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Skeptics don’t expect REO flood

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Editor's note: This series shines a light on the "shadow inventory" of distressed properties that haven't yet reached the market. Part 1, "Fears of an REO glut persist," explored the various definitions and projections for shadow inventory, and this article, Part 2, details the potential impact of this inventory on the housing market as a whole. While there's mounting evidence that an economic recovery is under way and picking up steam, there's still no escaping the reality that roughly 7 million U.S. homeowners are either behind on their mortgages or in the foreclosure process. If you consider nearly all of those homes to be "shadow inventory" -- as analysts who track the performance of mortgage-backed securities did in one report last year -- it's difficult to imagine that there's not more turmoil ahead in some housing markets. But estimates of the size of the shadow inventory overhang vary widely, ranging from a...