Foreclosure Processing Delays Hamper Housing Recovery
The RealtyTrac April 2011 U.S. Foreclosure Market Report finds foreclosure filings dropped 9% compared to March and 34% from April 2010, largely due to delays in foreclosure processing.
The April decline marks the seventh straight month the total number of default notices, scheduled auctions and bank repossessions decreased year-over-year down to a 40-month low.
James J. Saccacio, chief executive officer of RealtyTrac, Irvine, Calif., described the slowdown as more of a status quo than a housing recovery lifting people out of foreclosure. Driven by “massive delays in processing foreclosures” the decline indicates the market’s shadow inventory issues persist.
Foreclosures completed in the first quarter of 2011 took an average of 400 days from the initial default notice to the REO status, up two full months from the 340 days reported in the first quarter of 2010 and more than double the average 151 days it took to foreclose in the first quarter of 2007.
The foreclosure process took much longer in states with more stringent foreclosure prevention legislation.
The average timeframe from initial default notice to REO in New Jersey and New York was over 900 days in the first quarter of 2011, more than three times the average timeline in the first quarter of 2007 for both states.
To a lesser effect the trend persists in some of the top foreclosure states due to a combination of high delinquency rates and state regulations.
The average foreclosure process in Florida lasted 619 days for foreclosures completed in the first quarter, up from 470 days in the first quarter of 2010 and nearly four times the average of 169 days it took in the first quarter of 2007. In California foreclosure processing took 330 days in the first quarter, up from 262 days in the first quarter of 2010 and more than double the average of 134 days in took in the first quarter of 2007.
According to Saccacio, the first delay between delinquency and foreclosure occurs when lenders and services “are no longer automatically pushing loans that are more than 90 days delinquent into foreclosure” but give borrowers a chance to complete a loan modification, short sale or benefit from other disposition alternatives.
The second delay takes place after the foreclosure process has started. Lenders and servicers are taking much longer time to complete a foreclosure than they used to “just a few years ago,” he said.
Efforts to comply with existing and upcoming regulations may also require additional processing time that could further extend foreclosure timelines.
Examples include servicing standards yet to be formed, Frank-Dodd Act risk retention requirements under the qualified residential mortgage standards and changes in the principles applied to the modification of loans that are securitized. If other states follow the example of New York and New Jersey where foreclosure-closing requirements are customer friendly and lender-adverse, foreclosure timelines may further increase.
Also, the number of seriously delinquent properties remains high at about 3.7 million, according to the Mortgage Bankers Association.
RealtyTrac finds the REO inventory remained at levels above a 22-month low it hit in February 2011.
The top-three foreclosure states—Nevada, Arizona and California—share similar patterns. All reported decreases in overall foreclosure activity despite significant increases in bank repossessions.
In Nevada REOs increased 23% from March and 12% from April 2010, “an all-time monthly high since RealtyTrac began issuing the report for Nevada in April 2005.”
Arizona REOs decreased 3% from March but were up 22% from April 2010, the nation’s second highest foreclosure rate for the fifth consecutive month, while California reported a 22% month-over-month jump in REOs.
And since simultaneously the average foreclosure timeline extends to over 400 days and the number of bank repossessed homes in the hardest-hit markets soars, the housing market may not see any significant signs of improvement before 2012.