Hopeful Signs

The foreclosure flood of the past two years has been well documented and is continuing. But recent figures show that in August, more than half of the states posted drops, either from July or from August 2008. That includes Nevada, where Las Vegas has been the poster child for overdevelopment and risky lending.

Looking at the latest figures from RealtyTrac, 30 states had drops of one kind or another in August foreclosure filings. The majority were drops for July, rather than from a year ago. But five states (Kentucky, North Dakota, Wyoming, Oklahoma and Washington) and the District of Columbia registered drops both from prior month and prior year month. The fact that these six are spread out over the country and not clustered in any one area is a hopeful sign, as well.

The biggest drops occurred in Washington and Wyoming, where each had 50% decreases compared to July and about 15% each from August of last year.

Overall, the country recorded a less than 1% drop in filings from July but was still up a hefty 18% from last August.

It is hard to say whether the drop in foreclosure activity is being caused by market conditions or the effects of the administration's modification program. It is probably a combination of both, as the HAMP program is just kicking into higher gear now.

Data points from the Mortgage Bankers Association's latest quarterly delinquencies report show that some states are upside down in delinquency to foreclosure ratios, which is another sign that the flood may be cresting. In those areas, the number of foreclosures is greater than the number of delinquencies, indicating that more than half of possible foreclosures have been recorded.

The implications for the real estate and mortgage markets of a turning point in the crisis, or at least an end to the beginning, are important. Foreclosed properties are toxic, ruining neighborhood values and sending prices plummeting.

A true mortgage recovery won't be safe until the market bottom has been reached and those waiting for the cheapest price will have to get in.

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