A WEIRD reason housing inventory could re-hydrate in 2016

No, I don't have a crystal ball, or a direct line to The Wizard of Odds. But, I do follow the news; and, have a memory like a steel trap, when it comes to issues of interest. I've always been intrigued by real estate. I'll leave it at that.

Shark attacks and lifeguards

Around 2006, when the housing bubble began showing signs of a burst; less homeowners could qualify for refinancing or HELOCs (Home Equity Loans), as most were arcing upside down in their mortgages. That term upside down (or underwater, as some say) simply refers to, owing more on your home than it's current market value. This bubble was partially a result of a slowing economy, and greed in the mortgage industry (yes, I said it...AND, out loud) offering home owners up to 125% LTV (loan to value) on their homes. I was a Realtor in the San Francisco Bay Area at the time; and was repulsed by the way my clients were being sucked into this predatory funding funnel. It's a basic rule of thumb...what goes up, must come down. There was a reason many mortgage originators were dubbed sharks...you couldn't see them coming, as they swam in for the kill (and, yes...of course, not all lenders were or are like this; there are some really good Cash Cats out there). But, I am happy to report, as the market began to recover...this time around we had lifeguards, with an established set of rules for lending money. Baywatch with bankrolls, if you will.

In 2009, at the critical juncture of the housing disaster; I was a Sales Director for a loan mitigation company. Please do not judge me...I had to work, in a sagging market. It was around that same time, The Treasury Department launched it's Home Affordable Modification Program (HAMP), part of the Stimulus or Recovery Act; and, my head was spinning with business. I couldn't keep up fast enough with the requests to "modify" home loans. Initially, I saw this as a good thing; the government swooping in like a superhero, and saving drowning homeowners from foreclosure. However, there were very few regulations, if any...and, when it was all said and done; many companies claiming to "modify your mortgage" ended up with new wardrobes and addresses, IE: Mr. Smith, Cell Block #1, Leavenworth, KS. Those that opted to stay legit, rode out the wave of mortgage mods, until the damn backed up.

Yet, as desperate request continued for help, so did the demand for stricter guidelines...and, ultimately we ended up with programs that resembled some sort of genuine relief for the home owner.

Tsunami coming

Question...what happens with every loan, of any kind? Eventually it comes "due". Guess what's comin' due? Yep, HELOCs, HAMPs, Mods, etc. COMING SOON to a theater near you...RESET - 2015. This is not the first tidal wave of mortgage changes taking place; but, it's the first mass amount since the 2010 forbearances, so to speak.

"Wait, I thought I heard there was an extension on these?" Yep...you've got one "til the end of 2016 (on a case by case basis...sounds about right for government programs; vague and non committal).

But, what does any of this have to do with where the buried treasure of housing might be? In a market that desperately needs a freight of Pierre saturating it...I'll share, how I believe this influx of housing could wash up to shore.

STICKER SHOCK.

Many of these mods had ridiculously low interest rates; some even had 0%. Various programs had home owners set up on interest only payments, or a ginormous principal reduction, lasting anywhere from 5 - 30 years. But, as a good chunk of these arrangements near their end; many owners will not be prepared financially for this catastrophic marriage of mortgage payments. The momentary relief (well, a half decade, plus is hardly a stint)...is soon to revert back to a fully amortized amount. Ouch! Tsunami underway, the climate is right.

Now what?

Washing onto the shore

Throw your fishing line out there; and see what you catch as an idea, regarding these house payment adjustments. Did the word default come to mind? Foreclosure? Wait, what? You don't think that could happen, twice? Here's a bite out of a stat provided by TransUnion, recently.

"After loan modification, close to 40% of owners remained current on their mortgage, 18 months into the modification. After 18 months, 59.1% of mod loans had a re-default; meaning they went 60 days or more past due. And, within 12 months, 42 percent had gone 60 or more days past due".

This post isn't about whether or not the bailout worked; it's about a concept...that a countless amount of these homes, are headed back into default; and, eventually foreclosure. And, they have to go somewhere. My highest, and best educated guess...surfing right back into the housing inventory. So, you think we are dry as The Sahara, now? Watch for that 2015 reset. My personal and professional opinion...a re-hydration of homes will be floating to the surface, very soon.