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4 more years of foreclosure

By Jay MacDonald ·
Monday, August 29, 2011
Posted: 9 am ET

To cap off a nightmarish week on the housing front, everybody's favorite ratings service Standard & Poor's says the "shadow market" of foreclosures and distressed homes will haunt our neighborhoods for at least four more years.

S&P says that although the shadow market peaked in the first quarter of 2008, it's taking increasingly longer to clear out the backlog and stop the toll it's taking on our home values.

At 49 months, the estimated average time to clear foreclosures and distressed homes in the fourth quarter of last year was up 11 percent from the previous quarter and 40 percent from the previous year.

According to the report, the lag time to close problem properties has lengthened in all 20 of the nation's largest metropolitan housing markets with the lone exception of Miami. And at 49 months, Atlanta is the fastest in the field; the ratings company estimates it's going to take 59 months in Seattle, 71 months in Boston and 130 months in New York. That's nearly 11 years of inventory in New York alone!

What's the holdup? S&P places the blame on lenders dragging their heels in liquidating foreclosures and distressed homes, not on any increase in shadow market inventory.

S&P defines the shadow market as properties where the borrower is three months or more delinquent on their mortgage payment, properties that are currently or were recently in foreclosure, and properties that are real estate owned, or REOs.

The S&P report follows a triple whammy of bad housing news last week: residential mortgage delinquencies rose, new-home sales fell 0.7 percent in July and new-home construction starts slipped 1.5 percent in July.

Oh, and about those lenders: Last week, the nation's largest banks, including Bank of America, JPMorgan Chase and Wells Fargo, launched a full-scale lobbying campaign to convince the new Consumer Financial Protection Bureau to grant them immunity from lawsuits arising from their mortgage practices.

We certainly wouldn't want the lenders who shelled out billions of dollars in high-risk mortgage loans, commodified the bum deals and almost single-handedly brought our financial system to its knees to be held responsible for their actions, now would we?

Crazy talk like that just might prevent them from doing it again!

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John Michailidis – SaraMana Properties
September 24, 2011 at 5:38 pm
As a Florida broker who works to secure Short Sale approvals for homeowners behind on mortgage payments (in other words, I'm "in the trenches" daily) I agree with the forecast of this post 100%.

Scott Wolf
September 20, 2011 at 5:04 pm

I could not agree more,Tom.Really,what we have is a triple header-that is,a shadow inventory of homes sitting vacant,REO's or Real Estate Owned homes in foreclosure kept off the market by the banks,and an increasingly impoverished middle class holding onto increasingly worthless dollars.

It appears that not only will the millions of foreclosures continue to push down real estate prices for the next several years,but tighter lending standards coupled with the inability of most people to save the 20% down payment will just crush new home sales as well.It all adds up to a depressed housing market for years and economic despair for all of us.There is no best case scenario.The dollar is doomed.

September 20, 2011 at 1:01 pm

DON'T hold your breath on that 4 years. make it 10 years. There are 10s of thousands that are shadowed. This mess won't get better for decades to come. You can thank the Banks, wall street, the federal government,the speculators,the realestate agents ( oh, you can get more for it than that)the buyers ( (WHERE do I sign, DUH)

Short Little Rebel
September 20, 2011 at 10:20 am

sad news. These banks run everything. They need to be stopped. We need to get them out of our political system.