During March, the amount of foreclosure filings totaled 239,745, according to statistics released today from RealtyTrac. This is a 7% increase compared to February, when there were 225,101 filings. Despite this modest increase, the amount of foreclosure filings in March marked the fifth consecutive month with fewer than 300,000 filings. Prior to this five-month streak, there had been twenty consecutive months with more than 300,000 foreclosure filings.
Comparisons on broader time scales similarly illustrate a sudden reduction in foreclosure filings. Compared to March 2010, there was a 35% reduction in the amount of foreclosure filings in March 2011. Also, in a comparison between the first quarter of 2010 and 2011, there were 27% fewer filings in 2011. Even though the monthly, quarterly, and annual comparisons indicate a fallout in the amount of foreclosure filings, do not mistake improvements in distressed mortgages as the reason for fewer foreclosures.
In other words, fewer foreclosures in recent months are not attributable to improved market conditions, but are instead a result of slower processing rates of foreclosure proceedings. Ever since September, allegations of notary fraud and improperly processed paperwork on foreclosure filings, which originally led to a temporary suspension on foreclosures, have stalled the processing rates of foreclosures.
Slower processing rates on foreclosures are not only a result several lawsuits against mortgage lenders, but also increased scrutiny from judges. This recent article discusses six legal actions against mortgage lenders since October, including a lawsuit with all fifty Attorneys General among the sponsors. This legal friction clearly correlates to the sudden reduction in foreclosure filings beginning late last year.
Simultaneously, foreclosures are still expected on a considerable amount of homes, as indicated with the current amount of distressed mortgages. The chart below shows the amount of distressed mortgages over the past five years and how the current pace of foreclosures ought to be at the pace of the past couple years, yet the systematic interruptions have slowed the pace.
These distressed mortgages, or the shadow housing inventory, accounts for a third of the entire housing market, according to S&P. This means there is a colossal amount of homes in the market with an inevitable fate of foreclosure. Moreover, there were over three million homes repossessed in 2010 and the increasingly saturated supply of homes is reflected in the decline of home values, which have fallen six consecutive months.
With many distressed mortgages in the market, foreclosures are expected to continue in coming months. However, increased legal scrutiny on foreclosure proceedings will likely prevent the monthly pace of foreclosure filings in 2011 from reaching the pace of 2010. Throughout 2010, there was an average of 319,000 foreclosure filings each month. Contrarily, the monthly average in 2011 is currently 241,000.
Altogether, while recent months have brought fewer foreclosures, increased legal scrutiny, as well as an elevated amount of distressed mortgages, indicate the recent reductions in the amount of monthly foreclosures are artificially low compared to the amount of foreclosures in 2009 and 2010. Though, if foreclosures continue around the current pace, this ultimately means a housing recovery is further prolonged and the chart above would require several years to return to the relatively tranquil amount of distressed mortgages in 2005 and 2006.