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Michael Olenick: 9.8 Million Shadow Inventory Says Housing Market is a Long Way From the Bottom

By Michael Olenick, founder and CEO of Legalprise, and creator of FindtheFraud, a crowd sourced foreclosure document review system (still in alpha). You can follow him on Twitter at @michael_olenick

“Shadow inventory,” the number of homes that are either in foreclosure or are likely to end up in foreclosure, creates substantial but hidden pressure on housing prices and potential losses to banks and investors. This is a critical figure for policymakers and financial services industry executives, since if the number is manageable, that means waiting for the market to digest the overhang might not be such a terrible option. But if shadow inventory is large, housing prices have a good bit further to go before they hit bottom, which has dire consequences for communities, homeowners, and the broader economy.

Yet estimates of shadow inventory, and even the definition of what constitutes shadow inventory property, vary widely. For example, the Wall Street Journal published a Nov. 11, 2011 article, “How Many Homes Are In Trouble?” where values varied from 1.6 million (CoreLogic), to “about 3 million” (Barclays Capital), to 4 million (LPS Applied Analytic), to 4.3 million (Capital Economics), to LPS Applied Analytics, to between 8.2 million and 10.3 million (Laurie Goodman, Amherst Securities).

Why do these numbers vary so much? Even though CoreLogic is generally considered to have one of the best databases of loans, its estimates of loan performance and odds of default are based on credit scores, which is a badly lagging indicator. Laurie Goodman is seen by many as having the most carefully though out model, even though industry insiders are keen to attack her bearsish-looking forecast.

I have a large database of my own, and am familiar with housing and mortgage information sources. I’ve come up with my own tally of shadow inventory and have also tried to analyze — OK — take a stab at – what I call “shadow liability,” meaning the amount of money taxpayers, investors, banks, will be lose if those homes are liquidated. Assumptions using those terms are also in the attached spreadsheet. My analysis comes up with a total close to that of Goodman’s range, 9.8 million using a narrower definition than Goodman’s of what constitutes shadow inventory.

Put more simply, things are actually worse than any of the prevailing estimates indicates, although Goodman is very close to the mark. Current loss experience suggests that this figure is staggering, easily in the $1 trillion range.

Why aren’t those losses more visible yet? Well, evidence suggests that servicers are stalling the foreclosure process, not taking title to and selling these houses. For the lenders, such delay likely allows them avoid the write-offs of both the negative equity as well as the worthless second liens. More generally, it keeps the trillion dollar losses hidden. Lenders aren’t acknowledging their stall tactics, however. When people notice how slowly foreclosures are progressing from initial steps to resale, lenders point at their foreclosure fraud related dysfunction. Lenders conveniently don’t mention that such dysfunction was self-induced, instead blaming borrowers and courts.

My Methodology

My data comes from several sources. Default information is from the October, 2011 LPS Mortgage Monitor. Housing information, including the number of houses with mortgages, comes from the US 2010 US Census and the 2009 Statistical Abstract. Median home prices — the likely value of the loans that are either in foreclosure or will be soon, is from the FHFA; specifically the Q2, 2006 state-by-state median home prices, when many of the bubble loans were written. Note: these prices are used to approximate the principal value of the loans, not what the properties are currently worth.

Because not all this data overlaps entirely some extrapolation was necessary; when required to extrapolate I tried to do so conservatively. An example is how I arrived at the number of mortgages in the US, a step on the way to calculating the number of mortgages in default.

The first step was figuring out how many housing units with residential mortgages America has. According to the 2010 census, America is home to 131.7 million housing units. Of these, 76.4 million are owner-occupied, 37.5 million are rental units, and the remaining 17.2 million are vacant, and the remaining 600K are houseboats or other exotic housing. Of the 37.5 million rentals, some are in apartment buildings that would be financed with commercial mortgages, not residential ones. Commercial loans are structured differently than residential loans, and are easier to renegotiate, so they I’ve excluded from this analysis.

