Posted on Thursday, March 10, 2011
Everyone’s talking about the February foreclosure stats RealtyTrac released this morning. Combined filings (default notices, auctions scheduled, bank repossessions) down 27% year from last year and 14% from last month. This is a three year low, significantly down from the March 2010 peak of 367,000 filings. But is being attributed to an industry in the ‘midst of major overhaul’ which translates to , foreclosure filings are expected to bounce back up again.
Thinking in terms of the big picture, from the 30,000 foot view we still see that there were over 225,000. That’s 1 in every 557 properties. And if we drill down a bit we see some interesting trends which, as usual, raise more questions than they answer;
The foreclosure numbers are comprised of three part.
• Default notices occur at the very front end of the foreclosure process. They tell us how many new foreclosure cases the banks are starting as a result of additional property owners are not paying their mortgages and give us a little bit of insight into how many new bank owned-distressed properties may be entering inventory months (now sometimes years) ahead. Which, of course, can be an indicator of further drops in all of our home values. At 63, 165 for February, default notices are at a 4 year low now and 55% down from the April 2009 peak of 142.064.
Default notices – new owners defaulting and foreclosure cases being filed - in February were down 41% from last year and 16% from last month. But what’s interesting is default notices were down 48% over last year and 19% from last month in the judicial states, but only 31% from last year and 13% from last month in the non-judicial states.
• Auctions scheduled occur towards the end of the process when the judge has agreed the bank should get the property and the owner should lose it and the banks moves forward to set a foreclosure sale date. Auctions scheduled gives us an indication of how many cases are being dropped or settled during the foreclosure process and how fast the process itself is moving cases through the system. Like default notices, it also gives us an indication of how many new units may be hitting the market soon. At 97,293 for February, auctions are at a 2 plus year low and 38% less than the March 2010 peak of 158, 105.
Auctions were down 21% from last year and 10% from last month. But what’s interesting here is that auctions in judicial states were down 49% from last year and 7% from last month. Non judicial auctions, however, were only down 7% from last year, 11% from last month.
• Bank repossessions are the last step in the foreclosure process before the properties hit the market as open (as opposed to shadow) inventory. They too give us an even clearer idea of how many additional distressed units will soon be available, how many foreclosure cases are being worked out or dropped before completion and how quickly the cases are moving through the system. At 64,643, February’s possessions are almost a two year low and 37% down from the September 2010 peak of 102,134.
Repossessions in February were down 18% from last year and 17% from last month. But again we see the same pattern; in judicial states repossessions were down from last year 35% and from last month 24%. But in non judicial states the number is down only 8% from last year and 14% from last month.
To what can we attribute these significantly bigger drops in judicial states compared to non judicial states? What does the relatively bigger drop on the front end of the foreclosure process tell us? It could be that banks are trying to mediate cases before filing new foreclosures in order to avoid the big filing fees. After all almost half the states are requiring mediation in homestead foreclosure cases and allowing other borrower to try to opt in. The GSEs are implementing new pre-filing mediation requirements. perhaps that is reflected in these numbers. Are banks holding off so they can fix robo-signer type problems before fling new cases? What, if anything, does the drop in mid-process auctions tell us? Are these cases being settled and terminated thanks to modifications, mediation, short sales and other foreclosure alternatives? What does repossession drops translate to? Are banks not moving forward with repossessions in order to avoid the carry costs or are investors buying these properties right at the foreclosure sale. Or maybe the entire process has simply slowed down as banks address robo signer issues.
Another possible trend is the shift in geographic location for the highest foreclosure numbers. Until recently the biggest problems were in the ‘sand states’ of Florida, California, Nevada and Arizona. Nevada remains at the top for 50 months in a row now with 1 in every 119 receiving a filing. Arizona is still up there with 1 in 178. As is California with 1 in 239. But newer to the scene is Utah with 1 in 273 and Idaho with 1 in 298. Rounding out the group are Georgia, Michigan, Colorado and Hawaii. Florida is still in there, but not in the top 4 at the moment. How can we explain Florida’s unique slip from the top four? perhaps being the location of the robo-signer foreclosure mills and likely the state with the most cases filed by those guys has something to do with it. Although is has been remarkably unsuccessful, Florida (along with Ohio) was one of the first states to begin requirement that these cases be mediated. Most likely, Florida’s drop is a temporary combination of several factors unrelated to the actual number for people not paying their mortgages. particularly since the state still has one of the highest underwater mortgage count and prices predicted to still drop more than most other states. (But what’s going on in those other states that is moving them to the top of the list?)
In Florida total filings are down 65% from last year, 13% from last month. With 18, 760 in February, Florida is now second highest in the U.S. for new filings. That’s still a 71% drop from the April 2009 peak. And for two months in a row now, Florida no longer has cities in the top 20 U.S. foreclosure locations. This compared to last year when the state consistently landed 9 of those 20 cites.
As soon as the robo-signer related challenges are resolved, we can expect all of these numbers to increase. Exactly when, by exactly how much, and for exactly how long may be estimated but remains to be seen. The increase may be tempered by mediation systems beginning to work as they are intended, banks becoming more open to short sales and, in some cases, modifications, and banks delaying taking ownership in order to avoid the costs, but not by much. A bigger dent can be made, particularly, by better educating homeowners about the mediation processes available to them and encouraging lenders to allow mortgage assumptions by qualified buyers. In particular in the hardest hit areas like California, Arizona, Nevada, and, unfortunately as well will soon again see, in Florida