Shadow inventory is made up of all the properties that are
in foreclosure or headed toward foreclosure that haven’t
hit the market yet. There are 7 million homes in this shadow
inventory category. What the government isn’t telling you
is that their moratoriums and loss mitigation programs created
a huge surge of foreclosures that are about to pop. Their
effort to decrease foreclosures has backfired.

According to the National Association of Realtors, there
were 3.6 Million unsold homes in September. You think
there are a lot of homes on the market now? There are
7 Million more coming that the government has created
in this shadow foreclosure inventory. That’s 2 times the
amount of homes that are currently on the market now!

The government’s Making Home Affordable (MHA) modification
program and FHA’s Hope for Homeowners refinance program
DO NOT WORK for borrowers that are too wealthy or owe too
much on their homes. The number of foreclosures for high end
and luxury homes is increasing and there are a ton of luxury
homes in this shadow inventory.

So when can we expect to see the surge in foreclosures from
this shadow inventory?

We are in the first phase of shadow inventory right now and it
will continue into 2010. The second wave will start in 2010 and
will continue into 2011 because the national foreclosure moratoriums
ended in March and the government intensified its HOPE NOW
Alliance program as well as its Home Affordable Modification Program
(HAMP).

These programs were released in the first week of March but the
problem was that the servicers and lenders did not receive training
until the middle of June. Then, the programs had to be updated because
they weren’t effective and they became more complicated to implement
effectively.

This created a huge amount of people that have not paid their mortgage
and their houses have not been taken back by the lenders, yet. Basically
the government only delayed the inevitable foreclosure process but they
made it worse because all of the homes will be entering foreclosure at the
same time and with more debt owed on the mortgages.
 
The third phase of shadow inventory will be borrowers that have
exhausted their options on long term government sponsored payment
plans, forbearances, and failed modifications. These will show up in
2011 and continue into 2012 as their foreclosure timelines were delayed
or reset by the latest HAMP efforts.