Posted by: jeb1 | April 14, 2011

Foreclosures Plummet to 3-Year Low

Backlogged courts may be the main reason for a slowdown in foreclosure processing, with no shortage of distressed properties, according to RealtyTrac’s latest numbers.

By Melinda Fulmer of MSN Real Estate

Foreclosures plummet to 3-year low in wake of robo-signing scandal (© Justin Sullivan/Getty Images)

© Justin Sullivan/Getty Images

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Foreclosure filings dropped 15% in the first quarter compared with the fourth quarter of 2010, hitting a new three-year low as allegations of impropriety slowed the processing of loan delinquencies.

Year-over-year, filings — from notices of default to repossessions — dropped 27% in the first quarter, RealtyTrac said. That’s the biggest drop since the online foreclosure marketplace began issuing reports in 2005. With 681,153 filings reported in the quarter, one in every 191 U.S. housing units received a foreclosure filing.

“The numbers are way off from what we think we should be seeing in the market right now,” said Rick Sharga, RealtyTrac senior vice president. “We had anticipated that we would see 900,000 homes receiving a foreclosure filing.”

Backlogged courts
Sharga said much of the slowdown is happening in judicial-foreclosure states such as Florida, Massachusetts, Connecticut, New York and New Jersey.

In those states, he says, banks and servicers are under fire for improper review and handling of foreclosure documents. They now must comb through thousands of pages of documents and, in many cases, refile complaints, further backlogging courts. 

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Nowhere was that more apparent than in Florida, where foreclosing filings declined 62% to 58,322 in the quarter from the same time last year, and fell 47% from the fourth quarter of 2010.

“This is really all part of the robo-signing paperwork issue,” Sharga said. “Almost none of this is related to a decline in distressed properties. ”

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Still, by March, the end of the quarter, U.S. foreclosure activity had picked up 7% from February. It was, however, still down 35% from March 2010, the monthly peak for filings.

It’s still unclear whether the foreclosure crisis has already peaked, Sharga said, or if a new peak in filings will be reached as banks start moving more quickly to take back delinquent properties.

Banks sitting on properties
Much of it depends on how quickly banks can or will process their delinquencies. 

In many cases, analysts say, banks aren’t sending default notices for more than a year because they are not equipped to handle foreclosure proceedings or don’t want them on their books right now.

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In New York and New Jersey, for instance, it is taking more than 800 days to execute a foreclosure once it has begun, Sharga said, which gives residents a long time to live mortgage-free.

 Las Vegas real-estate agent Ruth Ahlbrand of Re/Max Central said she isn’t seeing the number of short sales increase, either.

“We thought we’d be doing more short sales. But while they are turning (the existing ones) around faster, we don’t see any increase,” Ahlbrand said.

Celia Chen, a senior director and housing economist at Moody’s, said she believes a large part of the problem is manpower.

“Hiring has not been enough to keep up with the flood of foreclosures coming through the system,” she said.

A settlement announced Wednesday between U.S. regulators and 14 large mortgage servicers would require servicers to hire more staff, improve their document-tracking systems and implement a single point of contact for distressed borrowers. It also ends the practice of dual-track foreclosures in which a lender proceeds with a foreclosure at the same time that a borrower is pursuing a modification.

The government said it plans to impose “monetary penalties” for improper handling of foreclosures by the banks.

Talks between servicers and state attorneys general, who have launched a separate investigation into their practices, are still ongoing.

Home affordability calculator

A boon for some troubled borrowers, this reform should further slow foreclosure processing, Sharga said, at a time when banks are already reluctant to add properties to their books.

Notices of default declined 17% in the quarter from the previous quarter and 35% from the same time in 2010, RealtyTrac said. Lenders took back 215,046 properties in the first quarter, a 6% decline from the previous quarter and a 17% drop from the same time in 2010.

States and rates
In some of the nonjudicial-foreclosure states that were hardest hit by the foreclosure crisis, however, there are some signs that foreclosure activity is picking up again.

  • Nevada continued to post the nation’s highest foreclosure rate in the quarter, with one in every 35 housing units receiving a foreclosure filing, despite a 10% drop in foreclosure activity from the previous quarter and a 35% decline from the first quarter of 2010. However, foreclosures began to pick up in March, with filings increasing 35% from the previous month.
  • Bank repossessions in Arizona increased 26% between February and March, the second-highest foreclosure rate among states. One in every 60 Arizona households received a filing during the quarter. Foreclosure activity increased 15% to 46,047 in the quarter from the fourth quarter of 2010 but was still down 17% from the same time last year.
  • First-quarter foreclosure activity declined 4% from the previous quarter in California and 22% from 2010. However, the Golden State still posted the third-highest foreclosure rate, with one in every 80 housing units or 168,543 homes receiving a foreclosure filing, enough to comprise 25% of the U.S. total. But despite the drops in overall filings, bank repossessions increased 17% in the first quarter from the fourth quarter of 2010, and March default notices increased 28% from February.

Other states with high foreclosure rates were Utah, Idaho, Georgia, Michigan, Florida, Colorado and Illinois.

The shadow inventory
Just how many potential foreclosures loom over the stagnant housing market is still uncertain.

Analysts’ estimates of the number of distressed properties still in the pipeline — often called the shadow inventory of homes — vary widely.

Property-data firm CoreLogic says loans on 1.8 million homes are more than 90 days delinquent, comprising a nine-month supply, according to a March estimate.

Chen of Moody’s tags the number at around 4 million. That’s far more than the 630,000 homeowners who have received permanent modifications of their loans through the government’s Home Affordable Modification Program (HAMP) as of February.

Such a large backlog, she said, should weigh on the market much longer than anyone had anticipated.

“It will take a good year or two before these properties are all cleared off the market.”

Right now, Sharga said, banks are listing less than 30% of their foreclosed inventory as they try not to saturate some of the markets hardest hit by foreclosure.

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Ahlbrand said officials from Fannie Mae and Freddie Mac have promised her they’re not going to flood the still-weak Las Vegas market with foreclosures all at once but will trickle them out over time. Ahlbrand estimated it will take as much as three years for the huge number of foreclosures to work their way out of her distressed market.

A slow release of these lower-priced properties might be a good thing, economists say, given the abysmal state of the housing market this year, even with foreclosure activity down 27%.

“We’re likely to see even more downward pressure on pricing before the housing market stabilizes,” said Chen, who expects prices to decline 5.5% on average this year from 2010.

That raises the question, Sharga said, “What would the housing market look like if foreclosures were at (normal levels)?”

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