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Foreclosure activity slowed in first half of 2011
LOS ANGELES – July 14, 2011 – The number of homes taken back by lenders in the
first half of this year fell 30 percent compared with the same 2010 period, the result
of delays in foreclosure processing that threatens to stall a U.S. housing recovery.
Banks seized 421,212 homes in the first six months of the year, down from 529,633
between January and June last year, foreclosure listing firm RealtyTrac Inc. said
Thursday.
The decline reflects lenders taking longer to move against homeowners who have
fallen behind on their mortgage payments. The banks are working through
foreclosure documentation problems that first surfaced last fall and an ensuing
logjam in some state courts. Lenders also have put off on taking action against
delinquent borrowers as U.S. home sales have slowed this year.
As the processing delays mount, however, so has the backlog of potential
foreclosures – homes that otherwise would have been repossessed by lenders this
year.
RealtyTrac estimates that 1 million foreclosure-related notices that should have
been filed by banks this year will be pushed to next year. The filings include notices
for defaults, scheduled home auctions and home repossessions – warnings that can
lead to a home eventually being lost to foreclosure.
The delayed filings buy more time for many borrowers behind in payments to
remain in their homes, perhaps giving them time to catch up or simply to stall their
inevitable eviction. But it also means any eventual foreclosures will happen next
year, extending the shadow of distressed properties that hovers over the market.
“The best-case scenario is we don’t get back to normal levels of foreclosure activity
until 2015, which means the housing market recovery gets delayed by at least a
year,” said Rick Sharga, a senior vice president at RealtyTrac.
And given delays in the time it’s taking lenders to move a home from default to
foreclosure and then sell the property, the housing turnaround could conceivably be
pushed out to as late as 2016, Sharga said.
“It could be the new reality is we’re going to have to accept the fact that home
prices in most markets aren’t going to budge much for the next several years while
this overhang gradually, painfully makes its way into the market and gets
purchased,” he said.
In all, some 1.2 million U.S. homes received a foreclosure-related notice in the first
six months of this year, RealtyTrac said.
That’s down 29 percent from the same period last year and down 25 percent versus
the second half of 2010.
Put another way, one in every 111 U.S. households received a foreclosure filing
between January and June.
In addition to repossessing fewer homes, banks also fired off 36 percent fewer initial
notices of default in the first half of this year than in the same period last year. The
notices are the first step in the foreclosure process.
Foreclosure activity did pick up slightly between May and June, although lenders
repossessed fewer homes than they did in June last year.
At the current pace, banks are on track to take back between 800,000 and 900,000
homes this year, down from a record of 1 million lost to foreclosures last year,
Sharga said.
The firm had originally anticipated some 1.2 million homes would be repossessed by
lenders this year.
Foreclosures typically sell at a discount to other types of homes, weighing down
home values. As a result, housing experts say U.S. home prices are unlikely to
recover until the glut of foreclosed homes on the market is cleared out.
Lenders have been careful not to unload all of their foreclosures on the market at
once, and have financial incentives to continue doing so. But the prospect of more
foreclosures hitting the market for years to come makes it difficult to predict when
home values will stabilize. And that keeps many would-be homebuyers on the
sidelines.
Between April and June, it took an average of 318 days for a home to go from the
first stage of foreclosure to the point where it was sold at auction or taken back by
the lender, RealtyTrac said. That’s up from 298 days in the first three months of the
year and up from 277 days in the second quarter of last year.
The foreclosure process took longest to play out in New York at an average of 966
days, or 2.6 years, during the second quarter. New Jersey was second-slowest at an
average of 944 days, RealtyTrac said.
Homes were on a relative foreclosure fast-track in Texas, taking an average of 92
days to go through the process, the fastest turnaround time in the nation.
Despite slowdown in foreclosure activity, several states continue to have outsized
foreclosure rates. Nevada continued to lead the nation, with one in every 21
households receiving a foreclosure notice in the first half of this year.
Rounding out the top 10 states with the highest foreclosure rate in the first half of
this year are Arizona, California, Utah, Georgia, Idaho, Michigan, Florida, Colorado
and Illinois.