Foreclosures Down, but Housing Pain Isn't Over

Roughly a third of a million properties had some kind of foreclosure action taken against them in April -- from a default notice to a bank repossession to a foreclosure auction.

That comes according to the latest data from RealtyTrac, an Internet marketplace specializing in foreclosures.

Commentators are writing positive headlines about the news because the exact number of foreclosure filings, 333,837, is less than the record-busting 367,056 recorded in March. It's also less than the 342,038 recorded in April a year ago.

But the news does nothing to change the basic trend in foreclosures.

Let me put it this way: Give or take 20,000 or 30,000, we've had a third of a million foreclosure actions a month for the last year -- at least four times the rate of foreclosures in a healthy housing market.

So the news on foreclosures seems to be consistently bad, even though I keep reading (and sometimes writing) that the economy is slowly getting better. What's going on?
While the rest of the economy struggles to move on from the Great Recession, the housing market is still clogged with a huge backlog of properties that have already entered the foreclosure process.

Many of the foreclosure actions that happened in April have been a long time coming. The biggest part of April's approximately 334,000 foreclosure actions came from about 138,000 foreclosure auctions. An auction is the end of a process that usually takes at least two months, but now can take as long as a year.

Banks are taking their time to sell foreclosed properties because they don't want to flood the market any more than they have to. Local foreclosure moratoriums and the federal Home Affordable foreclosure prevention program have also slowed down the foreclosure process.

That's created a huge backlog of properties at risk. More than 6 million homeowners are more than 60 days late in paying their mortgages, according to the Treasury. Even if only a fraction of those properties are eventually seized, it will still mean high foreclosure rates for at least the next year.

"Foreclosure activity has begun to plateau -- but at a very high level that will not drop off in the near future," said James J. Saccacio, chief executive officer of RealtyTrac. He says foreclosures will continue "as lenders systematically work through the backlog of distressed properties."

And as long as homes continue to be sold in foreclosure fire sales, prices for the rest of the housing market will continue to be depressed, especially in the biggest foreclosure states like Nevada, Arizona, California, and Florida.

That's the bad news -- but there's some good news, too.

We are working through the backlog. There were 138,000 foreclosure auctions in April, but there were only 104,000 new default notices. The same trend continued throughout the first quarter, according to RealtyTrac, with a total of 369,000 foreclosure auctions but just 342,000 new default notices,

Since not every borrower who falls behind in his payments loses his house, here's what that says about properties now entering the foreclosure process: The number of those that eventually will be seized is significantly smaller than the number emerging from foreclosure with new owners.

So there's light at the end of the tunnel -- but it's a very long tunnel.

Foreclosure Filings by Month

April, 2010:333,837
March, 2010: 367,056
February, 2010: 308,524
January, 2010: 315,716
December, 2009: 349,519
November, 2009: 306,627
October, 2009: 332,292
September, 2009: 343,638
August, 2009: 358,471
July, 2009: 360,149
June, 2009: 336,173
May, 2009: 321,480
April, 2009: 342,038

(Information from RealtyTrac.)
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