Approximately 7.5 million first-lien borrowers fell behind on their mortgage as of March 2010, about 15% of the 51 million total borrowers. Of the 7.5 million, more than 5 million made a payment in the last three months, which means more than 10% of all mortgage borrowers are seriously delinquent, according to the report.
Since the US government introduced delays in the foreclosure process, such as the Home Affordable Modification Program (HAMP) and the Home Affordable Foreclosure Alternatives (HAFA) program many believe the shadow inventory represents the foreclosed inventory that has yet to reach the market, Morgan Stanley measures the “shadow inventory” as the amount of homes that will need to be liquidated through the REO process.
The shadow inventory includes all loans behind by 90 days or more, already in foreclosure and a vast majority of loans that are 30-to-60 days delinquent. Morgan Stanley even includes a portion of current loans that will eventually default. They put the total number of homes in the shadow inventory at 8m, this would take 47 months to move through. Others have placed the number at 4.7 million by the end of the summer of 2010 and 5.5 million by the end of the year of 2011.
Given these numbers and the weak pace at which demand is trending, this market could last another 3-4 years, during which annual appreciation may reach only as high as inflation or income growth, meaning real asset values will remain unchanged or lower throughout this period.
Homeowners more than ever need to be informed and have provided to them all options available to them so they can make informed decisions.