Sorry Charlie you missed the point. Alot of this so called shadow inventory/REO pipeline is in process via short sales (i.e. already on the market) or undergoing loan modifications.

There are also a ton of people who stopped paying on their 2nds but kept their 1st current. The 2nds wont foreclose cause they will get nothing but they show up in those stats of folks who havent paid in 3+ months. Those are defacto prinicipal reductions that arent ever talked about. Those folks will keep paying the 1st on their $500K 100% financed home now worth $350K cause they are only paying a $400K mortgage that they will get modified down to 3% for the next 5 years or so. At some point the market will come back and they will have to deal with the 2nd unless they come to a settlement earlier but you wont see those shadow homes on the amrket anytime soon either. You try to make this far more simple than it is. More than anything it shows you dont have an understanding of the inner workings of the housing market. Nothing is as simple as it appears to be.