Lenders Quietly Unload Shadow Inventory

A new report from JPMorgan Chase shows that banks are turning over their shadow inventory '?N????e??(R) the backlog of foreclosed and distressed homes created by the housing bust '?N????e??(R) more quickly since major litigation closed earlier this year. Increasing home prices are improving the outlook for lenders and underwater borrowers alike.

The nascent recovery of the housing market allowed banks to move 1.2 million foreclosed homes and troubled mortgages '?N????e??(R) their '?N????e??shadow inventory'?N????e?? '?N????e??(R) in the first half of 2012.

Research recently released by JPMorgan Chase says that figure could double by the end of the year. Lenders would still retain more than 4 million loans and properties, still high but down from 2010'?N????e??os peak of 6 million.

Since the five largest lenders closed litigation in March '?N????e??(R) paying a total of $25 billion for foreclosure irregularities '?N????e??(R) banks have been turning over distressed and foreclosed properties through short sales more than modifications. Real estate owned (REO) homes and short sales comprised more than 800,000 sales in the first half of the year, compared to 420,000 loan modifications. Analysts are predicting 1.7 million foreclosures and short sales to sell by the end of the year, and roughly 800,000 modifications.

Since banks have been prudent about the rate at which they release the homes to market, and new home sales and construction have also trended upward for most of the year, home prices have continued to rise. Analysts say rising home prices could buoy another strain on the market: '?N????e??underwater'?N????e?? borrowers that are making payments on loans worth more than the home itself. Chase estimates that another 10 percent increase in prices could reduce the roughly 10.8-million underwater borrowers to 9 million.

'?N????e??The rapid decline should prevent downward pressure on home prices going into 2013,'?N????e?? analysts told Housing Wire. '?N????e??Combined with better existing home sales, investors have reason to be optimistic about running recovery scenarios.'?N????e??