To be conservative—to exclude more loans as commercial than actually are, rather than risk leaving commercial loans in the analysis—I’ve assumed that any building with 5 or more housing units is in a building that either has a commercial loan or no mortgage at all.

According to the National Multi-Housing Council, using 2011 Census data, has determined that nationally, 42% of renters live in buildings with 5 or more units. Applying that percentage to the 37.5 million rental units, and subtracting that from total renters, I end up with 21.8 million rental housing units that could have residential mortgages.

In total, then, I have 76.4 million owner-occupied homes, 21.8 million residential rental units, 17.2 million vacant homes (which includes, among other things, vacation homes and abandoned ones) and 16.3 million other, mainly units in commercial properties. All in all I end up with just over 115 million homes that could have a residential mortgage on them. But how many of them? Well, the Census reports that in 2010, 68% of owner-occupied units had at least one mortgage. I used this same 68% for investment (residential rental) properties and vacant (primarily vacation and abandoned single family homes) properties.

I believe this 68% figure is appropriate for two reasons. First, a person who has a mortgage on their own home is unlike to buy a vacation house or an investment property with cash. Indeed, even a homeowner living free and clear in their own home might need a mortgage to buy second property. So assuming the mortgage rate for investment and vacation homes is the same as owner occupied surely understates the number of mortgages. Second, the mortgage rate on abandoned homes surely is nearly 100%; why abandon a home if it’s not in foreclosure?

Using that math, I came up with 78.6 million mortgaged properties. This figure is substantially higher than many other estimates, including Goodman’s Amherst study, though the likely reason is that the census data the analysis relies upon is relatively new. Goodman’s study uses 53.7 million mortgaged homes, though the census reports 52.2 million owner-occupied loans alone, in additional to rental properties, mobile homes, and vacant properties. Given that the census cost $13 billion to produce — an amount no private organization could afford — and 2010 results were not available at this level of granularity until relatively recently, I would not be surprised to see upward revisions to other base housing unit figures in the future.

To estimate shadow inventory, I used the delinquency data from LPS Analytics. They add up loans that are delinquent, loans that are in foreclosure, then come up with a state-by-state percentage of “non-current” — loans that are, or are likely, to end up in foreclosure. There is some ambiguity in LPS’ figures; specifically the definition of “delinquent,” and whether they are counting homes or loans.

To illustrate a potential problem with these assumptions, let’s take a theoretical example of 100 houses. Let’s assume 68% have mortgages, a figure from the census, so 68 houses have mortgages. Then let’s assume these homes are in FL and 22.9%, or 23 houses, are either in foreclosure or likely to end up there soon. I’m assuming this means that 45 houses are current, 23 houses in trouble, and 32 houses paid-off, though I concede that it could mean 12 houses with two mortgages are in trouble, 32 are paid off, and 56 are fine.

32 Responses

  1. The time has come for all of us to unite and move forward with intention to STOP the horrible acts of all the corporate and political criminals and fraud …it is our time to do this ..

  2. @ Nora C

    I amazed everyday how bright, intelligent people miss the deviant behavior of our elected officials. The Clintons and the White Water mess…how many people eneded up dead, within that circle? I think 5?

    Here’s a Governor making 40K, now a multi-millionaire. What do folks think, the Red Cross gave it to them?

    And it was Billary who first started this health debacle. She got slammed then and this new, updated version/mandate is very similar to what she tried to impose when in the oval office, with Bill.

    The only question I have is what it is going to take before people realize these situations are all “created and sanctioned” by elected officials. Personally, I think there are fixes to these programs and policies, but not the way the are being proposed and implemented. This country does not need imports from China or anyone else. We have everything we need right here and it baffles my mind how we are in bed with many of these inept and dubious characters!

