During February, the total amount of foreclosure filings declined to 225,101, according to statistics released today from RealtyTrac. This is a 14% reduction compared to January, when there were 257,747 filings. February also marked the fewest amount of foreclosure filings in three years – dating back to February 2008. While these improvements are associated with the increased scrutiny of foreclosure proceedings, these are positive results for the housing market.
Compared to February 2010, there was a 27% reduction in foreclosure filings in February 2011, which is the greatest annual decline on record. Foreclosure filings refer to bank repossessions, default notices, or scheduled auctions. Bank repossessions declined 17% in February, hitting a 22-month low of 64,643. Repossessions peaked in September 2010, which is the only month to ever record more than 100,000 repossessions.
Following September, the amount of repossessions, as well as total foreclosure filings, declined as a result of the temporary suspension of foreclosures from allegations of notary fraud. While this suspension is no longer in effect, the controversy has led to a slower processing rate of foreclosure proceedings. Prior to this suspension, there were twenty consecutive months with more than 300,000 foreclosure filings, whereas February marked the fourth consecutive month with less than 300,000 filings.
This decline in the processing rate of foreclosures is due to several legal actions, including a lawsuit sponsored by the Attorneys General of all fifty states. As discussed in the past, many lawsuits and new rules show how lenders, consumers, and judges are approaching foreclosure proceedings with more scrutiny. Perhaps the most significant lawsuit was a January ruling that voided two foreclosures sales in 2007, due to the lender being unable to demonstrate ownership. Under this precedent, many foreclosure proceedings face potential legal challenges.
In addition to the legal friction created from the suspension of foreclosure proceedings, a large amount of homes are still headed for foreclosure. The chart below shows the distressed loans in the US housing market over the past five years and how the current pace of foreclosures ought to be at the pace of the past couple of years, yet the systematic interruptions are slowing the foreclosure rate.Without doubt, the recent decline in foreclosure filings is not due to improved market conditions, but is instead due to the legal developments within foreclosure proceedings. As a result, foreclosures are expected to continue for upcoming months, but whether the monthly rate ever reaches the pace of 2010 appears less likely. Throughout 2010, there were more foreclosures than any other year, with about 4 million filings or an average of 319,000 per month.
While a slower processing rate of foreclosures ultimately extends the time frame of the housing recovery, many argue a valid foreclosure process is more important than an expedited recovery, especially since people could lose their homes without fair process.