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Fourth-Quarter Shadow Inventory Update: Drop In Liquidations, Stable Cure Rates Indicate Increased Foreclosure Timelines

Standard & Poors

The volume of distressed nonagency residential mortgage properties in the U.S. continues to fall, but at an ever-slowing pace. Standard & Poor’s Ratings Services currently estimates that the principal balance of these distressed homes amounts to about $450 billion, representing nearly one-third of the nonagency residential mortgage-backed securities (RMBS) market currently outstanding. We define this yet-to-be absorbed “shadow inventory” of distressed properties as outstanding properties whose borrowers are (or recently were) 90 days or more delinquent on their mortgage payments, properties currently or recently in foreclosure, or properties that are real estate owned (REO).

At the end of fourth-quarter 2010:

* We estimate it will take 49 months, or more than four years, to clear the supply of distressed homes on the market in the U.S. as a whole. This is an 11% increase over the previous quarter and a considerable 40% increase from fourth-quarter 2009 for the average time to clear these properties in the U.S.

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