New hope over last month’s unexpected rise in home sales may be a bit premature, even with aggressive intervention from the government. Studies show that progress from new programs may be undermined by “shadow foreclosures”—foreclosed properties that remain unlisted and unsold, causing potential delays in market recovery.
RealtyTrac, an Irvine, CA-based foreclosure listing firm, reports that up to 700,000 foreclosed homes are not included in the multiple listing service (MLS). The housing inventory is currently pegged at 3.8 million properties, or close to 10 months of waiting at the present sales pace. With this shadow supply, however, selling is expected to take a lot longer, causing a further drop in prices.
Meanwhile, the number of delinquent mortgages has continued to rise in the past few months, although foreclosure rates have largely stabilized. Loss Mitigation experts believe that most of these homes will eventually be foreclosed, and that lenders may be unaware of how shadow foreclosures can affect their balance sheets.
Richman & Associates, a Glendale mortgage restructuring firm, believes that lenders should be more proactive in mortgage assistance. According to Jim Richman, the company’s president and founder, lenders are simply waiting for government bailout rather than actively helping homeowners and organizing foreclosures.
Loss Mitigation