Foreclosures and Shadow Inventory?

You’ve probably heard the term “shadow inventory” or have seen reports about an anticipated inventory of foreclosed properties.

According to HousingLink, in Q3 of 2010, foreclosures in Minnesota reached their second highest level since the current foreclosure crisis (exceeded only in Q2 of 2008). A large part of the change was driven by foreclosures in the seven-county metro, which were up 21 percent compared to Greater Minnesota’s 6 percent increase over Q2 of 2010.
View HousingLink’s Q3 2010 Foreclosure Update to see detailed breakouts by county.
YTD foreclosure inventory is up 13 percent over last year.

Explanations: There are a number of factors contributing to the increase in foreclosures.
--Moratorium: There was a moratorium on foreclosures that ended in February/March of 2010. That moratorium served to delay many of the inevitable foreclosures that we’re presently seeing come on the market.
--Failed programs: HARP and HAMP were put into place to help troubled homeowners refinance or modify their home loans. However, limited eligibility and low success have merely delayed foreclosures rather than prevented them.
--Declining sales: The Twin Cities has experienced an overall decline in sales activity, which serves to increase the relative inventory of homes for sale, including foreclosures.
--Delinquencies: Seriously delinquent (90+ days late) homes have been accelerating through the system recently as banks become more adept at managing the process.

By the numbers: According to Lender Processing Services (LPS), Minnesota ranks 43rd in the nation in delinquency and foreclosure rates.
--National trends: 13.02 percent* of mortgages are non-current (including delinquencies and foreclosures).
o There were about one million foreclosures in each of the last two years (2009 and 2010).
o There are an anticipated two million foreclosures expected to come on the market in 2011, with much of the inventory concentrated in a few states like Florida, Nevada, Mississippi and Georgia.

Minnesota trends: 8.1 percent* of mortgages are non-current (including delinquencies and foreclosures).
o There were about 25,000 – 27,000 foreclosures in each of the last three years (2008 – 2010).
--We have about 30,000 properties in foreclosure right now
--Another 25,000 are over 90 days past due
--Another 30,000 are fewer than 90 days past due

*Based on information from Lender Processing Services “LPS Mortgage Monitor Sept. 2010 Mortgage Performance Observations”
**Based on information from the REGIONAL MULTIPLE LISTING SERVICE OF MINNESOTA (RMLS)