Foreclosures Are Down, So Why Isn’t That Good News?

There’s good news and bad news about foreclosures.  Although the number of foreclosures fell to their lowest rate in 4 ½ years in April, the reason is a delay in processing the orders, not because Americans are experiencing less trouble paying their mortgages.  “Foreclosure activity decreased on an annual basis for the seventh straight month in April, bringing foreclosure activity to a 40-month low,” James J. Saccacio, chief executive officer of foreclosure data company RealtyTrac, said.  “This slowdown continues to be largely the result of massive delays in processing foreclosures rather than the result of a housing recovery that is lifting people out of foreclosure.”

According to Saccacio, “The first delay occurs between delinquency and foreclosure, when lenders and services are no longer automatically pushing loans that are more than 90 days delinquent into foreclosure but are waiting longer to allow for loan modifications, short sales and possibly other disposition alternatives.  Data from the Mortgage Bankers Association shows that about 3.7 million properties are in this seriously delinquent stage.  The second delay occurs after foreclosure has started, when lenders are taking much longer than they were just a few years ago to complete the foreclosure process.”

Nationally, homes typically are taking 400 days to go from the initial default notice to bank repossession, an increase when compared with 340 days a year earlier and 151 days in the 1st quarter of 2007, RealtyTrac said.

According to RealtyTrac’s report,  219,258 American homes were involved in the foreclosure process in April, either having received a notice of default, been scheduled for auction or been repossessed.  This is nine percent less than from March and a 34 percent cut from April 2010.  The report also shows one in every 593 American homes received a foreclosure filing during April 2011.  In New York, it took a property 900 days to go through the process.  In Florida, it was 619 days and in California, 330 days.

Nevada tops the list of states for foreclosures in proportion to its population, with one out of every 97 homes receiving a foreclosure filing in April.  Arizona ranked second.  Although Arizona foreclosures fell 15 percent,  REOs (bank repossessions) rose 22 percent, keeping the state in second place for the fifth consecutive month.  One in every 205 homes received a foreclosure filing.  Similarly, a 22 percent jump in REOs kept California in third place for a sixth month despite a decline in activity, with one in every 240 units affected during the month.  Other states in the top five are Utah (one of every 322) and Idaho (one of every 325).

Just ten states account for 70 percent of all foreclosure activity.  The first two in terms of numbers of foreclosures, California with 55,869 filings and Florida with 19,649 and the fourth, Michigan with 12,996, have large populations.  Arizona and Nevada, with relatively small populations rank in the top five by virtue of numbers as well as foreclosure rate with 13,419 filings and 11,761 filings.  The next five states with the greatest number of foreclosures are Illinois, Texas, Georgia, Ohio, and Colorado.

Writing in The Atlantic, Daniel Indiviglio notes that “It’s hard to see how this is good news for the housing market.  Prices are likely falling more slowly since the foreclosures aren’t hitting the market as quickly as they should be.  But they cannot be held up artificially — the decline will just happen over a longer period of time instead of quickly and steeply.  That means it will take longer for the housing market to hit its true bottom.  Only when that occurs can a recovery begin.  In other words, banks’ failure to process foreclosures in a timely manner will prolong the housing market’s struggles.”