Shadow Inventory On The Rise After 2012 Foreclosure Legislation


A new
report issued today by RealtyTrac says that the U.S. foreclosure inventory has
increased by about 12 percent since May 2012 when it hit a five-year low of 1.3
million properties.  Today that inventory
stands at about 1.5 million and is up 9 percent form the first quarter of
2012.  The foreclosure inventory consists
of homes actively in the foreclosure process and bank-owned homes or REO.  

says it was the finalization of the National Mortgage Settlement in April 2012
that triggered the growth of the inventory which is driven by a 59 percent jump
in properties in some stage of foreclosure. 
The inventory is down from a peak of 2.2 million properties in December

loans that fell into a deep sleep after the robo-signing controversy in late
2010 are gradually coming out of hibernation following the finalization of the
national mortgage settlement in April 2012,” said Daren Blomquist, vice
president at RealtyTrac. “The settlement provided some closure regarding
accepted foreclosure processing practices, and as a result lenders have been
reviving more of these delinquent loans and pushing them into foreclosure over
the past 12 months, particularly in states where a lengthy court process has
resulted in a bigger backlog of non-performing loans still in snooze mode.”

The cumulative estimated market
value of homes in foreclosure or bank owned was $200 billion as of the first
quarter of 2013, up 14 percent from the $175 billion cumulative estimated value
in the first quarter of 2012.

Increases in inventory were by no
means uniform
.  Twenty-six states posted
annual increases in the foreclosure inventory while those in 24 states and the
District of Colombia fell in the first quarter on an annual basis in the first
quarter.  As RealtyTrac points out, not
surprisingly the different behavior was highly correlated to the type of
foreclosure process used in the state.  
Nineteen of the 26 states in which the inventory grew are judicial process
states which have been more susceptible to backlogs of “shadow” foreclosure
inventory being built up over the past few years due to more lengthy foreclosure timelines.

RealtyTrac cross-referenced
foreclosure data with post office data and found that 35 percent of the
properties in the process of foreclosure nationally were vacant.  Florida had by far the largest number with
90,000 properties flagged as vacant followed by Illinois with 28,821 and Ohio
with 17,367.  By percentage, in six
states these so called “zombie foreclosures” constituted half or more of the
shadow inventory.

RealtyTrac said many of these are
properties where owners have moved in anticipation of a foreclosure that has
not occurred and may not realize they remain responsible for maintenance and
property taxes.

The shrinking number of homes in
some state of foreclosure is impacting national homes sales – this listed
inventory was down 43 percent in the first quarter compared to a year earlier –
but in some states this listed inventory increased including New York, New
Jersey, and Florida.  In those three states,
listed pre-foreclosure inventory accounted for the entire
increase in overall listed foreclosures, while listed
bank-owned properties decreased
annually in all three
states.  Nationwide there was a 12 percent year-over-year
increase in this shadow inventory, driven by a 23 percent increase
in the pre-foreclosure segment. Meanwhile unlisted bank-owned properties
decreased 2 percent from a year

The shadow inventory of homes that have
started the foreclosure process but
are not yet
been listed for sale
may provide hope in some markets
hungry for more inventory
as many will be listed as short sales or go through foreclosure and be listed
for sale as REO over the next six to 18 months.

RealtyTrac analyzed the foreclosing entity listed on foreclosure documents – from initial default notice to
the foreclosure deed transferring a property back to the beneficiary –
and found that the government-backed entities
Fannie Mae, Freddie Mac and FHA/HUD accounted for the biggest portion of
foreclosure inventory, with a combined 12 percent of the national total, followed by Bank of America with 11
percent, Wells Fargo with 10 percent and Chase with 7 percent. 
Inventory with Chase listed as the foreclosing entity
increased 58 percent from a year ago, the fifth-biggest increase among the top 20 institutions in terms of total
foreclosure inventory
followed by Nationstar Mortgage (101
percent) and Green Tree Servicing (89 percent).

More than two-thirds of the properties actively in the foreclosure process or bank owned as of the first
quarter of 2013 were built after 1960, about equally split between homes that were built
between 1960 and 1990, and those built in 1990 or

More than 60 percent of foreclosure inventory in the
first quarter of 2013 was comprised of properties with
loan amounts under $200,000, while homes with
outstanding loans between $200,000 to $400,000 represented an additional 30 percent of all foreclosure
Properties on either end of the debt spectrum saw the biggest annual
increases; properties with loan balances over $5 million increased by 126
percent while those with loan amounts under $50,000 increased by 62 percent.

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