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Equifax: Volume of Shadow Inventory and REO Stalls Economic Recovery

An Equifax study has found that the high volume of shadow inventory and the abundance of REO properties in the marketplace are roadblocks to any economic recovery.

According to the credit research firm, shadow inventory is causing more severe mortgage delinquencies and write-offs by banks on foreclosed mortgages.

In 2010, home finance write-offs reached $304.6 billion, compared to a combined total of $126.7 billion in 2006 and 2007.

Since 1Q 2010, delinquencies from these write-offs have remained stable. As of May, approximately $320 billion of mortgages from 2006 and 2007 are beginning the foreclosure process, with many of these loans being written off.

Equifax research has shown that write-off dollars, which includes first mortgage and home equity installment loans as well as home equity revolving accounts, are still climbing and have yet to show signs of peaking.

Through May, first-mortgage REO rates also remain high as lenders struggle to sell properties through a short sale or foreclosure auction. Equifax said 3% of all first mortgages nationwide were REO properties, representing $21.8 billion.

“Shadow inventory and real estate owned are playing a dominant role in today’s mortgage market,” said Craig Crabtree, senior vice president and general manager of Equifax Mortgage Services. “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. Until these foreclosures are processed, the mortgage market will continue to impact economic growth.”