A new ratings agency report on the performance of residential mortgage-backed securities found that despite the increased use of short sales, the liquidation rate on distressed home loans has slowed. It will take more than twice as long to clear out the distressed inventory in the Big Apple than in any other large city.
The number of mortgages in the distressed inventory was 1.0 million in February, down 19 percent from a year earlier. The size of the distressed inventory peaked at 1.8 million properties in December 2009.
Included in the inventory are first liens that are at least 90 days delinquent, in foreclosure or classified as real estate owned. Also included are half of loans that were cured or modified during the past 12 months after being at least 90 days past due.
The findings were discussed in the Q1 2013 Morningstar Distressed Inventory Index: Distressed inventory shrinks, but rate of liquidation slows, despite rise in short sales from Morningstar Credit Ratings LLC.
At the same time, the number of liquidations has declined just 14 percent. The liquidation rate began noticeably slowing in the third-quarter 2012 despite increased short-sale transactions.
“There has been a reduction of distressed inventory over the past year but the reduction has been constrained by a decreasing liquidation rate and varies dramatically by region,” Morningstar stated in the report. “The regional differences seem to be driven by the state foreclosure law (i.e., judicial vs. non-judicial).”
February’s distressed inventory will take 40 months to clear out, improving from 43 months a year earlier.
Among the 20 largest metropolitan statistical areas, New York’s 215-month inventory was the worst of the last five quarters and worse than any other MSA.
A distant second was Boston, where the inventory was 79 months, then 59 months in Miami, 58 months in Washington, D.C., and 50 months in Tampa, Fla.
