The Real Housing Story

Estimates are that there are 7.2 million homes that make up the Shadow Inventory. Shadow Inventory means homes that are delinquent, homes currently owned by the lenders, and homes in which the actual foreclosure auction has been postponed. These homes are not yet on the market for sale but at some point will be sold. To put some prospective to the shadow inventory number, home sales nationally run about 5.5 million annually.

Obama’s answer is loan modifications. So far, they have completed over half a million loan modifications. The problem with this solution is that 70% of those modifications will re-default within 12 months because of the “Non Equity Position” the borrower is left with after the loan modification is completed. The home owner is still at a loss.

There are about 55.5 million homes with mortgages in the U.S. and about 12.5% of those are delinquent. There are another almost 7 million home owners who are in trouble. The cure rate on delinquent loans is very small these days. Add to that the best estimates are that another 200,000+ mortgages are going delinquent every month.

Enough already! The facts are holding inventory off the market, and modifying loans the way it is currently being done won’t work. The problem is getting bigger and bigger while the number of homes for sale keeps getting smaller. We are also moving closer the interest rate hikes and stricter rules for appraising and qualifying for a new loan.

The answer may lie in using the information available in each of the 381 known market areas. A solution might be to provide incentives based on each geographic areas particular needs such as unemployment, lack of available inventory and other factors.

Bottom line, the housing issue needs new and different programs if we are going to throw a life line to the housing crisis.