National Recovery is Affected by REOs and Shadow Inventory

Several financial sectors suggest economic stabilization and growth, but the nation’s housing market continues to dampen overall conditions, according to the credit bureau Equifax.

Equifax, based in Atlanta, has released the results of a study it conducted during the month of May analyzing national credit trends.

The company points to shadow inventory and REOs as the two major mortgage market depressors.

“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,” said Craig Crabtree, SVP and general manager of Equifax Mortgage Services.

Equifax says shadow inventories are contributing to a continued rise in severe mortgage delinquencies and write-offs.

Total write-offs in 2010, including first mortgages and home equity installment loans, were $304.6 billion, whereas write-offs for 2006 and 2007 combined were $126.7 billion.

In addition, Equifax’s May 2011 research reveals $319.7 billion in first mortgages from 2006 and 2007 vintages are in the first steps of foreclosure. Many of these will be written off as well.

While REOs have fluctuated over the last few years, Equifax says they have been on the rise since March 2011, causing added strain to the nation’s economy.

Equifax data show that 3 percent of all the nation’s first mortgages in May were REOs, representing $21.8 billion.

At 1.45 percent, foreclosure complete rates almost mirrored bankruptcy rates, 1.6 percent, hinting that many REOs may be the results of bankruptcies, according to the data.

“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,” Crabtree said.

“Until these foreclosures are processed, the mortgage market will continue to impact economic growth,” Crabtree continued.

Equifax notes that almost two-thirds of loans with past-due balances in May 2011 were originated between 2005 and 2007.

The study also found that of the $6.5 billion in home equity credit lines given to borrowers in March 2011, 98 percent, or $6.4 billion, went to prime borrowers, and only $100 million went to subprime borrowers, demonstrating strict underwriting strategies, according to Equifax.

Equifax composes its monthly reports from data on more than 585 million consumers and 81 million businesses.

This article is from “Shadow Inventory and REOs Loom Over National Recovery.”

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