Foreclosure Filings Hit Three-Year Low as U.S. Servicers in `Dysfunction'

U.S. foreclosure filings fell last month to the lowest level in three years as lenders under legal scrutiny struggled to process a backlog of defaults and put new systems in place for home seizures, RealtyTrac Inc. said.

A total of 225,101 U.S. properties received notices of default, auction or repossession, down 14 percent from January and 27 percent from February 2010, the Irvine, California-based data seller said today in a statement. The number was the lowest since February 2008, and the year-over-year decrease was the biggest since the company began keeping records in 2005.

Loan servicers are moving slowly in resuming foreclosures amid a five-month-old investigation by state attorneys general into flawed paperwork and improper procedures. Delays in processing defaults are creating a clogged pipeline that may postpone home prices from reaching a bottom, according to Celia Chen, an economist for Moody’s Analytics Inc.

“It’s clearly taking the lenders and servicers longer than anyone had anticipated,” Rick Sharga, RealtyTrac’s senior vice president, said in an e-mail. “Beyond that, the industry itself is in a state of dysfunction.”

State and federal officials are negotiating a settlement with the nation’s top mortgage servicers after complaints of mass processing of foreclosure paperwork without verification. The “robo-signing” controversy spurred lenders including Bank of America Corp. (BAC), JPMorgan Chase & Co. (JPM) and Ally Financial Inc.’s GMAC unit to freeze some home repossessions last year.

Taxed Resources

A glut of resubmitted paperwork is “taxing the resources” of loan servicers, and judges are demanding greater scrutiny in states where courts oversee foreclosures, Sharga said. Bad weather and fewer days in February may also have contributed to the month’s low total, according to RealtyTrac.

Bank of America, the largest U.S. loan servicer, found “room for improvement” in its foreclosure practices after a review, Terry Laughlin, an executive vice president at the Charlotte, North Carolina-based bank, said at a March 8 investor conference. The lender expects to return to “normalized foreclosure run rates” in the next two to three months, he said, according to a transcript.

U.S. home prices may be supported during the foreclosure delay and will drop once repossessed homes come on the market, said Chen of Moody’s Analytics. The company forecasts a 5 percent decline in values from the end of last year and a market bottom in the third quarter, she said.

Paying Later

“It’s sort of pay me now or pay me later,” Chen said in a telephone interview from West Chester, Pennsylvania.

The foreclosure slowdown may hurt sales in parts of the nation where there is a shortage of inventory and prop up home prices in states such as Arizona and Nevada, where there’s a surplus of bank-owned real estate, said Sean O’Toole, chief executive officer of ForeclosureRadar.com. His firm tracks sales of foreclosed properties in Arizona, California, Nevada, Oregon and Washington.

“The problem is you’re dealing with different crises at the same time,” he said. “National solutions are a fool’s errand.”

Default notices in February slid 41 percent from a year earlier to 63,165, the lowest monthly total in four years, according to RealtyTrac. Total auction notices fell 21 percent from a year earlier to 97,293, a 27-month low, the firm said.

Banks seized 64,643 U.S. properties in February, the fewest in 22 months. The number was down 17 percent from a year earlier. The peak was 102,134 in September, RealtyTrac said.

Judicial States

The declines in auction and default notices were bigger in states where courts oversee foreclosures compared with non- judicial states. Repossessions tumbled 35 percent from February 2010 in judicial states, while decreasing 8 percent in non- judicial states.

In Florida, a judicial state that’s been among the hardest- hit by the crisis, total foreclosure filings plunged 65 percent from a year earlier. It still ranked second for total filings.

“Florida is a state of foreclosure chaos,” O’Toole said.

Nevada had the highest foreclosure filing rate for the 50th consecutive month at one in 119 households, according to RealtyTrac. The national average was one in 577.

Arizona had the second-highest rate, at one in 178 households, and California ranked third at one in 239. Utah was fourth at one in 273 and Idaho fifth at one in 298.

Georgia, Michigan, Florida, Colorado and Hawaii rounded out the states with the 10 highest foreclosure filing rates.

California Leads

Ten states accounted for more than 70 percent of all U.S. filings, led by California’s 56,229, a quarter of the national total. Filings in the most populous state were down 18 percent from February 2010, the 15th straight year-over-year decline.

Las Vegas had the highest metro foreclosure rate among cities with population 200,000 or more. Modesto and Stockton in California ranked second and third, and Phoenix was fourth.

Riverside, Vallejo, Merced and Bakersfield, all in California, ranked fifth through eighth; Reno, Nevada, was ninth; and Sacramento was 10th, according to RealtyTrac.

Florida cities were absent from the top 20 metro areas after having nine cities in the group a year earlier, according to RealtyTrac, which sells data from counties representing 90 percent of the U.S. population.

To contact the reporter on this story: Dan Levy in San Francisco at dlevy13@bloomberg.net; John Gittelsohn in New York at johngitt@bloomberg.net

To contact the editor responsible for this story: Kara Wetzel at kwetzel@bloomberg.net

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Foreclosure Filings Tumble to Three-Year Low

Jacob Kepler/Bloomberg

Default notices in February slid 41 percent from a year earlier to 63,165, the lowest monthly total in four years, according to RealtyTrac.

Default notices in February slid 41 percent from a year earlier to 63,165, the lowest monthly total in four years, according to RealtyTrac. Photographer: Jacob Kepler/Bloomberg