Standard & Poor’s Rating Services, one of the most well respected forecasters, has indicated that it will take 46 months to clear the market’s supply of distressed homes, or the shadow inventory. This estimate is down from the 47 month liquidation timeline determined in the fourth quarter of 2011. While these figures obviously indicate a very high volume of foreclosed properties, the figures do indicate that the liquidation rates appeared stable over the first three months of this year.
Of course regional variations in how quickly servicers can clear the backlog of nonperforming loans are primarily due to differences in foreclosure procedures. Georgia and Tennessee are non-judicial foreclosure states, meaning that a foreclosure can occur without the lender filing suit against the debtor. Most experts think it takes two and a half times as long to foreclose property in a judicial foreclosure state.
The shadow inventory includes all outstanding properties on which the mortgage payments are 90 or more day’s delinquent, properties in foreclosure, and properties that are already owned by the banks. The shadow inventory as calculated by S&P also includes 70 percent of the loans that became current, or “cured,” from 90-day delinquency within the past 12 months because S&P says these loans are more likely to re-default.