The high pace of residential mortgage defaults has flooded the shadow inventory market with $460 billion in outstanding principal balance, according to Standard & Poor’s second-quarter report on housing liquidation timelines. This vast bucket of homes more than 90-days delinquent, in foreclosure, or REO represent one-third of the non-agency residential mortgage-backed securities market and will negatively pressure housing prices until the backlog clears in more than three years’ time. “Our estimate for the months to clear the shadow inventory for the U.S. as a whole increased about 18% between [the fourth quarter] and the end of [the second quarter],” according to Diana Westerback, S&P global surveillance analyst. The shadow inventory estimate is increasing as the rate of liquidation is decreasing. Monthly cure/modification rates increased by almost 25% in the last two quarters (chart below): The shadow inventory is largest in Los Angeles with an outstanding original balance of $182.8 billion. New York follows with $122.1 billion, and then San Francisco with $82.3 billion. In the top 20 MSAs, Cleveland, Charlotte and Portland have the lowest amount of shadow inventory outstanding balance. Write to Jacob Gaffney.