Why A Huge Foreclosure Spike Lies Ahead

Foreclosure filings across the country were down in May, a reduction best viewed as ominous. According to RealtyTrac, foreclosure filings including default notices, scheduled auctions and bank repossessions were reported for 205,990 U.S. properties in May. That’s a big number but 4 percent less than May 2011.

The new and lower figures mask a growing problem: Since late 2010 foreclosure activity in the US has been slowed as courts and lawyers attempt to untangle the robo-signing scandal. In some areas there have been actual foreclosure moratoriums. In other words, the reported filing figures are correct, foreclosure activity is down, but once lenders can get past robo-signing concerns then foreclosures which have been delayed will be allowed to go forward.

This analysis partially explains that while foreclosure activity is down on an annualized basis it rose 9 percent between April and May. It would not be surprising to see sharp month-to-month increases as robo-signing and note ownership issues are overcome through the court system.

That means a huge foreclosure spike lies ahead, one which will impact home values in many local areas. At the same time — to reduce costs and save time — lenders are increasingly open to short sales.

“U.S. foreclosure activity has now decreased on a year-over-basis for 20 straight months including May, but the jump in May foreclosure starts shows that it’s going to be a bumpy ride down to the bottom of this foreclosure cycle,” said Brandon Moore, CEO of RealtyTrac. “Based on the rise in pre-foreclosure sales we’ve seen so far this year, a higher percentage of these new foreclosure starts will likely end up as short sales or auction sales to third parties rather than bank repossessions going forward. While pre-foreclosure sales have less of a negative impact on home values than bank-owned sales, they still represent a discounted sale where a distressed homeowner is losing his or her home.

“Disposing of distressed homes by pre-foreclosure sale can also benefit lenders and servicers because pre-foreclosure homes sell at a higher average price point than bank-owned homes,” Moore continued. “Our first quarter foreclosure sales report showed that the average price of a pre-foreclosure home was more than $27,000 higher than the average price of a bank-owned home — which quickly adds up given that there have been an average of 1.6 million nationwide foreclosure starts per year for the past five years.

“More banks are now recognizing that treating the problem of delinquent mortgages with short sales rather than bank repossessions can help them minimize their losses and also avoid taking on more REOs, which they then have to manage, maintain and market for sale.”

High-level findings from the report:

  •  Foreclosure activity rose back up above the 200,000 level in May after two consecutive months below 200,000.
  • Foreclosure starts nationwide increased on an annual basis after 27 consecutive months of year-over-year declines.
  • Judicial states combined posted a 26 percent year-over-year increase in overall foreclosure activity while non-judicial states combined posted a 20 percent year-over-year decrease in foreclosure activity.
  • Foreclosure starts increased on a year-over-year basis in 17 of the 26 judicial states and in 16 of the 24 non-judicial states.
  • Georgia leapfrogged past Arizona, Florida, California and Nevada to post the nation’s highest state foreclosure rate in May, the first time since February 2006 that Georgia’s foreclosure rate has ranked highest among the states.

Foreclosure starts increase 12 percent to highest level since October 2011

Foreclosure starts — default notices or scheduled foreclosure auctions, depending on the state — were filed on 109,051 U.S. properties in May, a 12 percent increase from April and a 16 percent increase from May 2011.

Foreclosure starts increased annually in 33 out of the 50 states — 17 states with the judicial process and 16 states with the non-judicial process. States with some of the biggest annual increases in foreclosure starts included the judicial foreclosure states of New Jersey (118 percent), Pennsylvania (97 percent), Florida (83 percent), Massachusetts (60 percent), New York (59 percent), South Carolina (43 percent), Ohio (32 percent) and Illinois (28 percent), and the non-judicial foreclosure states of Tennessee (165 percent), Texas (51 percent), Missouri (35 percent), Georgia (30 percent), and Michigan (24 percent).

Also from RealtyTrac:

Bank repossessions increase from previous month, still down from year ago

After three straight monthly decreases to a 49-month low in April, bank repossessions (REOs) increased 7 percent on a monthly basis in May. Lenders completed the foreclosure process on 54,844 U.S. properties during the month, still down 18 percent from May 2011.

