Housing Rebound Signaled as Banks Resume Foreclosures: Mortgages
U.S. lenders are notifying more delinquent homeowners they face foreclosure, a step toward clearing a backlog of properties and helping to accelerate a housing recovery.
Initial notices of foreclosure, the start of the process, jumped 6 percent in the second quarter from a year earlier, the first annual increase since 2009, according to RealtyTrac Inc., a seller of housing market data. Banks at the same time found alternatives to the final step of seizing the home, either by working with the borrower or by agreeing to sell properties for less than what was owed, with repossessions falling 22 percent.
“You have to get to the point where the market can heal itself and foreclosures and price adjustments are the only way that can happen,” said Anthony B. Sanders, an economics professor at George Mason University in Fairfax, Virginia.
The housing market’s rebound has been restrained by the so- called shadow inventory of homes with mortgages at least 90 days delinquent, in foreclosure or already owned by banks, while foreclosures had been stalled since late 2010, when state attorneys general and federal regulators began investigating abuses by banks, including lost or doctored paperwork. They started to pick up again after the nation’s five biggest banks settled the probe for $25 billion in February.
“The market has to deal with these distressed properties at some point and I believe we’ve delayed it long enough so seeing these increases isn’t necessarily a bad thing,” said Daren Blomquist, a spokesman for Irvine, California-based RealtyTrac. “The market has strengthened and is more equipped to absorb this additional foreclosure inventory.”
Mortgage delinquencies are dropping, with the share of home loans at least 30 days late dropping to 7.4 percent in the first quarter from 7.58 percent in the prior three months, according to the Mortgage Bankers Association. Demand for real estate is rising amid record-low borrowing costs and tight inventories of available real estate. Contracts to buy previously owned homes rose 5.9 percent in May, matching a two-year high reached in March, the National Association of Realtors said.
The shadow inventory of homes fell in April to the lowest level in more than three years as delinquencies improve and banks find alternative means of disposing of properties, CoreLogic Inc. said last month. Lenders increasingly are able to avoid taking possession of homes by modifying mortgages, reducing principal or refinancing loans, and short sales, in which banks allow delinquent borrowers to sell properties for less than they owe, according to RealtyTrac.
RealtyTrac lowered its projection for home seizures in 2012 to 700,000 from 1 million, Blomquist said. While repossessions were down for the U.S. in the second quarter, many states that require court approval for foreclosures are seeing increases, Blomquist said. They jumped 45 percent in Illinois and 32 percent in Florida, he said.
Foreclosure starts -- notices of default or scheduled auctions -- increased in 31 states in the second quarter from a year earlier. For June, California had an 18 percent increase in starts, which helped boost the state’s foreclosure rate for the month to the highest in the nation for the first time since RealtyTrac began issuing its report in January 2005.
The foreclosure process in the U.S. increased to an average of 378 days in the second quarter, the highest in records dating back to 2007, RealtyTrac said. In New York, the state with the slowest process, the average time to foreclose was 1,001 days, down 5 percent from the first quarter. The average time to foreclose dropped 3 percent in New Jersey, the state with the second-longest process.
“As lenders are filtering through portfolios of distressed loans, there’s a certain batch of those that they are deeming aren’t a good fit for a loan modification, refinancing, or even short sale and those are the ones they’re pushing through,” Blomquist said.
The homes that do eventually end up in foreclosure may initially spur another drop in prices as the inventory reaches the market, said Mark Zandi, chief economist of Moody’s Analytics Inc. in West Chester, Pennsylvania. He predicts that home prices will decline 1 percent this year and increase by 1 percent in 2013.
“More price weakness could ignite more defaults as more underwater homeowners think that prices aren’t going to rise anytime soon,” Zandi said yesterday in an e-mail. “The threat is that a vicious cycle is re-ignited. I don’t expect this to happen, but it is a risk.”
Another dip in home prices could push more homeowners underwater just as a recovery was starting to take hold. In the first quarter, about 11.4 million properties, or 23.7 percent of homes with a mortgage, had negative equity, CoreLogic said in a report today. That was down from 12.1 million, or 25.2 percent, in the fourth quarter, as prices began to rise in hard hit areas such as Arizona, the Santa Ana, California-based company said.
Working through the inventory is still crucial to a sustained rebound, Zandi said.
“It will hurt a bit over the next six to 12 months, but it is necessary to get housing and the economy on a solid foundation,” he said.
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