  3. Alessandro Machi

    You are aware that Hillary is a militant Zionist and a member of the Bilderberg Group, aren’t you? Don’t you remember all the illegal activities the Clintons were involved in, back in Arkansas? Hilllary Clinton got her husband’s bankroll to start his political career by doing some shady stuff–insider trading. They refused to provide documents that the Justice Department demanded and covered up their wrongdoing. Then when Bill cooked the books and made it look like he’d somehow managed to balance the budget, we found out later that he’d spent our Social Security to do it! The only vote she gets from me is one to put her in jail via a jury trial. Even her husband’s disgraceful conduct during office was okay with her. Her response was, “There are worse things than infidelity”. These are people who represent everything that’s wrong with government in this country. Elitists who are insulated from the suffering, who have no empathy for those who lives they affect and infect. They get richer and richer while the poor get squeezed for every last ounce of blood, and they play god by sending our children to die on foreign soil in the name of war profit. You have been propagandized, sir. Hillary is about as evil as they get, and yet she talks like she is goody-two-shoes. Typical of the psycho warfare they wage on us on a daily basis…call the evil, good and call the good, evil.

  4. @ ALL

    “Past practice, however, cannot be the motivating force for future conduct and determinations.”

    Oh no….what is “stare decisis” ??

  5. @Colleen

    I would like get your thoughts. I believe we are from the same state. Here is my email address dee64@earthlink.net

  6. Dirty Dozen Honorable Mention: Victor Tobin, Foreclosure Judge Turned Forecloser

    By Stefan KamphThu., Jan. 5 2012 at 12:37 PM

    Categories: Dirty Dozen

    ​We put out the call for people we missed in our roundup of 2011’s most devilish people and were informed of one overlooked former judge who certainly qualifies.
    http://www.browardpalmbeach.com/2011-12-22/news/south-florida-s-dirty-dozen-our-annual-list-of-our-worst/

    With all the foreclosures and mortgage-related tragedies that have occurred since the collapse of the collateralized-debt market, it’s easy to find people who had a hand in kicking families out of their homes.

    But Tobin, as Broward’s chief judge, instituted rules that made it harder to fight foreclosures and implemented a “rocket docket”-style system that favors the big banks by expediting judgments in their favor.

    Suspicions of his bias were confirmed, for many, when he announced in May that he was leaving the chief judge post in favor of a position with the foreclosure law firm Marshall C. Watson.

    Now he would stand to benefit from the rules he helped create, working for one of the state’s largest and most criticized “foreclosure mills.”
    http://blogs.browardpalmbeach.com/pulp/2011/05/victor_tobin_marshall_c_watson.php
    Read more at http://blogs.browardpalmbeach.com/pulp/2012/01/dirty_dozen_honorable_mention_victor_tobin.php

  7. Dee-no,
    I don’t because if you read what I blogged, you will lose(mostly)-why else don’t you see successes on this site?.
    I do a court of record.

  8. @ Colleen

    Are you pro-se?

  9. Enraged-Yes,

    it’s me…..Colleen-
    is that what your questioning?

  10. Anyone know or had experience with the legal effect of an indorsment/assignment on an allonge dated BEFORE the date note and mortgage were signed?

  11. @Colleen,

    ???

  12. “We the trinity of mind, body, and spirit, here today as the tribunal of ‘The Court of Record, with final jurisdiction”, accept your oath and bond, and order that “this court” (their court), has no jurisdiciton in this matter. All originals are to be handed over to the Tribunal, and all copies are to be stricken from the Public Record..

  13. and here’s a solution,

    I don’t care why you’re going to court… foreclosure, Tax, traffic, civil or criminal, you have final jurisdiction as the court of record with access to the prerogative writs only available to the sovereign… check them out sometime.)… You can demand all originals, tell their court they have no jurisditon, etc… They never have personal jurisdiction over you, unless you consent… be a people not a person!!…

  14. Here’s why Chris,

    Judges oath
    Each justice or judge of the United States shall take the following oath or affirmation before performing the duties of his office: “I, XXX XXX, do solemnly swear (or affirm) that I will administer justice without respect to persons, and do equal right to the poor and to the rich, and that I will faithfully and impartially discharge and perform all the duties incumbent upon me as XXX under the Constitution and laws of the United States. So help me God.”

