These charts and maps are designed to inform policymakers and the public at large about the current status and possible future course of the distressed real estate situation. At the national level, the percent of 1-to-4 family mortgage loans in serious delinquency (90+ days) has declined to about 3 percent of all first mortgage loans as of the second quarter of 2012, down from a peak of 5 percent in the first quarter of 2010. But this does not necessarily mean that the worst of the distressed residential real estate problem is behind us.

Indeed, the inventory of properties owned by lenders—referred to as real estate owned, or REO—could rise rapidly in many states through the end of 2013. While this depends on many factors, the number of days it takes to complete the foreclosure process is critical in influencing this inventory level. On average, that length of time has risen substantially in recent years, but whether it continues to rise, stabilizes, or declines will have a major impact on the the change in these REO inventories.

In the analysis here, the implications of these three scenarios are examined, as well as a closer look at regional conditions.

National REO Inventory Scenarios	State REO Data	Regional Distressed Sales

For each state, figures for REO inventory, as of June 2012, are shown, along with the share that this represents of the national REO inventory and the share this is of all mortgages in the state. The corresponding rank of each state for these two categories is also given. Finally, the state level change in REO inventory from June 2012 to December 2013 under the three scenarios is shown.

Each map shows the county-level share that distressed sales represented out of all repeat sales that month. Distressed sales include foreclosure sales, short-sales, and deeds-in-lieu. Distressed sales occur even in good economic times, but as the housing crisis unfolded, the share of sales that were distressed at the national level increased from less than 5 percent in 2003 to more than 30 percent in 2012. Distressed sales are a useful indicator of the magnitude of the housing downturn and a proxy for the speed of recovery or market clearing.

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National and state level data on number of properties in the foreclosure process and in REO were provided by CoreLogic under contract with the Federal Reserve Bank of New York. The projections of future REO inventories were conducted by CoreLogic under a range of alternative assumptions about average days in 90+ day delinquency and average days in foreclosure. Aside from changes in those two variables, all other state and loan category roll rates were held constant at their second quarter 2012 averages. These roll rates were also based on the existing CoreLogic state level home price projections through the end of 2013. County-level distressed sales data are from CoreLogic as well. The data are based upon a repeat sales methodology and come from public records supplemented with with LoanPerformance’s (LP) securities and servicing databases. Repeat sales do not included new home sales, thus they measure the turnover of the existing housing stock. The servicing databases include both LP’s Prime and Subprime database which covers 80 percent of the nation’s active prime mortgages, 100 percent of the Fannie Mae and Freddie Mac portfolios, and $542 billion in active subprime mortgages. Additionally, the securities database covers over 90 percent of the non-Agency mortgage and asset-backed securities market. To mitigate small-sample concerns and to get a good reading of transaction flows, we use a 12-month moving average of all repeated sales and non-distressed repeated sales when calculating the fraction of distressed sales. Distressed sales share for counties with fewer than 25 repeat sale transactions, on average, are not shown.