Foreclosures seen to be flooding the market in the near future...

Here's an excerpt from an article written by a sharp guy that negotiates short sales and invests in real estate, Bob LaChance:

Despite some recently positive housing reports, the housing market is facing continued distress. Of major concern is a recent report from S&P that puts foreclosure “shadow inventory” at a minimum 3 year supply. (Delinquent loans and REO properties that have not yet reached the market were considered). Amherst securities estimated the number of “shadow inventory” properties to be as high as 7 million.

Due to lender and court delays to in processing foreclosures, political pressure, and the stressed  and inefficient loan modification and short sale departments at most lenders, foreclosure inventory has been slow to hit the market. Many borrowers who have not paid their mortgage for months have simply not received a foreclosure notice. Then there are stories across the web of homeowners who have been in the loan modification process for 10-18 months. Should they not qualify, their next steps will be short sale, Deed-In-Lieu, or foreclosure.

I expect to see a shift in the number of homeowners that are denied a loan modification. This shift will mean that servicers will dedicate more effort to short sales as a means of loan liquidation. There are over $400 billion just in delinquent loans that will need to be removed from the banks books at some point. This does not include the billions in property that banks already have foreclosed on.

The amount of foreclosure inventory in the pipeline and the wildly unsuccessful HAMP program will most likely result in a continued reduction in housing prices over the next year or more.

According to S&P, only $14-15 billion in loans or REO property liquidate monthly. To eat through the coming REO inventory at that rate, the market should stay flush with short sale and REO property sales for a minimum of 3 years.