Foreclosures Fall as Banks Streamline Process
The news will make for some positive headlines -- but we've seen fluctuations like this before. The rate of foreclosure is still absurdly high.
The genuine good news is buried a little deeper in the RealtyTrac report. Banks are cutting far into the backlog of properties in the foreclosure process, while fewer new properties are getting into trouble as the job market begins to stabilize.
"Lenders appear to be ramping up the pace of completing those forestalled foreclosures even while the inflow of delinquencies into the foreclosure process has slowed," said James J. Saccacio, chief executive officer of RealtyTrac. "Overall foreclosure activity [is] leveling off while lenders work through the backlog of distressed properties that have built up over the past 20 months."
The question is whether this lull is an early sign of upward momentum in the housing market or rather a quick torpor before another round of recessionary catastrophe.
Banks took foreclosure actions against 322,920 properties in May. That's down 3 percent from the month before, including default notices, bank seizures, and foreclosure auctions. But whether that's improvement depends on how you look at the information. True, banks took foreclosure actions against fewer properties in May compared to March and April. But the number of foreclosure actions in May was up compared to January and February. And it is almost exactly the same as it was a year ago.
In reality, the number of foreclosures has barely changed at all: Give or take 20,000 or 30,000, we've had a third of a million foreclosure actions a month for the last year. That's an incredibly unhealthy level, at least four times the rate of foreclosure actions in a healthy housing market.
Still, fewer properties are getting into trouble. Since job losses have slowed, it makes sense that the number new delinquencies would start to decline eventually. The most common reason borrowers sought help from a foreclosure-prevention process like the federal Home Affordable Modification Program is "loss of income," according to officials.
About 96,000 new properties received default notices in May. That's the lowest number of properties to begin the first stage of the official foreclosure procedure since November 2008, and about a third less than the peak in April 2009. The rules are different from state to state, though banks typically issue default notices after a mortgage is more than 90 days late.
In contrast, the number of properties to reach the last stage in the foreclosure process was at a record high: 94,000 U.S. properties were repossessed by lenders in May. Not every default notice ends in foreclosure, though: There are also short sales and even successful loan modifications, in addition to the occasional borrower who emerges from their financial difficulties. So this means that even though fewer are entering the process, the great majority of those distressed properties, finally, are going all the way through foreclosure.
It will take a long time to work through that backlog. In the first quarter, 14.01 percent of people with home mortgages were 30 days or more late in their payments or in the foreclosure process. That works out to about 7.3 million borrowers in trouble, according to the National Delinquency Survey from the Mortgage Bankers Association. That's hundreds of thousands of fewer borrowers behind in their payments than MBA counted in the third and fourth quarters of last year.
Faster processing by lenders; fewer borrowers in trouble. Sounds at least a little like a recovery, no?
Foreclosure Filings by Month
May, 2010: 322,920
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
(Information from RealtyTrac.)