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1,700,000 Foreclosures Are in the Pipeline.

Written by Gary North on July 9, 2013

A government report says that 1.7 million homeowners are 90 days or more late in their mortgage payments.

As of September 30, 2012, HUD held 37,445 REO properties while the GSEs held 158,138. In addition, the “shadow inventory”—residential loans at least 90 days delinquent—totaled 1,708,033 properties, roughly 8.7 times the size of the HUD and GSE REO [foreclosed] inventories combined. Even a fraction of the shadow inventory falling into foreclosure could considerably swell HUD and GSE inventories of REO properties.

Fannie Mae and HUD will wind up with these homes on their books, unless they decide to let the homeowners live rent-free.

This is shadow inventory. It hangs like the sword of Damocles over the housing market.

If the government does nothing, these homeowners will receive a huge subsidy: a tax-free grant equal to their mortgage payment, month after month, year after year. Now, that’s the welfare state in action!

But if it forecloses, what will it do with these empty houses. Then the subsidy goes to operators of the squatters. Watch them tear up the property!

Will the government kick the can? Probably. Then will you and I pay for this? Of course.

Or will the government foreclose, kick out the ex-homeowners, and auction off the homes? That would be the smart thing to do. So, it won’t be done.

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7 thoughts on “1,700,000 Foreclosures Are in the Pipeline.

  1. Michael says:

    Once again the working and frugal people take it in the behind…..

  2. It's called bottom up – top down….. come up for air & they push your head under until the bubbles stop

  3. It's unlikely this statistic has any real meaning for the foreclosure rate. There are still properties in Florida with a sea view and no payment made by the owners for several years. The banks haven't foreclosed. They literally cannot afford to.

    Moreover, Dear Leader's policies won't force them to show these non-performing loans as non-performing, giving the appearance they are good assets on the bank's books.

    Moreover, by the time many foreclosed properties come to market, they will be empty and unsalvagable wrecks not marketable except for the land value after cost of removal. And that not much if they are located in neighborhoods with a lot of other unsalvagable wrecks. Those having any value at all will be discounted to the market and will likely go to investors who can make a buck by renting them.

    Time has it's own way of dealing with gross malinvestment. All that matters is that these properties clear the market. How doesn't matter. At all.

  4. Just wait until mortgage rates go up say 5%, and another 50% of all mortgage holders default.

  5. Maybe this is naive, but: The non-paying "homeowners" need places to live and will rent if kicked out. The banks need something, anything, for their non-performing loans. Anything's better than free. If the squatters are forced to find other places to live, it will be expensive for them since they'll have to go to the expense of moving plus digging up enough for first and last months' rent plus any other deposit the landlord requires, not to mention the time and effort of looking, which is money. It will be expensive for the banks too because what they'll get at auction may shock them. So why not cut their losses and rent the properties back to the occupants at a rental rate they'll likely be paying anyway somewhere else? I know banks are not in the business of property management, but professionals can be retained who will be more than willing to do so. Seems like a win-win to me, and also has a lot of good-will value, which any business (even banking!) needs. What am I overlooking?

  6. Doreen, FL Appraiser says:

    Well, David, that's a logical thought you have there…. Except that in 2005 and 2006, someone made a Lot of political campaign contributions – No, not big Oil – Nope, not Big Pharma either…. It was… The NAR, National Assn of Realtors. They donated money by the Millions to the campaigns of candidates favorable to (take a guess, maybe homeownership causes?) Fraid not. They donated to candidates favorable to Realtors, and you might wonder what their goal was.
    They did this to buy favor from the Feds to Prevent Banks from Renting or Selling their Own Foreclosure properties! yep, they made it against the Fed Gestapo's law, to let banks buy or rent even property they own by way of foreclosure. So that way, the members of the NAR have to get paid or nothing happens in real estate from that top-down perspective…. Ain't that something?

  7. I'd like to see the bank try to refinance it for the homeowner while the rates are low. They may lose a little now, but not as much as they will later if they take the foreclosure path. This way, both parties may retain a smile and not a scowl.
    For the immediate future, let the banks do their underwriting and then decide who they will loan to and not have some Utopian minded politicion deciding for them.
    This is the way it worked in the past and it instilled pride in the homeowner. It can work again if given a chance.