'Shadow' homes could burden US housing agencies, report says

Well over a million US homeowners are months behind on payments on government-backed mortgages, raising the risk federal housing agencies will face the cost of managing a fresh flood of foreclosed homes, two government watchdogs say.

Some 1.7 million borrowers had missed several payments on mortgages backed by Washington, said the inspectors general of the Federal Housing Finance Agency and Department of Housing and Urban Development in a joint report.

These loan delinquencies represent a "shadow inventory" of homes that could hit the market if foreclosed on, which would need to be managed by government-run Fannie Mae or Freddie Mac, or some other federal housing agency.

Once seized, these so-called real estate owned properties (REO), present significant financial challenges to these government housing agencies, the report says.

"Not only are current REO inventory levels elevated … they may rise over the next several years depending on the number of shadow inventory properties that are ultimately foreclosed on," it said.

Since the housing market boom and bust, the government has employed billions of dollars to help borrowers manage high-cost loans and stabilise neighbourhoods affected by foreclosures.