    WITHOUT RESPECT to “persons”. He took an oath to NOT give persons any respect. And what is a person? Just a fictitious entity and the judge swore under oath he will not respect any person.

  15. Having been in court a great deal, it is my observation the judges side with the attorneys, even when are lying and assign themselves trustee, miss deadlines, have forged paperwork and they are clueless in presenting their own cases.

    Being pro-se I have watched while attorneys have the wrong Plaintiffs/Defendants (depending on who’s suing whom) i.e.
    Joe Smith, II (Jr), when it should be Joe Smith III, asking for the Plaintiff to recover damages, when it is in fact their client asking for damages (the Defendant)…I stood up and asked for a dismissal and got no where. The judge gave the win to the sloppy, ill-prepared lawyer.

    The judges have an axe to grind with Pro-Se litigants and many of them are savvy, sophisticated and very knowledgable about their own cases. Much more so than the attorneys.

  16. Enraged, Hillary Clinton is your best option. Was four years ago, is now.

  17. Please sign the petition at Change dot org to stop what appears to be an incredibly arrogant home foreclosure by Wells Fargo.

    http://hsitrust.wordpress.com/2012/01/14/tell-wells-fargo-to-rescind-rachel-kendalls-foreclosure-auction/

  18. How come every economist states the same thing, common sense dictates that it is true and the only way to go, even Bernanke has been sorta… kinda… whispering it of late but Washington and Fed still resist it?

    Is this ignorance? (In which case, half of them must go: no need to pay people’s salaries if they are utterly incompetent and more part of the problem than the solution). Is it stupidity, as Mandelman qualified it? Is it pride? Is it simply that one has to be some kind of degenerate to graduate from Harvard? Whatever it is, we need to get rid of them. No ifs, no buts. They HAVE to go!!!

    http://www.useforeclosurelaw.com/2012/01/12/fed-has-head-in-the-sand-%e2%88%92-cant-fix-economy-with-blind-eyes/

  19. Coming loud clear from Bill Black: the reasons why Obama will NOT allow his administration to go after the banks and has done everything to actually hinder every attemps at invstigating and prosecuting.

    Not a pretty picture.

    Time to seriously ruffle his feathers… As in: “Forget about a second term”. I’d rather give a try to a know scoundrel than to a confirmed coward…

    http://www.useforeclosurelaw.com/2012/01/14/administration-in-the-toilet-%e2%88%92-with-fraudulent-banksters-%e2%88%92-bill-black-article/#more-3297

  20. +1,000,000 people a year leave the U.S. and that number represents citizens, not resident aliens or immigrants who stay awhile then go.

    The big flaw in this guy’s thinking is that any of the “lenders” have any real losses. They don’t own any of these mortgages because they didn’t lend any money to the “borrowers” whose equity and then property they stole/are stealing with invalid Notes and non-perfected liens.

  21. and then there’s this from Thompson Reuters:

    Late foreclosure filing not grounds for dismissal: NY court
    1/3/2012
    NEW YORK, Jan 3 (Reuters) – A Brooklyn judge should not have tossed a foreclosure case just because the foreclosing bank’s counsel–from the scandal-plagued Steven J. Baum P.C. law firm–missed a deadline for filing paperwork rebutting its alleged conflict of interest, a New York appeals court has ruled.

    The unanimous, unsigned order from the Appellate Division, Second Department, restores the foreclosure action brought against Kelvy Guichardo by the trustee for his mortgage US Bank NA. The case had been dismissed sua sponte by Kings County Justice Arthur Schack in a Nov. 8, 2010 ruling.

    Schack, who has developed a reputation for taking a tough stance against mistakes and missed deadlines in foreclosure cases, raised concerns several months after the case was filed about a potential conflict of interest for Baum attorneys involved in the case. According to the court record, the Baum firm was representing both US Bank, the plaintiff, and defendant Mortgage Electronic Registation Systems Inc., which had been assigned the mortgage at the center of the foreclosure action.

