We are all acutely aware of the looming overhang of distressed properties. Since the beginning of the year, we've been saturated with stories of millions of foreclosed and REO properties that are just waiting to hit the market as soon as the banks can complete the paperwork.

We came across some persuasive musings at Calculatedriskblog.com that lead us to believe that the distressed properties market might not be as bad as all that.

The author references Lending Processing Services data, which show about two million properties in the foreclosure process and another 1.7 million loans 90 days or more delinquent. Many of these loans, though, are in judicial states. They will still take considerable time to work through the courts, the author reasons. In other words, it's hard to imagine a huge wave of foreclosures, if anything it will be more like a sustained high tide in many judicial foreclosure areas.

There are also other extenuating factors at work that are often overlooked: we have lenders offering cash incentives to do short sales; government-sponsored rent-to-own programs that allow banks to hold properties as rentals; and HARP 2.0, which allows underwater borrowers to refinance and stay in their homes.

Distressing news always outsells uplifting news. The good news is the distressing news is rarely as distressing as it first appears. Remember the disaster that was supposed to occur on the huge Option ARM reset a few years ago? If you don't, don't worry; neither do a lot of other people.

Courtesy of Jessica Regan.

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