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Foreclosure Inventory = 103 months
From The Daily Capitalist
In a piece from the Wall Street Journal on Saturday, LPS Applied Analytics estimated that foreclosures would create so much market supply that it would take 103 months to liquidate it.
As of March, banks had an inventory of about 1.1 million foreclosed homes, up 20% from a year earlier, according to estimates from LPS Applied Analytics. Another 4.8 million mortgage holders were at least 60 days behind on their payments or in the foreclosure process, meaning their homes were well on their way to the inventory pile. That “shadow inventory” was up 30% from a year earlier.
Based on the rate at which banks have been selling those foreclosed homes over the past few months, all that inventory, real and shadow, would take 103 months to unload. That’s nearly nine years.
The HAMP (Home Affordable Modification Program) program started by the Obama Administration is trying to modify loans so that lenders will not foreclose:
According to Goldman Sachs, HAMP started less than 80,000 trial modifications in March, less than half the number in the peak month of October 2009. At the same time, a growing number of modifications are being canceled as borrowers prove unable to pay. By Goldman’s count, about 68,000 were canceled in March.
All this means that little can stop banks’ inventory of distressed homes from growing. Too many people owe too much more on their homes than they can afford. For the housing market, that could mean a long-lasting hangover.
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My friend Pat (who works in real estate and foreclosures) disagrees with the 103 number. Here are his reasons why the 103 month estimate is too low. (http://philsbackupsite.wordpress.com/2010/04/26/is-103-months-to-clear-h...)
There are problems with the numbers that the article uses to arrive at the 103 months.
So, it is readily apparent that the actual number of months to clear inventory is far greater than the 103 months, when these factors are considered.
Are you ready for the next part of the equation?
4.8 million homes delinquent. That means these people are not paying their mortgage. Yet, from what I see, most are not saving that money either. They are spending the money, which is artificially increasing consumer spending and GDP.
Now, for each home in foreclosure, it takes 12-18 months on average to foreclose, thanks to the backlog, the government programs and such. So, for the government, it makes sense to extend the foreclosure process, because it “helps” the economy.
You also have to factor in realtors, property managers, mortgage brokers, loan mod consultants, investors/flippers, and lawyers who are expert at consulting underwater borrowers in negotiating and obtaining short sales exaserbating the long squeeze. Nonetheless the 103 - 120 seems about right.
Debt Ratios (TDTI) of up to 65% were accepted for a long period of time with credit 680 or better. Even with no loss of job, that is a high wire act and most (as stated 75%) will fall and there is no net.
I agree that TDTI ratios of between 45% & 60% were routinely signed off on with credit well below 680 and the loans funded.
It is not wrong to think that the bank-owned inventory (weather already owned through foreclosure of "awaiting" foreclosure proceedings) will peak at 20 million + units.
Excellent. I've been following this for awhile, but it helps to have fresh numbers. The flippers and NAR propaganda have distorted the truth.
The effect on price will be devastating, because the problem is so concentrated in a few states and areas. This proves, if anyone doubted it, that markets are more powerful than governments. You can only play kick the can for so long.
+1, and we're not yet even talking about "reversion to the mean" where home prices will drop another 20%-40% from their current levels.
Can't wait to see the excitement when people figure out the Commercial Real Estate market can't roll their loans between now and 2012. That will feed back into the residential real estate market (whole cities will be priced like Detroit).
"So, for the government, it makes sense to extend the foreclosure process, because it “helps” the economy."
Agreed. Self interest doesn't just apply to individuals. Extend and pretend helps the few at the expense of the many. We no longer have a representative republic for the many, just the few. Welcome to socialism for the elite capitalism style.
Agreed too. Here's an article by David DeGraw, AmpedStatus Report that you might enjoy on the "economic elite":
The Economic Elite Vs. The People of the United States of America (I – III)http://philsbackupsite.wordpress.com/2010/04/24/the-economic-elite-vs-th...
Exactly. The "law of unintended consequences" has a big shit-eating grin on its face when looking at this trend. This could have dire consequences for the entire country. Actually, it will, it is already baked into the cake.
This is not socialism. This is legalized corruption. Corrupt accounting is acceptable to corrupt politicians on the take. It started with the corruption of money, when the banksters issued FRNs in place of gold and silver, and the politicians couldn't resist the idea that they could spend trillions of it, if not just give it to the very people that created corruptly rated mortgage derivatives.
This is corruptivism - legalized corruption, aided and abetted by crooks, for the crooks.
True. I wouldn't paint socialists with the color of corruption. Socialists don't know they are conducting destructive economics. The folks in power now know what they are doing.
WRONG.
Socialists are tit suckers.
They need the Capital to get the power. Once in power they destroy Capital.
Read Animal Farm.
Do like the Greek. Take your money and RUN!
Animal farm describes how socialist ideals are easily subverted into Stalinist policy. The point being that socialism rarely exists in practice, as it is too easily used as a tool to impose totalitarianism.
It's like when Christianity was used as a pretext to attack and murder thousands during the crusades. You can't say as a result that Christianity as a philosophy espouses murder.
Yes, but they sure laid some nice groundwork for the corruption to bear fruit.
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Yes, one can say the corruption part tends toward facism (which is a form of socialism), but this may largely be so because many (most) of the original goals of communist/socialist goals have been met. I think that without many of those things, the level of corporate & government corruption would be difficult (see the list of communist goals as of 1963 at: http://www.communistgoals.com/goals/goals.htm). For example, see #s 15, 21, 22, 25, 27, 29, 30, 32, 36, and 37 (especially #s 25 & 29). Anyway, I would argue that without substantial movements toward socialism and/or communism before the 'financial crisis', things like TARP would have been effectively impossible.
some people just need to re-read all the forms of government out there.. they get so stuck in that anything they despise MUST be commie/socialist
they can't explain what they hate which makes them even scarier
once large capital interests are interchangeable with government the term is then 'fascist', rather than socialist.
Fascists are socialists gone ape shit.
Hitler would be happy to hear that every American is now entitled to their home.
He would have asked Goebbels to call it "VolksHaus" and all will be parking their "VolksWagen" in the driveway and be happy.
Are massive amounts of people being herded into trains yet? Must be coming next.
well, obama is funding all those high speed trains...