First-Quarter 2012 Shadow Inventory Update: National Liquidation Rates Moderate, While Regional Differences Widen

Standard & Poor’s Rating Services’ estimate for the time it will take to clear the supply of distressed homes, or the shadow inventory, on the U.S. market fell just one month to 46 months in the first quarter of 2012. While national residential mortgage liquidation rates appeared stable in the first quarter of 2012, these rates varied widely between states, which prevented significant reduction in our months-to-clear estimate.

There remains a huge inventory of nonperforming mortgages in the U.S., but the regional variations in the speed at which servicers can clear the loans are primarily due to differences in foreclosure procedures. As of first-quarter 2012, our months-to-clear estimate in judicial states is almost 2.5x as long as nonjudicial states.

The volume of these distressed U.S. nonagency residential mortgages (which excludes loans from government sponsored entities, such as Fannie Mae and Freddie Mac) remained extremely high at $354 billion in the first quarter, but it has declined in each quarter since mid-2010. This latest number, which is based on the original balances of the loans in the shadow inventory, represents slightly less than one-third of the outstanding nonagency residential mortgage-backed securities (RMBS) market in the U.S.


  • We estimate that it will take 46 months to clear the national shadow inventory. This is down one month from fourth-quarter 2011.
  • Differences in liquidation rates between states are creating a large and growing difference in regional estimates of the months-to-clear.
  • The U.S. monthly first default rate fell to 0.67% in March 2012, the lowest level since May 2007.

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2 Trackbacks

  1. […] & Poor’s is saying it will take 46 months to clear out all the shadow inventory. That’s right…almost 4 […]

  2. […] months to clear up the entire backlog is a good one. And as an added hope, the U.S. monthly first default rate did fall to 0.67% in March 2012. This was the lowest default fate since May of 2007. So there’s […]

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