    In a February 2, 2009, order, Schack directed the firm to submit an affirmation that it was not simultaneously representing both the plaintiff and MERS in the case. Schack’s order gave the Baum firm 60 days to comply with the request.

    It took roughly six months for the Baum firm to submit the required affirmation, according to the ruling. Citing the missed deadline, Schack ordered that the entire case be dismissed and the notice of pendency filed against the property in question be cancelled.

    ‘NO PATTERN OF WILLFUL NONCOMPLIANCE’

    But on appeal, the Second Department found that Schack had abused his authority in applying such a drastic remedy.

    “[T]he Supreme Court was not presented with any extraordinary circumstances warranting dismissal of the complaint,” the court wrote in a ruling released last week. “There was no pattern of willful noncompliance with court orders on the part of the plaintiff, and the Supreme Court gave no warning that the failure to submit the requested affirmation within 60 days of the Feb. 2, 2009, order would result in the dismissal of the complaint and cancellation of the notice of pendency.”

    The Baum firm, which is based in Amherst, a suburb of Buffalo, announced in November that it would wind down and eventually shutter its practice, after a string of bad news including federal and state investigations into its handling of cases, as well as decisions from government-backed mortgage giants Fannie Mae and Freddie Mac to bar loan servicers from referring new cases to Baum.

    An attorney for US Bank, Allison Schoenthal of Hogan Lovells, said she was pleased that the appeals court had agreed with her client. Guichardo was apparently not represented in the appellate case.

    The case is US Bank NA etc. v. Guichardo, in the Supreme Court of the State of New York, Appellate Division, Second Department, No. 2001-01628.

    For the plaintiff: Allison Schoenthal, Renee Garcia and Jessica Ellsworth of Hogan Lovells.

    (Reporting by Jessica Dye)

    COMMENT: the key here is that “the borrower was apparently not represented”, Most are exhausted emotionally and financially at this point.

  22. COMMENT: NOT IF THIS JUDGE HAS ANYTHING TO DO WITH IT!

    NY Judge Nixes Bank’s Foreclosure Judgment Because Process Server Didn’t Keep Records
    Posted Jan 12, 2012 4:02 PM CST
    By Martha Neil

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    Opening a door to a potential defense that apparently has largely or entirely gone unnoticed in mortgage foreclosure cases, a New York judge last month overturned a bank judgment because a process server didn’t keep records required by law.

    A former police officer working for A&J Process Service admitted to state Supreme Court Justice F. Dana Winslow that he didn’t keep records either in the Nassau County case of Soledad Murillo or in thousands of others over the past six years, Reuters reports.

    Failure by a process server to keep records concerning efforts to serve a complaint on the defendant homeowner violates New York’s general business law, the judge held. A lawyer for the once-prolific Steven J. Baum foreclosure law firm, which had a local office on the same floor of the same building as A&J, argued unsuccessfully that a process server’s failure to keep records wasn’t a reason to overturn a foreclosure judgment.

    “The duty to keep comprehensive records may have been unnoticed, or underestimated, by litigants and the courts,” the judge said in a Dec. 22 written opinion. “Past practice, however, cannot be the motivating force for future conduct and determinations.”

  23. Here is a report on Chase mortgage profits for their last quarter! ZIP!
    NationalMortgageProfessional.com

    Chase Reports No Profit on Mortgages as Q4 Profits Dive 23 Percent

    HA HA HA! HEH HAH!
    I would like to be a fly on the wall and see disclosure of the severence agreements with their attorneys with no notice of being let go. These attorneys are mandated by 18USC2,3,&4 TO REPORT FRAUD OR BE A FELON CLASS C. This mandated statute states they are to be loyal first to the courts and second to their clients.

