Foreclosure Activity, Mixed And Bound to Go Through Cathartic Increase

Going forward, this year and most probably the next, the market is expected to go through a cathartic jump in foreclosure filings mostly due to “unexpectedly mixed” activity during the last quarter of 2010.
RealtyTrac’s Year End 2010 U.S. Foreclosure Market Report shows a record 2.9 million properties received foreclosure filings by the end of 2010, up 2% from 2009 and 23% compared to 2008.

During the year one in every 45 properties in the U.S., or 2.23% of all units, “received at least one foreclosure filing,” consistently up from previous years starting in 2006. (At 2.21% in 2009, 1.84% in 2008, 1.03% in 2007 and 0.58% in 2006.)

A total of 3,825,637 foreclosure filings—default notices, scheduled auctions and bank repossessions—were reported on a record 2,871,891 U.S. properties in 2010.

Untraditional factors have generated mixed results especially in December.

With foreclosure filings reported on 257,747 U.S. properties—down nearly 2% from the previous month and 26% from December 2009—it marked the biggest annual drop in foreclosure activity since RealtyTrac began publishing its foreclosure report in January 2005 and giving December the lowest monthly total since June 2008. December default notices decreased 4% from November and 35% from December 2009.

Scheduled foreclosure auctions decreased 3% from the previous month and were down 20% from December 2009; and bank repossessions increased nearly 4% compared to November—thanks in part to substantial month-over-month increases in states such as Nevada, up 71%, Arizona 52% and California 47%.

ForeclosureRadar’s Foreclosure Report for December 2010 also shows “unexpectedly mixed” activity attributed to the recent documentation issues and an across-the-board slowdown in foreclosure activity during the holidays. As a result foreclosure starts were flat in Nevada, down in Arizona, California and Washington, and up in Oregon.

Sean O’Toole, CEO and founder of ForeclosureRadar.com, agrees that since “servicers have their hands full” it may be a while before foreclosure activity stabilizes. “While it seems unlikely at the moment, it is our hope that 2011 will bring clarity to the foreclosures process for all involved.”

December featured a mix of “particularly strange” activity that in his view has one possible explanation. “Servicers and trustees are dealing with issues specific to each stage of the foreclosure process on a state-by-state basis.”

For example, a recent Massachusetts Supreme Court decision made it clear that lenders must follow the letter of the law in each state rather than simply continue industry practices. “This could certainly slow one type of activity while accelerating another,” he said.

Other mortgage market insiders expect more bad news before a real turnaround in housing.

According to RealtyTrac CEO, James Saccacio, total properties receiving foreclosure filings would have easily exceeded 3 million in 2010 had it not been for the fourth-quarter drop in foreclosure activity, triggered “primarily by the continuing controversy surrounding foreclosure documentation and procedures that prompted many major lenders to temporarily halt some foreclosure proceedings.” (Foreclosure filings dropped by 14% compared to 3Q10 and 8% compared to 4Q09. Therefore, the 4Q10 total was the lowest quarterly total since 4Q08.)

Saccacio estimates the number of foreclosure proceedings that were stopped in late 2010 “may be as high as a quarter million” and will add to the numbers in early 2011. That deterioration may be true especially in the lowest performing markets such as California, Florida, Arizona, Illinois and Michigan, which account for 51% of the nation's total foreclosure activity in 2010.

Together these five states documented nearly 1.5 million properties receiving a foreclosure filing during the year despite annual decreases in the three states with the most foreclosure activity.