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The housing market has reportedly been showing improvement lately. But one
source says that the worst may be yet to come, as foreclosures that are not
being counted in government statistics are much more prevalent than being
reported, and are likely to lead to yet another leg of bad tidings for the
economy.
According to Investor's Business Daily (IBD), there may be as many as 600-700,000 foreclosed homes that are not listed on the multiple listing service (MLS). These houses are not being counted in the government statistics and in the general awareness of the public. That means that their existence is being ignored. The problem is, of course, that like a pus pocket, this huge inventory will eventually burst onto the mainstream with significant consequences.
IBD reports that "This shadow supply isn’t counted as part of the housing inventory. There were 3.8 million existing homes on the market in February, equal to 9.7 months’ worth at the current sales pace. Add in the shadow supply and selling all the available homes will take even longer, and that suggests prices have even further to fall."
In other words, the good news is being reported, especially three major stories: "February existing-home sales rose 5.1%, the best monthly gain in years. Housing starts shot up 22.2% from a record low." and "Low mortgage rates and falling prices have made homes more affordable."
Yet, what is not mainstream knowledge are these facts: "foreclosure activity has been artificially suppressed," while "Mortgage delinquency rates have continued to soar in the last several months even as the new foreclosure rate has held steady." And the reason is that "government moratoriums or voluntary lender halts," have stalled the inevitable crash. Yet, according to IBD "most experts say eventually most of those homes will be foreclosed."
Add the fact that "Lenders also may be understating the impact foreclosures will have on their balance sheets. And the shadow is likely to grow as more homeowners default."
In fact, according to IBD, citing multiple sources, the recent improvement in housing statistics is "window dressing."
Instead of selling houses and reworking loans Jim Richman, president and founder of Richman & Associates, a real estate and debt restructuring firm in Glendale, California, told IBD that '“Lenders aren’t doing anything,”' and that '“They’re waiting to see if the government will bail them out.”'
Moe Bedard, president of Loan Safe Solutions, a Corona, Calif.-based firm that does mortgage auditing for attorneys, told IBD ' “Everybody is stalled 100%; the lenders aren’t doing anything.”'
And there may be more to it than just sleight of hand. According to the report 'Richman is a former banker and former Housing and Urban Development commissioner. He also believes lenders “are illegally operating under current federal rules,” by not writing down their foreclosures adequately.'
And yest, it gets worse as ' “Lenders are doing everything they can to stay in business, but it’s against all the rules,” said Richman. “(Regulators) are afraid to enforce the rules because if they do the banks will fail, and the feds will have to bail them out.” '
According to the report, lenders are dragging their feet on foreclosures and writedowns, as they wait for the next government program to come out and change the rules, while giving them access to more money.
Perhaps this is the best way to sum up the whole thing: '“What the banks can buy with time (holding foreclosures and not listing them for sale) is the tooth fairy,” said Thomas Barrack Jr., founder, chairman and CEO of Colony Capital, a Los Angeles-based private equity firm specializing in real estate. “The government has shown that if you wait long enough, it will come out with a new program to modify the obligations of the bank and borrower. Pixie dust comes every week.”'
Conclusion
Pixie dust, monkey shine, and b.s. all mean the same thing, which is that if this report is true, there is more trouble on the way for real estate. And if things play out the same way as they played out starting in October 2007, the whole economy is going to take another hit.
This time, though, it will be different as it won't be a derivative issue centering on Wall Street. This time it will be more personal, as those who have clung to their homes with no hope of doing so in the long term, will actually lose them.
If this report holds up, then another housing crash is on the way, and the repercussions will likely extend further than Main Street and Wall Street to your street and ours.
And when things become that personal, you are about to take a walk into the "Twilight Zone."
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