March 26, 2017

Foreclosure Facts March 2011

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.

Comments

  1. Kudos for noting an artificial slowdown in for foreclosures prolongs the time till recovery. It is tragic that so many people are losing the homes they live in but the longer it takes those houses that people can not afford to reach the market the slower home prices will adjust (downward) and the longer it will take for the market to clear. A housing recovery will eventually happen but it will be at an equilibrium price significantly lower than current. Government policies aimed at propping up home prices may alleviate some of the pain but at the expense of longer time till actual recovery.

  2. Yeah, I saw a decent article earlier this year by Peter Schiff, who I do not like to use as a source, but he had a fairly reasonable article about the equilibrium of housing prices. Basically, he took the average increase for property values prior to the housing boom and used this as an equilibrium to suggest where property values ought to be. His results showed the current value of property is still about 20% above what the equilibrium would suggest. According to this model, property values will fall until they find the true equilibrium. Even if the market is only 10% over the true equilibrium, this decline in property values would still be quite noticeable and require a considerable amount time. Millions of people who could not afford homes were allowed to borrow and this deceivingly raised property values. Overall, the housing boom basically brought inflation in property values, which some would say was good while it lasted, but this clearly has brought tragic implications. Unfortunately, foreclosures must continue, but at the same time you have these widespread allegations of notary fraud, which only kicks up more dust and further exacerbates this entire problem.

    This is the Schiff article I mentioned: http://online.wsj.com/article/SB10001424052702304173704575578190261574342.html

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