Flood Coming of Foreclosures?

I have written about this over and over again. The flood of foreclosures is coming, but when? Is this all just gloom and doom or is this real? It is real and today Standard and Poors reports why.

Standard and Poors, the credit reporting agency, tells investors what mortgage backed securities are really worth, and also reports that the increase in values was just an illusion. It predicts the nation is about to see a deluge of new foreclosures that will drive real estate values back down.

"Blame the shadow inventory" - the nearly 2 million homes that were foreclosed upon but for whatever reason have not been brought to market yet.

Many homeowners have fallen behind on their mortgages or stopped paying, but foreclosure has not yet arrived. Mortgage servicers, the folks who send you the bills and file for foreclosure when you can't pay them, are overwhelmed. Courts are backed up as well with all the filings. Mortgage modifications and foreclosure moratoriums have put off the day of reckoning for borrowers but not forever. And unemployment is sabotaging more and more homeowners every day.

Out of the more than $1,600,000,000,000 (Trillion) in existing mortgages that were packaged into mortgage backed securities or MBS, by Wall Street, some $425 Billion worth are extremely late on their payments and therefore likely to go into foreclosure. Only a small fraction of borrowers who fall seriously behind are able to catch up, with the help of loan modifications. Even if they catch up with loan modifications, the majority of borrowers fall behind again. The amount of bad mortgage debt has been spiking up every month, slowing only for a moment by government intervention, but still continuing to rise.

"Overall, it is our opinion that recent positive housing reports should not be construed as a sign that the distress in the residential housing market is abating, but rather should be attributed to the temporarily limited supply of homes on the market".

The current shadow inventory of homes is estimated to be at the same level as all homes available for same in America today. And that is not counting what is in the pipeline or what is expected to be coming down the road.

Banks are going to have to release these inventories soon whether by choice or force, and when that inevitably happens home prices will drop again.