  24. Here is another Good one! http://wp.me/p1EGDj-arO
    Chase has secretly discretly laid off employees in the thousands, unfortunate some are in house attorneys that received a layoff without notice, breaks my heart, and Chase has stopped debt collection notices for the last six months without notice to the public. Familiar?? We are a debt collector attempting to collect a debt, not the lender or the owner !!!! This is mortgages also! Perhaps they are worried and know they have been caught with their hands in the cookie jar and have been misrepresenting themselves?

  25. I agree with Shelley Erickson even more! WOW! Drive that with a hammer! Yeah!

  26. Providing Education, Research & Litigation Support for Attorneys, HomeOwners, & Pro-Se Litigants.
    Here is the article:
    Great article. – FHFA sues 17 Banks to the tune of $196 billion

    January 13, 2012

    http://wakeup-world.com/2011/09/06/full-blown-civil-war-erupts-on-wall-street-financial-elite-start-turning-on-each-other/

  27. I agree with Jim. There smoking something !

  28. I agree Jim, they dont own the loans! We should not have to negotiate with these parasites anymore than the AG should have to negotiate with them. and they are not. The AG’s have grouped together to stop the negotiations and plan their best law suits against them, as a team helping each other, which leave only 36 to vote to pass the settlement and that is to low, so the negotiations are done and gone. FHA has filed a 196 billion dollars lawsuit against them as of Friday. The top 17 big banks. Not including Wells Fargo for some reason. I just forwarded the article to Neil so he will probably have it up on one of his articles soon. There is a link to each individual law suit, which should expose and tell us info we need for our own cases. I believe these criminal enterprizes calling themselves banks for prestige, which the gemic is up! going down and trusted banks coming into place are the hope for our economic recovery. We should not be forced and are not forced by law to have to negotiate with the felons that have vitimized us and the real lenders, whom dont know what they bought and have written it off and can not come after the property, and who should have it not the snakes that have stolen the investors money, tax money and caused economic harm and caused the homeless and suicides and death. These criminals owe us more than the house is worth, they owe for their tort felonies against us and all Americans, including Americans that have not lost their homes or are fighting to defend their homes..

  29. Thats why Helicopter Ben has been signaling to all, that there is tsunami wave approaching…..They (actually WE) better do something and QUICK

  30. What these numbers to not incorporate or anticipate is the effects of political decisions quite outside the mortgage realm. In particular, there is an undercurrent politically to “remove” by deportation up to 11 million undocumented Mexicans, Salvadorans, Ecuadorans, and other Spanish-speaking peoples. Mass removals will imply lots of vacant properties and lots of mortgages into foreclosure – by the millions.

    Also unappreciated is the effects of dampening movement across the Canadian border. Now the US Government requires Canadians to carry passports – something that never was the case. That, plus long inspection lines and individual vehicle searches, has dampened movements of Canadians over the border to both vacation homes and retirement homes. The dampened demand causes economic stress in the border states [Vermont is hit hard by the loss of weekenders, including skiiers; Buffalo is hit by the limited number of bridges and the backed-up traffic]. The curtailment of demand is the other side of the supply equation.

    The greater difficulties in obtaining migrant and work visas translates into lower net in-migration. Unappreciated is that historically some 30% of immigrants end up leaving, either returning or moving on to yet another country. It is a peculiarity of the American mindset that Americans think the whole world is beating down the doors to live here, and nobody ever wants to leave. That is simply not true.

    Finally, unappreciated by Mericuns is that the “fecundity rate” is below the replacement rate. Currently the fecundity rate is about 1.9; the US needs a rate of 2.1 just to break even in population. The shortfall has been made up by immigration. With that spigot getting cut off by federal politics, I predict many more houses going vacant and into foreclosure. Thank guys like John Boehner for your underwater, and unsaleable, home, folks.

  31. My head is spinning. How can this site discuss lenders taking write offs when they don’t own the loans? Alice in wonderland that’s me

  32. […] View article: 10 Million Homes Ready for Foreclosure by Pretenders […]

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