Shadow Inventory For Nonagency RMBS Could Take Three Years To Clear

al variations in the shadow inventories of distressed U.S. mortgages could indicate where home prices may pick up or continue to stabilize and where additional declines may still be in store, according to a recent report published by Standard & Poor's (S&P) Ratings Services. ‘We estimate that the entire shadow inventory of distressed properties currently outstanding that back nonagency residential mortgage-backed securities would take nearly three years to clear at the current average national resolution rate,’ says Standard & Poor's credit analyst Diane Westerback. ‘Given this backlog, we believe that average home prices could fall again if demand doesn't rise in step with the potential influx of supply.’ The original principal balance of the current shadow-inventory overhang – which S&P defines as outstanding properties that are (or were recently) 90 days or more delinquent, in foreclosure or real estate owned (REO), but haven't yet hit the market – amounts to roughly $480 billion, or 30% of the entire nonagency market. Although shadow inventories remain well above historical averages in most regions of the U.S., inventory levels and trends among U.S. cities varied significantly, the agency says. S&P's review of the 20 major metropolitan statistical areas (MSAs) included in the S&P/Case-Shiller Home Price Indices revealed that inventories appear to be falling from recent peaks in some areas while plateauing at historical highs or continuing to rise in others. ‘For instance, we estimate that the shadow inventory in the New York City metro area will take the longest to clear – at 103 months – assuming the current liquidation rates,’ Westerback says. ‘This is almost 3.5 times our estimate for the national average, at 34 months, and far exceeds the level for the Phoenix metro area, which has a projected 16 months of inventory to clear – the lowest of the 20 MSAs.’ S&P's analysis included all first-lien, prime, Alt-A, and subprime mortgages that appear in nonagency residential mortgage-backed security transactions and used loan-level data available through CoreLogic's LoanPerformance. SOURCE: [link=]Standard & Poor's[/


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