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» SHADOW INVENTORY DOWN 28% FROM PEAK The number of homes hidden in the shadows in January fell to 2.2 million, a 28 percent decrease from the January 2010 peak when an estimated 3 million housing units were in shadow inventory, CoreLogic reported. The data provider's calculation is based on the number of properties that are seriously delinquent, in foreclosure, or bankowned but not yet listed on multiple listing services. The 2.2 million units represent a supply of nine months and a year-over-year decline of 18 percent compared to January 2012, according to CoreLogic. "The shadow inventory continued to drop at double the rate in January from prior-year levels. At this point in the recovery, we are seeing healthy reductions across much of the nation," said Anand Nallathambi, president and CEO of CoreLogic. Seriously delinquent loans are the main drivers of shadow inventory, accounting for one million (4.1 months' supply) of the distressed properties yet to be released in January, according to CoreLogic. Foreclosures in shadow inventory totaled 798,000 (3.2 months' supply), and REOs in the shadows numbered 342,000 (1.4 months' supply). The states that saw the steepest drop in serious delinquencies over the one-year period ending in January were Arizona (-40 percent), California (-33 percent), Colorado (-27 percent), Michigan (-25 percent), and Wyoming (-23 percent). "The shadow inventory is declining steadily as properties are moving through the distressed pipeline," said Dr. Mark Fleming, chief economist for CoreLogic. "States like Arizona, California, and Colorado are experiencing significant declines year-overyear in the stock of serious delinquencies, a positive sign for further improvement in the shadow inventory." Florida, on the other hand, accounts for 16 percent of the nation's distressed properties. As of January, five states—Florida, California, New York, Illinois, and New Jersey— accounted for 44 percent of all distressed properties in the country. "As we move forward in 2013, we need to see more progress in Florida, New York, California, Illinois, and New Jersey, which now account for almost half of the country's remaining shadow inventory," Nallathambi added. STAT INSIGHT 6.23 Million Total loan modifications since 2007. Source: HOPE Now VISIT US ONLINE @ DSNEWS.COM REP AND WARRANTY, SERVICING COSTS REMAIN ELEVATED Representation and warranty costs among top originators persisted at elevated levels in the fourth quarter of 2012, though new and outstanding repurchase claims were mixed for large mortgage companies, according to a recent analysis from Keefe, Bruyette & Woods, Inc. (KBW). The GSEs continued to drive repurchase claims—both new and outstanding. KBW's report revealed Fannie Mae's new repurchase requests totaled $1.9 billion in Q 4 compared to $2.02 billion in Q 3. Freddie Mac's fourth-quarter repurchase claims were $638 million, down from $819 million the previous quarter. KBW also noted outstanding repurchase requests for Freddie Mac grew to $3.03 billion from $2.94 billion in Q 3. Fannie Mae's outstanding claims stood at $16 billion as of the end of Q 4 2012. For Bank of America, rep and warranty loss reserves increased to $19.02 billion in Q 4 2012 from $16.3 billion in Q 3, while outstanding claims against the bank increased to $28.3 billion from $25.5 billion. According to KBW's report, Wells Fargo's rep and warranty loss reserves rose to $2.21 billion from $2.03 billion in the previous quarter, while GSE requests remained flat. JPMorgan Chase's rep and warranty loss reserves decreased to $2.8 billion from $3.1 billion. At the same time, new repurchase claims against the company fell to $818 million from $1.79 billion, while outstanding repurchase demands declined to $2.98 billion from $4.12 billion. KBW analysts expect new claims to remain high and lenders to continue experiencing high levels of rep and warranty provisions over the next year. However, the boutique investment firm says the rep and warranty framework introduced in September 2012 by the Federal Housing Finance Agency (FHFA) brought changes that are positive for the mortgage industry. One change provides rep and warranty relief for loans that are current for 36 months, with a 12-month equivalent for Home Affordable Refinance Program (HARP) loans. "Underwriting guidelines are very tight currently, partly because of uncertainty about GSE rep and warranty risk, and to the extent this risk becomes more transparent, lenders could potentially be more flexible in their underwriting standards," the firm stated in its report. KBW analysts also found servicing costs remained elevated in the fourth quarter of last year, noting a number of banks participating in the Independent Foreclosure Review (IFR) settlement took on associated costs. For example, the reviews cost Wells Fargo $125 million per quarter last year, according to the report. A modified settlement in January replaced the IFR, which stemmed from consent orders issued by federal regulators in April 2011. KBW also provided a snapshot of collective delinquency data. In January, Fannie Mae's serious delinquency rate fell 11 basis points to 3.18 percent, while Freddie Mac saw an increase of 5 basis points to 3.2 percent. Meanwhile, data from Lender Processing Services shows a decrease in nonperforming loans (delinquencies and foreclosures), which declined to 5.21 million in January from 5.29 million in December. KBW also included data from Mortgage Insurance Companies of America (MICA), which revealed primary insurance cures rose from 20,048 in December to 20,568 in January, while primary insurance defaults declined from 24,585 to 23,538. 47

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