Lender delays in processing home-loan defaults will push as many as 1 million U.S. foreclosure filings from this year to 2012 or beyond, casting an “ominous shadow” on the housing market, according to RealtyTrac Inc.
The number of properties receiving a notice of default, auction or repossession plunged 29 percent in the first half of 2011 from the same period last year, the Irvine, California-based data seller said today in a report. About 1.17 million homes got a filing, or one out of every 111 households.
Procedural delays caused by a probe into bank documentation errors, combined with weak consumer sentiment and a jobless rate above 9 percent, are weighing on a property recovery by adding to a backlog of distressed homes, RealtyTrac said. A clogged foreclosure pipeline may prevent real estate prices from finding a bottom as the housing slump enters its sixth year.
“If you accept the premise that foreclosures are the black cloud hanging over the market, we’re not going to get price stability and people won’t leave the sidelines until that cloud is cleared away,” Nicolas Retsinas, professor of real estate at Harvard Business School in Cambridge, Massachusetts, said in a telephone interview.
U.S. home prices fell 33 percent from a July 2006 peak through April, according to the S&P/Case-Shiller index of 20 cities. Federal Reserve Chairman Ben S. Bernanke said in testimony to Congress yesterday that ongoing weakness in home values is reducing household wealth and limiting consumer confidence.
3.2 Million Forecast
RealtyTrac in January forecast as many as 3.2 million foreclosure filings for 2011. Delays have persisted as state attorneys general investigate “robo-signing,” the practice of pushing through documents without verifying their accuracy. Total filings for the year are likely to be about 2 million at the current pace, compared with 2.9 million in all of 2010, Rick Sharga, senior vice president, said in a phone interview.
“This casts an ominous shadow over the housing market, where recovery is unlikely to happen until the current and forthcoming inventory of distressed properties can be whittled down to a manageable number,” James J. Saccacio, RealtyTrac’s chief executive officer, said in today’s report.
Any settlement between lenders and attorneys general won’t guarantee a “huge increase” in filings, and housing may become a campaign issue in the 2012 election, Sharga said. Further delays in processing beyond the current scandal are “likely to come from the political arena,” he said.
Foreclosure filings in the first half declined 25 percent from the last six months of 2010, according to RealtyTrac. The second-quarter total was the lowest in more than three years.
The drop in filings is keeping home prices above where they should be, said Greg Hebner, managing director for Community Rebuild Partners, an investor in distressed real estate.
“You’re seeing an artificial floor,” he said in a telephone interview. “If supply flooded the market without all the delays, you’d see another 10 percent price drop.”
Nevada had the highest rate of foreclosure filings per household in the first half, with one in 21 receiving a notice. The number of notices in the state fell 17 percent from both the previous six months and a year earlier, RealtyTrac said.
Arizona had the second-highest rate, at one in 36 households, and California was third at one in 51.
California Leads Total
California had the most filings, with 263,500 properties in the state receiving a filing in the first six months, down 13 percent from the previous period and almost 23 percent from a year earlier. Florida ranked second in total filings with 113,641 and Arizona was third at 77,525.
The length of time that homes spend in the foreclosure process is increasing. In the second quarter, U.S. properties had an average 318 days from the initial bank notice to the completed seizure, up from 298 days in the first quarter and from 277 days a year earlier, according to RealtyTrac.
The foreclosure process took longest in New York at an average 966 days, followed by New Jersey at 944 days and Florida at 676 days. The process was shortest in Texas, 92 days, followed by Virginia at 106 days.
RealtyTrac sells default data from more than 2,200 counties representing 90 percent of the U.S. population.