Are we really seeing fewer foreclosures?by Peter Miller
There’s interesting news on the delinquency front: by some measures, delinquency rates are falling. If the trend continues, we should see fewer foreclosures in the future. But is there a trend here, or something else?
According to the Mortgage Bankers Association, at the end of the first quarter of 2011, the percentage of loans that were seriously delinquent was 8.10 percent, 50 basis points (half a percent) lower than the fourth quarter of 2010 and 144 basis points (1.44 percent) lower than a year ago. Compared with last quarter, the non-seasonally adjusted seriously delinquent rate decreased for all loan types.
Jay Brinkmann, the MBA’s chief economist, said “Most of these numbers continue to point to a mortgage market on the mend. Short-term delinquencies remain at pre-recession levels. Loans 90 days or more delinquent have now dropped for five straight quarters and are at their lowest level since the beginning of 2009. Foreclosure starts are at the lowest level since the end of 2008 and had the second largest drop ever.”
There is independent support the for the MBA perspective.
For instance, the FHA said that for April, “At months end, there were 575,950 [homes] in bankruptcy, in foreclosure or 90 day or more delinquent, yielding a seriously default rate of 8.2 percent, but lower than 8.8 percent reported a year ago.”
According to HUD, the term “seriously delinquent” includes all bankruptcies, foreclosures and payments which are 90 days or more delinquent.
Looking at the same figures, the view here is very different. What I’m seeing is not fewer distressed borrowers benefitting from today’s mortgage rates, but rather a massive halt in servicer activity which is producing the illusion of fewer delinquencies and foreclosures.
Delays, delays, delays
“Foreclosure activity decreased on an annual basis for the seventh straight month in April, bringing foreclosure activity to a 40-month low,” said James J. Saccacio, chief executive officer of RealtyTrac. “This slowdown continues to be largely the result of massive delays in processing foreclosures rather than the result of a housing recovery that is lifting people out of foreclosure.
“The first delay occurs between delinquency and foreclosure, when lenders and services are no longer automatically pushing loans that are more than 90 days delinquent into foreclosure but are waiting longer to allow for loan modifications, short sales and possibly other disposition alternatives,” Saccacio continued. “Data from the Mortgage Bankers Association shows that about 3.7 million properties are in this seriously delinquent stage. The second delay occurs after foreclosure has started, when lenders are taking much longer than they were just a few years ago to complete the foreclosure process.”
Problems with paperwork
A major reason for delays and the growing glut of unsold distressed properties concerns paperwork. First, courts are increasingly unwilling to accept lender claims without verifications. The Maine Supreme Court, as one example, has just thrown out a foreclosure claim because the paperwork was “inherently untrustworthy.” Second, if lenders and servicers rush to foreclose with improper paperwork, there could be chain-of-title problems for future owners. As Sheila Bair, the outgoing head of the Federal Deposit Insurance Corporation, explains:
The FDIC is especially concerned about a number of related problems with servicing and foreclosure documentation. “Robo-signing” is the use of highly-automated processes by some large servicers to generate affidavits in the foreclosure process without the affiant having thoroughly reviewed facts contained in the affidavit or having the affiant’s signature witnessed in accordance with state laws. The other problem involves some servicers’ inability to establish their legal standing to foreclose, since under current industry practices, they may not be in possession of the necessary documentation required under State law. These are not really separate issues; they are simply the most visible of a host of related problems…
Another part of the delays we’re seeing have nothing to do with the actions or policies of mortgage servicers or lenders. Instead, many states have moved aggressively to slow the foreclosure process.
Nationwide foreclosures completed (REOs) in the first quarter of 2011 took an average of 400 days from the initial default notice to the REO, up from 340 days 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 some states. The average timeframe from initial default notice to REO in New Jersey and New York was more than 900 days in the first quarter of 2011, more than three times the average timeline in the first quarter of 2007 for both states.
So yes, on paper we’re seeing fewer foreclosures and delinquencies. But what’s really happening is that the tragic loss of homes is being deferred, not reduced.
Peter G. Miller is syndicated to more than 100 newspapers and operates the real estate news site, OurBroker.com.