The U.S. housing market recovery is still moving in a positive direction and all the good news has a way of overshadowing the fact that there are still well over a million homes with a mortgage in foreclosure. The number is down from 1.5 million to 1.3 million on the year as of October 2012, but backlogs can cause problems with regional recovery. The situation has been helped by the settlement that brought many banking mortgage handlers into line by forcing them to find alternatives to foreclosure. Experts say foreclosure wave that was once predicted has been made impossible by a system that can’t process the paperwork, which has appeared to work in favor of recovery. For more on this continue reading the following article from TheStreet.
The number of homes lost to foreclosure continued to decline in October, but the overall levels of foreclosure remain uncomfortably high.
Completed foreclosures declined to 58,000 in October, down 17% from October 2011 and 25% from the previous month, according to Core Logic data released Monday. Foreclosures in September were upwardly revised to 77,000 from 58,000. The larger-than-usual revision was in connection with an annual online auction of delinquent tax properties in Wayne County, Michigan.
Approximately 1.3 million homes, or 3.2 percent of all homes with a mortgage, were in the national foreclosure inventory as of October 2012 compared to 1.5 million, or 3.6 percent, in October 2011.
"A lower foreclosure inventory is a good indicator of improving housing markets," said Anand Nallathambi, president and CEO of CoreLogic. "The downward trend in foreclosure inventories over the past year is yet another signal that a recovery in housing is gaining traction."
The decline in foreclosures has been welcome, defying early predictions of a "tidal wave."
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The big mortgage servicers- Bank of America (BAC), JPMorgan Chase (JPM), Citigroup (C), Wells fargo (WFC) and Ally Financial have pulled back from foreclosures after a $25 billion mortgage settlement over illegal foreclosure practices, forced them to comply with new servicing standards and pursue alternatives to foreclosures such as short sales, refinancing and loan modifications.
Laws in states such as California and Nevada have also made it tougher for banks to foreclose.
Exceedingly long foreclosure timelines has also led to the drop in foreclosure inventory. In Judicial states where the bank is required to prove the borrower is delinquent in court before initiating foreclosure action, the process can take years, with courts increasing scrutiny of cases following the "robo-signing" scandal.
The average number of days a mortgage is in foreclosure from the notice of default to completion stood at 1072 days in New York and more than 900 days in Jersey in the third quarter, according to RealtyTrac.
The foreclosure tide has not happened, because there "simply isn’t the system bandwidth to handle them," Georgetown University Professor Adam Levitin notes in blog Credit Slips . "Servicers really can’t move significantly more foreclosures through the courts/trustee systems if they wanted. If I started a foreclosure in New York state today, I probably wouldn’t have title and possession until early 2015."
He also points out that banks are in no rush to foreclose on homes and sell them, because it will only depress housing further. "If all defaults had been foreclosed at once, the banking system would look a lot less solvent. The game plan has always been to run the clock. Hence all the "kick the can down the road" mods," says Levitin.
Despite the decline in activity, the level of foreclosures is much higher than normal levels. Prior to the decline in the housing market in 2007, completed foreclosures averaged 21,000 per month between 2000 and 2006. So foreclosures are still trending at about three times that rate and will likely take a "few years" to return to normal levels, according to Levitin.
Unless jobs recover significantly, it is unlikely that all those delinquent loans are going to be miraculously cured.
So while it may not be a tidal wave, the foreclosure crisis is far from over.
This article was republished with permission from TheStreet.