Shadow Inventory

S&P: 46 months to clear shadow inventory
Estimates by Standard & Poor’s Rating Services, based on first quarter 2012 data, show that it will take 46 months to clear the market’s supply of distressed homes, or the shadow inventory.

The agency’s latest estimate came in one month shy of the liquidation timeline determined in the fourth quarter of 2011.

While national residential mortgage liquidation rates appeared stable over the first three months of this year, these rates varied widely between local markets, which prevented any significant reduction in S&P’s months-to-clear estimate, the agency explained in its report.

Regional variations in how quickly servicers can clear the backlog of nonperforming loans are primarily due to differences in foreclosure procedures, judicial vs. non-judicial.

As of first-quarter 2012, S&P says its months-to-clear estimate in judicial states was almost two and half times as long as non-judicial states.

S&P includes in the shadow inventory all outstanding properties on which the mortgage payments are 90 or more days delinquent, properties in foreclosure, and properties that are REO. The agency also includes 70 percent of the loans that became current, or “cured,” from 90-day delinquency within the past 12 months because S&P says these loans are more likely to re-default.