March 29, 2017

Foreclosures Remain Artificially Low in April

During April, the amount foreclosure filings on US properties totaled 219,258, according to the latest data from RealtyTrac. This is a 9% decline compared to March, when there were 239,745 filings. April not only brought the fewest amount of foreclosures filings in forty months, but April also marked the sixth consecutive month with less than 300,000 foreclosure filings. Prior to this six-month streak, there were twenty consecutive months with 300,000 or more filings.

Despite a monthly decline and these other favorable statistics, these supposedly positive results are directly associated with the increased scrutiny on foreclosure proceedings that began in late September 2010, due to allegations of mortgage lenders committing notary fraud.

While these allegations initially led to a temporary suspension of all foreclosure proceedings, a long-term effect from these allegations is a slower processing rate for foreclosure proceedings, which includes bank repossessions, default notices, or scheduled auctions.

With widespread concerns about the validity of foreclosure proceedings, consumers, mortgage lenders, and judges are each examining these proceedings with closer scrutiny, which slows the processing rate. This recent article specifically discusses six legal actions against mortgage lenders, including a lawsuit sponsored by all fifty Attorneys General.

A slower processing rate is also evident throughout the country. During the first quarter of 2011, it took an average of 400 days from the initial default notice to the repossession, which is up from 340 days in the first quarter of 2010.

In addition to a slower processing rate of foreclosures, the amount of homes with the inevitable fate of foreclosure remains close to the amount in 2010. The shadow housing inventory includes all distressed mortgages and currently makes up a third of all mortgages, according to S&P. This ultimately suggests the noticeable reduction in foreclosure filings over the past six months is not a result of improved market conditions, but is instead a direct result from slower processing rates.

With a third of mortgages on the road to foreclosure, these proceedings are expected to continue, albeit at a pace below 2010, when there was an average of 319,000 foreclosure filings per month and over 3 million repossessed properties. Including April, the average for 2011 is currently 236,359 filings per month, which is a 26% reduction compared to the monthly average in 2010.

Although the pace of foreclosures has slowed in 2011, do not interpret this as an improvement in the amount of distressed properties in the housing market, but rather as a prolonged recovery of the housing market. While most of the US economy would prefer an expedited recovery, others argue a sound foreclosure process is more important, particularly since individuals could lose their home without fair process.

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