Shadow Inventory Report from HUD and FHFA – Part I

Cogburn Law
Madeleine Jones
June 5, 2013

Recently a report was released by HUD and FHFA (Fannie Mae and Freddie Mac) that sheds some light on the issue of  “Shadow Inventory”.  This report is from the Federal Housing Finance Agency Office of Inspector General.  There was some concern in the housing industry that the banks were holding on to huge inventories of homes and that there was a risk of flooding the markets with these vacant homes and driving prices down again.  This new report provides real numbers to a lot of speculation.

Shadow Inventory”, as used in the report, consists of “properties with mortgages that are over 90 days delinquent, but which have not yet completed the foreclosure process”.  The report distinguishes shadow inventory from REO inventory, which are the homes that have completed foreclosure but are still the property of the lender that foreclosed.  The numbers are for the entire nation.

Here are the figures:


Shadow Inventory

REO Inventory

Fannie Mae



Freddie Mac









Overall Total




According to the report, of the 741,384 HUD insured properties that are 90 or more days delinquent, only 219,699 were in foreclosure.  That leaves 521,685 mortgages that are 90 or more days delinquent but not in any official foreclosure status.  It’s going to take a lot of work for HUD to move that inventory of delinquent homes.  HUD insured loans can be some of the most difficult loans to work on for a modification or short sale.  HUD guidelines are by far some of the most restrictive when it comes to who may qualify for their programs.  Conversely, Fannie Mae and Freddie Mac have expanded their modification programs to allow more borrowers to qualify.  In fact, Fannie Mae and Freddie Mac streamlined a new program that automatically gives certain borrowers a modification if they are more than 90 days delinquent.  The new Fannie/Freddie program is hopefully going to help them move some of the shadow inventory off their books into performing loans again.

The major problem for both HUD and Fannie/Freddie loans is that neither of them allow for modifications that include a principal reduction.  Although there has been constant pressure on FHFA to allow for principal reductions on Fannie/Freddie loans, it has consistently been rejected by interim FHFA head Ed DeMarco.  Should DeMarco’s replacement allow for principal reductions, it’s possible that many of those loans in the shadow inventory pool could be converted to performing loans again.  To date, there has been little hope that HUD will allow for principal reductions.

One good change that HUD implemented towards the end of 2012 was the expansion of their modification program.  While it was not as expansive as Fannie Mae and Freddie Mac’s expansion, it will allow for more people to qualify for a modification.  Hopefully HUD will continue to expand their guidelines so that more homeowners can qualify for a program that allows them to keep their home.


If you have further questions or concerns, contact Cogburn Law Offices today. We can help.