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ESTIMATED TIME TO CLEAR DISTRESSED INVENTORY RISES Distressed inventory is on the decline, but the number of months it will take to clear that distressed inventory from the market is on the rise, according to a report from Morningstar Credit Ratings. Distressed inventory among non-agency residential mortgage-backed securities (RMBS) dropped 20 percent year-over-year and 5 percent quarter-over-quarter in the third quarter of 2013, Morningstar reported. By the ratings agency's calculation, privatelabel RMBS' total distressed inventory— including properties in foreclosure, 90 or more days delinquent, REO, and half of all modified mortgages—stood at about 891,000 properties as of the end of September. Morningstar includes half of all modified first-lien mortgages in its distressed inventory count because these properties are more likely to default than those that have been performing steadily since origination, the agency explained. Fifty-seven percent of this distressed inventory is located in judicial states, according to Morningstar. States with the highest levels of distress include New Jersey, Florida, New York, Maine, and Illinois. 16 Colorado, Arizona, and Wyoming hold the smallest distressed inventories. While distressed inventory is declining, the time estimated to clear these homes from the market rose sharply in Q 3—up five months from the second quarter of 2013 and up 11 months from the third quarter of 2012, according to Morningstar's analysis. It will take 49 months to work through the private-label RMBS sector's distressed inventory "given current market dynamics," Morningstar forecasts. Here too, there is a clear distinction between judicial and non-judicial states. Judicial states hold about 61 months of distressed inventory, while non-judicial states hold about 32 months' worth. Morningstar also measured distressed inventory across the 20 largest metropolitan statistical areas (MSAs) in the nation, finding it will take an average of 55 months to clear these inventories. By far, New York holds the longest distressed inventory timeline at an estimated 230 months. Boston ranked second with 120 months of distressed inventory as of the third quarter. With an estimated 20 months of distressed inventory, Phoenix has the shortest distressed inventory timeline. Morningstar also reported short sales made up 49 percent of distressed sales in the third quarter of 2013, up from 45 percent a year earlier. In addition, the agency says the percentage of voluntary prepaid loans versus liquidated loans is on the rise. Forty percent of all loans paid off in the third quarter were voluntary prepayments in judicial states, up from 25 percent the previous quarter. VA INCREASES ALLOWABLE ATTORNEY FEES The U.S. Department of Veterans Affairs (VA) recently published a notice in the Federal Register that new maximum foreclosure attorney fees will be reimbursed for loan terminations completed on or after December 12, 2013. Maximum fee amounts vary by state. There are no changes in the amounts allowed for deeds-in-lieu of foreclosure or bankruptcy releases, although VA continues to review these fees. The Department's VALERI system is being enhanced to allow up to the new amount in guaranty claims for loans terminated on or after December 12. If the loan was terminated prior to December 12, no more than the prior maximum fees is allowed. The new fees are based on the date of loan termination, which is the "Final Event" or "Loan Termination Event" as shown in the State Foreclosure Process and Statutory Bid Information table in the Document Library on the VALERI website. A table showing the new allowable attorney fees is also posted in the site's Document Library. The fee cost schedule in VALERI has also been updated.

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