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Decline in Distressed Assets Cuts Shadow Inventory

After some hefty revisions to prior periods, the number of distressed residential assets included in the nation’s shadow inventory declined. The latest numbers suggest further strengthening in the U.S. housing market.

Mortgage servicers had a shadow inventory of 2.3 million units as of July 31. That worked out to $382 billion in distressed residential assets.

Shadow inventory included 1.0 million seriously delinquent loans, 0.9 million in some stage of foreclosure and 0.345 million real-estate-owned assets that were not included in multiple listing services. In addition, another 0.4 million distressed loans were reflected on MLS.

The flow of new loans into the 90-day category was offset by an equal volume of distressed sales, according to CoreLogic, which released the data Tuesday.

CoreLogic reported that three months earlier, a revised 2,356,988 units were in the shadow inventory, while the revised total for a year earlier was 2,553,965 units representing $397 million in loans.

Revisions to prior periods reflected an enhanced methodology that “adjusted the roll rate approach by incorporating cure rates to more accurately capture increasing foreclosure timelines.”

Including shadow inventory and MLS listings, the number of distressed loans fell to 2,746,000 from June’s inventory of 2,772,000 units. The total distressed inventory was much higher at 3,033,000 in August 2011.

It would take 6.3 months to clear our the shadow inventory as of July, improving from 6.8 months as of August 2011. The number of months had been as high as 10.4 months as recently as January 2012.

Anand Nallathambi, chief executive officer of CoreLogic, said the decline in the shadow inventory is being driven by a variety of resolution approaches and “is yet another hopeful sign that the housing market is slowly healing.”

Nearly half of July’s distressed property inventory was located in California, Florida, Illinois, New Jersey and New York.

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