Standard and Poor’s Rating Services’ estimates that the time it will take to clear the supply of distressed homes, or the shadow inventory, on the U.S. market is now 46 months. For the city with the greatest estimate of the time it will take to clear its inventory of foreclosures and short sales, New York City, it will take 202 months, or nearly 17 years.

A huge inventory of nonperforming mortgages in the U.S., but the regional variations in the speed at which servicers can clear the loans are primarily due to differences in foreclosure procedures. As of first-quarter 2012, S&P’s months-to-clear estimate in judicial states is almost 2.5 times as long as nonjudicial states.

The volume of these distressed U.S. nonagency residential mortgages (which excludes loans from government sponsored entities, such as Fannie Mae and Freddie Mac) remained extremely high at $354 billion in the first quarter, but it has declined in each quarter since mid-2010. This latest number, which is based on the original balances of the loans in the shadow inventory, represents slightly less than one-third of the outstanding nonagency residential mortgage-backed securities (RMBS) market in the U.S.

New York City’s distressed inventory ranks largest in the nation with the highest months-to-clear, at 202 months. Boston ranks next at 86 months, then Chicago with 72 and Atlanta with 71 months.

Although liquidation rates seem to have leveled off, it’s still taking servicers longer to foreclose, S&P found that recently liquidated loans missed payments for an average of almost two-and-a-half years before being closed.

• S&P estimates it will take 46 months to clear the national shadow inventory. This is down one month from fourth-quarter 2011.
• Differences in liquidation rates between states are creating a large and growing difference in regional estimates of the months-to-clear.
• The U.S. monthly first default rate fell to 0.67 percent in March 2012, the lowest level since May 2007.