Loans are entering delinquency and/or foreclosure at a rapid rate, but are exiting at a very slow rate and this will delay a recovery in the housing market, according to analysts at Amherst Securities Group (ASG).

There are currently 7 million mortgages that are delinquent or in foreclosure according to a Sept. 23 Amherst Mortgage Insight report.

"That housing overhang is the single largest impediment to a recovery in the housing market," the ASG analysts said. While the housing market has seen some signs of bottoming, they expect the impact of this "huge shadow inventory" will increase the percentage of distressed and REO sales going forward.

The National Association of Realtors reported that distressed sales comprised 31% of existing home sales in August. The ASG analysts don't expect loan modifications will constrict the delinquency/foreclosure pipeline.

They contend modifications don't address "negative equity — the single most important determinant of default." Under their most optimistic scenario, only 16% or 1 million loans will be cured. That still leaves 6 million housing units that have to be liquidated.

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