Demand.



I do not know who coined the term Shadow Inventory but the general accepted definition is <strong>Shadow Inventory is housing units that are not making it onto the public market for one reason or another.</strong>



By your definition of shadow inventory you may be right. You are merely arguing semantics.
 
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