Last time we discussed shadow inventory, we focused on the large build up in the seriously delinquent category of distressed inventory. Since then, many of the 90+ days-late loans have progressed into foreclosure inventory. Along with the improvement among new delinquencies, the seriously delinquent inventory has fallen. Still, the size of the shadow inventory has remained largely unchanged, partly due to the robo-signing crisis that began last year.
In sizing up the inventory of distressed loans, we can see that there has been some positive change particularly among the new delinquencies. The new delinquencies continue trending down and are below 2008 levels. According to LPS data, the share of loans that are behind by two payments are down 13 percent from last fall and add up to about 2.36 million – down from over 3 million at the beginning of 2009. Among them, however, are a large number of repeat delinquencies. Only about a quarter of new 30 day delinquencies are first time delinquencies. Furthermore, within the seriously delinquent inventory, with loans 90+ days past due, data shows that inventory has also receded significantly from over 3 million at the beginning of 2010 to about 2.17 million currently. Foreclosure starts, where the loans move from delinquent status into foreclosure, are significantly down from last fall, showing a 20% decrease, or about 220,000 starts, per month. This is not a surprise given the impact that moratoria and robo-singing has had on the entire foreclosure process. The starts are still up from this April, however, when they reached a halting 187,000 monthly starts.
Nevertheless, the bottleneck still sits in foreclosure inventory. There are still over 2.1 million loans included in the foreclosure inventory, a number much unchanged from the beginning of 2010. This lingering inventory, however, is increasingly filled with aging delinquent loans. Forty percent of the foreclosure inventory is made up of loans that have not made a payment in at least 2 years, accounting for about 900,000 loans.
The reason for this aging inventory is largely a consequence of moratoria, process reviews under way, but also modification efforts. Since January 2010, about 2 million modifications have taken place either through the HAMP program or through private modifications. Interestingly though, for every 100 loans that enter the foreclosure inventory, 100 loans exit. Of those 100 that exit the foreclosure inventory, almost 60 percent return to delinquent inventory. Along with the trends suggested among the new delinquencies, this exit trend indicates a high level of churning among the same group of problem loans.
At the state level, past due inventory has fallen in all but two states, Alaska and Wyoming. The largest six month decline was in fact among the states with highest degree of foreclosure problems, Arizona, Florida, Nevada, California, but also Connecticut, all falling in the range of 11 to 13 percent. Other states with elevated foreclosure levels, are also down, in the range between 10 and 5 percent.
For more information, read the Foreclosure Inventory presentation here >