S&P Predicts Four Years to Clear Distressed Properties

(LoanRateUpdate)

Standard and Poor’s Rating Service (S&P) has released its “Fourth-Quarter Shadow Inventory Update” and predicts that it will take more than four years to clear the shadow inventory of distressed properties. The prediction is an 11 percent increase from the third quarter of 2010 and a 40 percent increase from the fourth quarter of 2009.

Topping the list is New York where the S&P predicts that it will take up to 10 years to fully clear the city’s shadow inventory, twice as long as any of the other top 20 metro areas.

Shadow inventory is defined as distressed properties in which borrowers are 90 days or more delinquent on mortgage payments and where properties have recently fallen into foreclosure or are real estate owned.

Miami is the only top-20 metropolitan statistical area (MSA) for which our estimate of the time to clear the inventory of distressed properties remained stable since the fourth quarter of 2009.

The report blames the increasing inventory to liquidation rates that are falling in part because of increasing timelines for resolving troubled assets. The 90-plus-day delinquent loans and foreclosed properties are taking longer to become REO, which is lengthening the overall timelines for resolving troubled assets.

Los Angeles has the largest shadow inventory overhang balance but it is expected to clear its inventory in 50 months or in about 4 years.

“Our recent estimates of months to clear have increased primarily because of the deceleration of the distressed property liquidation rate rather than a rise in overall distressed property levels,” according to the S&P report. "It seems that 90-plus-day delinquent loans and foreclosed properties are taking longer to become REO, which is lengthening the overall timelines for resolving troubled assets."

There was still some good news coming out of the report; the number of overall distressed loans continues to fall and loan cure success rates have been improving since the second half of 2008. Also, the recidivism rates for loans cured or modified in fourth-quarter 2009 were significantly lower than for previous periods.

Here’s a rundown of the metro areas in the report:

MSA	Number of months of inventory
	4Q10	3Q10	2Q10	1Q10	4Q09
Atlanta	49	44	41	40	35
Boston	71	62	60	59	54
Charlotte	65	52	47	48	44
Chicago	59	52	48	45	42
Cleveland	57	47	43	40	36
Dallas	56	46	41	43	41
Denver	38	35	33	32	28
Detroit	31	30	27	25	22
Las Vegas	33	30	28	24	20
Los Angeles	50	45	43	41	36
Miami	60	60	64	64	60
Minneapolis	38	35	32	27	21
New York	130	119	115	107	100
Phoenix	25	23	21	20	17
Portland	51	45	38	34	31
San Diego	39	35	32	31	27
San Francisco	42	38	34	32	28
Seattle	59	54	48	45	42
Tampa	57	55	55	55	51
Washington	50	44	40	37	33

Tags: S&P, shadow inventory, loan cure success rate, distressed properties, borrowers, mortgage payments, foreclosure, liquidation rates, troubled assets, delinquent loans