REO activity increased on an annual basis in 17 states in May, including North Carolina (66 percent), Illinois (65 percent), Massachusetts (59 percent), Florida (32 percent), Georgia (31 percent), and Ohio (26 percent).

States with annual decreases in REO activity included Nevada (68 percent), Arizona (43 percent), Michigan (42 percent), Colorado (42 percent), California (27 percent), Minnesota (24 percent), and Indiana (17 percent).

Georgia posts highest state foreclosure rate for first time since February 2006

Georgia foreclosure activity in May increased 33 percent from the previous month and 30 percent from a year ago, helping the state post the nation’s highest foreclosure rate for the month — one in every 300 housing units with a foreclosure filing. Georgia’s foreclosure rate leapfrogged the foreclosure rates in Arizona, Florida, California and Nevada, all of which posted higher foreclosure rates than Georgia in the previous month.

After dropping to a 53-month low in April, Arizona foreclosure activity bounced 24 percent higher in May, helping the state document the nation’s second highest foreclosure rate for the month — one in every 305 housing units with a foreclosure filing. Arizona foreclosure activity for the month was still down 29 percent from May 2011.

Despite a 66 percent drop in foreclosure activity compared to a year ago, Nevada documented the nation’s third highest state foreclosure rate in May — one in every 313 housing units with a foreclosure filing.

California foreclosure activity decreased 19 percent from May 2011, but the state still posted the nation’s fourth highest foreclosure rate for the month — one in every 324 housing units with a foreclosure filing.

Illinois foreclosure activity increased 54 percent from May 2011 and the state documented the nation’s fifth highest foreclosure rate (one in every 325 housing units), while Florida foreclosure activity increased 38 percent from May 2011 and the state documented the nation’s sixth highest foreclosure rate (one in every 340 housing units).

Other states with foreclosure rates ranking among the top 10 were Ohio (one in 495 housing units with a foreclosure filing), Michigan (one in 519), South Carolina (one in 539), and Utah (one in 592).

Riverside, Atlanta, Phoenix post top foreclosure rates among 20 largest metros

The Riverside-San Bernardino metro in Southern California posted the highest foreclosure rate among the nation’s 20 largest metropolitan statistical areas by population. One in every 179 housing units in the Riverside-San Bernardino metro had a foreclosure filing in May — more than 3.5 times the national average.

With one in every 224 housing units with a foreclosure filing, Atlanta posted the second highest foreclosure rate among the 20 largest metro areas, and with one in every 245 housing units with a foreclosure filing, Phoenix posted the third highest foreclosure rate.

A 56 percent year-over-year increase in foreclosure activity helped boost Chicago’s foreclosure rate to fourth highest among the 20 largest metro areas, and a 111 percent year-over-year increase in foreclosure activity helped the Tampa-St. Petersburg-Clearwater metro area  document the fifth highest foreclosure rate among large metro areas.

How Foreclosure Filings Are Counted

The RealtyTrac U.S. Foreclosure Market Report provides a count of the total number of properties with at least one foreclosure filing entered into the RealtyTrac database during the quarter — broken out by type of filing. Some foreclosure filings entered into the database during a quarter may have been recorded in previous quarters. Data is collected from more than 2,200 counties nationwide, and those counties account for more than 90 percent of the U.S. population. RealtyTrac’s report incorporates documents filed in all three phases of foreclosure: Default —Notice of Default (NOD) and Lis Pendens (LIS); Auction — Notice of Trustee Sale and Notice of Foreclosure Sale (NTS and NFS); and Real Estate Owned, or REO properties (that have been foreclosed on and repurchased by a bank).

For the quarterly report, if more than one foreclosure document is received for a property during the quarter, only the most recent filing is counted in the report. The quarterly report also checks if the same type of document was filed against a property previously. If so, and if that previous filing occurred within the estimated foreclosure timeframe for the state where the property is located, the report does not count the property in the current quarter.

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2 Comments on "Why A Huge Foreclosure Spike Lies Ahead"

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  1. Peter G. Miller says:

    I suspect that all states are unique. Some have been substantially impacted by delayed foreclosures and will be impacted again when the delays end.

  2. Tim Richmond says:

    Do you think Georgia is a good barometer to use for the rest of the states? Their sudden jump concerns me the most.

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