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The number of homes receiving a foreclosure filing — from notice of default to repossession — hit a 49-month low in December, as legal issues, documentation delays and weak housing demand all served to stall the processing of mortgage delinquencies.
Foreclosure filings were reported on 205,024 U.S. properties in December, a 20% decrease from the year before, a 9% decrease from the previous month and the lowest total since November 2007, according to foreclosure-data firm RealtyTrac.
It's not that the housing market and economy are getting that much better; it's just taking lenders 24% longer to foreclose on a home than it did before the robo-signing scandal made headlines in the third quarter of last year, said Daren Blomquist, RealtyTrac's director of marketing communications.
"This (slowdown) has persisted much longer than we thought," Blomquist said.
Given the low numbers processed in 2011, he said he expects a much bigger wave of foreclosures to hit the market this year, though fewer than the peak in 2010.
Paperwork delays or pipeline management?
Some industry watchers, such as Mark Fleming, chief economist of data and analytics firm CoreLogic, say last year's slowdown is as much about managing losses in the face of weak housing demand as it is about procedural concerns.
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"We are running well below what should be a suitable rate," Fleming said, even considering document reviews and typical holiday slowdown. That suggests a conscious decision to put on the brakes.
"There is an art of the timing of these processes and minimizing losses," Fleming said. "There's no point in pushing these things through if there's no one there to buy them."
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Real-estate agents say they're concerned that so many distressed properties are just sitting there, waiting to hit the market en masse this year.
"We know those (distressed) properties are there; the servicers are just holding them," said agent LuAnn Lamb of ReMax Results in Salt Lake City.
However, there was at least one indication that lenders and servicers were beginning to move on the huge backlog of distressed inventory. While default notices and auctions were down 23% and 24% respectively year-over-year in December, the number of bank repossessions — or real-estate-owned properties, REOs — increased 10% from the previous month. That's a promising uptick, but is still 12% below the December 2010 number.
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In the fourth quarter of last year, filings were reported on 586,133 U.S. properties, RealtyTrac said, a 27% decrease from the same period in 2010 and a 4% decrease from the third quarter of 2011.
The delays in the wake of last year's robo-signing scandal dropped the number of homes receiving a foreclosure filing to 1.9 million in 2011, a 34% decline from 2010, when activity peaked.
With just 1.45% of U.S. housing units, or one in 69 homes, receiving a filing last year, foreclosure activity was back down to its lowest annual level since 2007.
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U.S. properties foreclosed in the fourth quarter took an average of 348 days to complete the process, up from 336 days in the third quarter and 305 days in the fourth quarter of 2010.
The longest timelines were in judicial-foreclosure states such as New York, New Jersey and Florida, where foreclosures are handled by the court system.
New York properties took the longest to complete the process at 1,019 days. New Jersey came in a close second, taking 964 days, and Florida was third at 806 days.
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Compare those numbers with Texas, where the foreclosure process took a mere 90 days, on average.
Loss leaders
Nevada continued to lead the nation in foreclosure activity in the fourth quarter last year, with 16,728 properties, or one in every 68 households, receiving a filing. But this number was 53% lower than the same period a year earlier, and a 35% drop from the third quarter. Things there were bogged down by a new state law requiring an additional affidavit from lenders before starting the foreclosure process.
California came in second, with 152,467 properties with filings in the quarter, or one for every 88 households. This represented a 13% drop from the fourth quarter of 2010, and an almost negligible drop from the third quarter at 0.4%.
Arizona had the third-highest rate of foreclosure activity in the fourth quarter with 28,182 properties receiving a filing, or one in every 98 households, a 30% decline from 2010 and a 5% drop from the previous quarter.
Other states with 2011 foreclosure rates among the 10 highest were Georgia, Utah, Michigan, Florida, Illinois, Colorado and Idaho.
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The city with the highest foreclosure rate was Las Vegas, where 7.4% of its housing units, or one in every 14 homes, received a foreclosure filing in 2011.
Ten of the top 20 metro area foreclosure rates last year were in California — from Bakersfield, Modesto and Stockton in its Central Valley, to the Riverside-San Bernardino area southeast of Los Angeles.
Other cities in the top 20 included Phoenix; Atlanta; Salt Lake City; Boise, Idaho; and Cape Coral-Fort Myers, Fla. All 20 metros showed a decrease in activity from 2010, and all but Atlanta posted a decrease from 2009.
Will the slowdown slow down a recovery?
Just how long it will take the existing supply of 1.4 million distressed properties to trickle out onto the market is anyone's guess.
Under pressure by lawmakers and other government officials, new programs are being developed by federal agencies to sell or rent foreclosures in bulk. And more lenders are agreeing to short sales, whittling down the so-called shadow inventory.
But the underlying foreclosure problem should continue to weigh on the housing recovery in the years ahead, given the weak housing demand, sputtering economy and the huge number of homeowners who are underwater.
"The fundamental problems that are driving the foreclosures have not gone away," Blomquist said. Those problems include high unemployment and sliding values. Indeed, the percentage of delinquent loans has remained relatively the same — at 8.15% in November 2011, according to Lender Processing Services.
Just as distressing are the 12 million properties that RealtyTrac estimates are "underwater" or worth less than their mortgage and could be spit out onto the market as owners walk away or decide to pursue short sales.
Fleming said he doesn't expect a spike in so-called strategic defaults in the year ahead, or any big flood of foreclosures to hit the market all at once, though he does expect more foreclosures to hit the market in 2012.
Even so, he said he expects home prices in most markets to flatten by the end of the year, rather than continuing to edge down.
"The healthier non-REO segment of the market has had a relatively good year of stable home prices nationally. It could turn potentially positive next year," he said.
