Foreclosures either show serious signs of decline or no sign of decline, depending on what you read today. If you look at RealtyTrac data you find foreclosures decreasing:
RealtyTrac® … today released its U.S. Foreclosure Market Report™ for April 2012, which shows foreclosure filings — default notices, scheduled auctions and bank repossessions — were reported on 188,780 U.S. properties in April, the lowest monthly total since July 2007 [...]
“Rising foreclosure activity in many state and local markets in April was masked at the national level by sizable decreases in hard-hit foreclosure states like California, Arizona and Nevada,” said Brandon Moore, CEO of RealtyTrac. “Those three states, and several other non-judicial foreclosure states like them, more efficiently processed foreclosures last year, resulting in fewer catch-up foreclosures this year.”
“In addition, more distressed loans are being diverted into short sales rather than becoming completed foreclosures,” Moore continued. “Our preliminary first quarter sales data shows that pre-foreclosure sales — typically short sales — are on pace to outnumber sales of bank-owned properties during the quarter in California, Arizona and 10 other states.”
However, Nick Timiraos looks at a separate sheet of data which shows that while delinquencies have dropped as the economy has improved modestly, the share of loans in foreclosure continues to remain high.
Foreclosures, however, remain a concern. Although banks initiated fewer foreclosures in the first quarter than at any time since 2007, the share of loans in the process remains high.
Some 4.4% of mortgages were in some stage of foreclosure at the end of March, unchanged from the previous quarter and down only slightly from 4.5% a year ago.
The numbers mask big variations by state. The national foreclosure rate remains elevated largely because of states that require banks to process foreclosures through the courts. In these so-called judicial states, banks have moved to take back homes very slowly since judges uncovered record-keeping abuses in foreclosure processing 18 months ago. Banks have encountered fewer hurdles in nonjudicial states.
Incidentally, there’s no need to talk about judicial states as if they’re some kind of problem, which both of these accounts at least intimate. The judicial states provide a check on bank behavior, at least relatively speaking. The “fewer hurdles” in nonjudicial states allow banks to steal homes with impunity. According to the mortgage industry that should be the ideal. The rule of law begs to differ.
In fact, you have this amazing spectacle out here in California where the Federal Housing Finance Agency has stepped into a state legislative issue, darkly warning the state that new rules on foreclosures, which would allow a private right of action for homeowners to sue over fraudulent foreclosure processes and also increase civil penalties for robo-signing, would “restrict mortgage credit and hamper necessary home seizures.” Look at this remarkable passage:
The regulator said the proposed legislation in California would loosely define robosigning in a way that may include any incomplete mortgage document.
“Such a strict liability approach is punitive, will have a chilling effect on the processing of lawful foreclosures and…may lead to reduced credit availability or higher interest rates,” according to the letter from FHFA’s General Counsel, Alfred Pollard, to state senators and assembly members.
Basically, FHFA is threatening California saying that if they move to protect their own homeowners from illegal seizures, they will ensure negative consequences. This is reminiscent of how credit rating agencies and banking interests threatened Georgia during the bubble years when they tried to stop predatory lending.
So when you read housing data about how foreclosures are at their lowest rate since 2007, recognize that analysts credit more foreclosures, including those with faulty documents, in the previous year for that figure. And there is consensus among the analyst class that these illegal foreclosures “must” happen to clear the system. The right of a homeowner to be treated properly, legally, and with due process never enters into these discussions.
Now there may be other reasons that the expected flood of foreclosures in the wake of the foreclosure fraud settlement isn’t yet coming to pass; Bill McBride notes a few. I would add to that an unusual, though still anecdotal, increase in the number of dismissals, where banks just stop trying to foreclose. But short sales and REO-to-rentals play into this as well. That’s a discussion for another time.