What is really going on with Shadow Inventory?

REO Inventory is Expected to Increase
 
 
Legal snarls, bureaucracy and well-meaning efforts to keep families in there homes are slowing the flow of properties headed toward foreclosure sales, even when borrowers are in deep distress. While that buys time for families to work out their problems, some analysts believe the delays are prolonging the mortgage crisis and creating a growing “shadow” inventory of pent-up supply that will eventually hit the market.
 
The size of this shadow inventory is a source of concern and debate among industry experts who worry that when the supply is unleashed, it could interrupt the budding home recovery and ignite a new waive of stress in the housing market.
 
As of July, mortgage lenders hadn’t begun the foreclosure process on 1.2 million loans that were at least 90 days past due. An additional 1.5 million seriously delinquent loans are somewhere in the foreclosure process, though the lender hadn’t yet acquired the property.
 
In Orange County, the number of bank owned homes listed for sale dropped to 322 in early September from 1,404 in November 2008. But the number of foreclosures is expected to increase in the fourth quarter as the lenders determine who is eligible for a loan modification and who isn’t.
 
The additional housing inventory would greatly benefit homebuyers currently competing for the same properties. The lower inventory level of homes available has generated multiple offers on many properties. This forces buyers to pay more than they wanted or forced them to put offers on multiple properties. While any increase in inventory is a boon for homebuyers the increase will also put pressure on existing home prices.