JAN 22, 2013 5:45pm ET

Inventory of Aged Foreclosures, REOs Improves

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The number of mortgages in the process of foreclosure but with no resolution for all loan types improved during the first three quarters of 2012, according to a Moody’s report.

Improvements in the so-called shadow inventory from 1Q 2012 to 3Q 2012 were not uniform among servicers.

Data show the number of aged loans in foreclosure fell for all servicers except for two of the largest servicers: Citi in the jumbo loan category and alt-A product and Bank of America NA in subprime loans.

Nonetheless, Moody’s considers these improvements “a promising trend” that indicates servicers are overcoming “the operational and regulatory issues that plagued them in the past” and are addressing their backlogged foreclosure inventory.

A recent increase in bulk sales of seriously delinquent loans to special servicers also helped decrease the size of the aged foreclosure market, analysts said.

At the same time, the average number of days loans were in foreclosure increased for all servicers from 1Q 2012 to 3Q 1012, indicating these past improvements may not continue at the same pace.

According to Moody’s, the loan foreclosures that remained to be resolved in the third quarter were likely those with the most difficult issues to address, such as documentation concerns or foreclosures contested by borrowers.

REO inventory also improved starting in the first quarter of 2012 when the number of loans in REO dropped for all servicers, “due to an increase in short sale volumes and the ability to sell houses quicker in the improved housing market.”

The same as with loans in the foreclosure process improvements the REO inventory did not decrease for several large servicers, more specifically for Citi in the jumbo REO inventory, Chase in alt-A REOs and Wells Fargo Bank in the subprime REO category.

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