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Study Reveals Impact of Real Estate ‘Shadow Inventory’ on Recovery

ATLANTA, June 30, 2011 /PRNewswire/ — Despite steady gains in key industry sectors, the nation’s housing market continues to exert pressure on the overall rate of economic recovery. While financial conditions across multiple financial sectors suggest economic stabilization and growth, delinquencies still exceed pre-recession levels due to continued turbulence in the mortgage marketplace, according to Equifax (NYSE: EFX) national credit trend research for May 2011.

Slowing today’s economic recovery are the challenges posed by high shadow inventory levels, which are contributing to the continued rise of severe mortgage delinquencies and write-offs. According to Equifax research, write-off dollars for home finance, which includes first mortgage and home equity installment loans as well as home equity revolving accounts, are still climbing and have yet to show signs of peaking. In fact, home finance write-offs reached $304.6 billion in 2010 compared to a combined total of $126.7 billion for 2006 and 2007.

Equifax data shows that severe delinquencies among these loan vintages have remained nearly constant since the first quarter of 2010. Further analysis reveals that as of May 2011 there are approximately$319.7 billion in 2006 and 2007 first mortgage vintages that are in the initial foreclosure process – many of which may be written off.

Real estate owned (REO) properties represent another roadblock to recovery. According to Equifax, first mortgage REO rates remain high as lenders struggle to divest of properties unsuccessfully sold through a short sale or foreclosure auction. While various factors over the last few years have led to fluctuations in the number of REO properties, REO rates since March 2011 are on the rise and causing continued economic strain. Equifax data shows that in May 2011:

  • Three percent of all U.S. first mortgages representing $21.8 billion were REO properties.
  • Foreclosure complete rates of 1.45 percent were almost in lock step with bankruptcy rates of 1.6 percent – suggesting that the majority of REO properties are the result of bankruptcy proceedings.

 

“Shadow inventory and real estate owned properties are still playing a dominant role in today’s mortgage market and slowing the pace of economic recovery. While we are seeing stabilization across multiple sectors of lending, there remains a significant volume of delinquent first mortgage loans, which has slowed the foreclosure process. Until these foreclosures are processed, the mortgage market will continue to impact economic growth,” said Craig Crabtree, senior vice president and general manager, Equifax Mortgage Services.

About R. Mitchell

Rich Mitchell is the Sr. Managing Editor of Conservative Daily News. His posts may contain opinions that are his own and are not necessarily shared by Anomalous Media, CDN, staff or .. much of anyone else. Find him on twitter, facebook and