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Delinquent Mortgages Beyond So Called "Shadow Inventory"

Patricia Eisenhauer's picture
Mortgages in USA

There are 800,000 to 850,000 of mortgages in the United States today that are extremely delinquent. This is beyond the so called “shadow inventory” (1.7 million) of mortgages in arrears ninety days or more. Can you imagine how that could disrupt the Real Estate market if suddenly these homes hit the market?

The banks and mortgage companies control this situation and create a false sense of hopefulness for sellers. Prices are rising slightly and will continue to do so if those mortgages are kept as they seem to be. Throughout our country “home owners” and I use the term carelessly, are residing in their homes without paying on their mortgages for three years or more. Obviously, they cannot negotiate with the lenders who have sold and bundled and resold the mortgages. There will be a time when they will have to vacate. Some of the original documents have been lost.

In 2010 10% of the homeowners were seriously delinquent. Today the number is 5% and that is good. We are overlooking those hundreds of families who were evicted. Early on this was a solution. Then the mortgage companies discovered that many of these homes were in no condition to sell. The value of these properties was often one half of the mortgage. This is a history that often is forgotten or overlooked.

It would have made more sense to rent those homes back to the people who lived in them and loved them. That did not happen.

The government finally stepped in with the HARP program to assist in qualifying these new buyers with easier terms. Time will tell whether or not this was a good solution.

Realtors are ever wary of the shadow inventory. Many homeowners have turned to Reverse Mortgages to relieve them of the debt inflicted by high mortgage payments. History, once again will disclose the outcome of this solution. Prices on homes must escalate to allow these mortgages to be reasonable when the original homeowner vacates. (More about that at another time). In my opinion a well-constructed Reverse Mortgage may be a home saver.

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