Housing's Repo Man Is Back
The good news is that overall foreclosure activity continues to fall and a decline in new foreclosures are leading the drop.
The bad news is that the huge backlog of homes already in the foreclosures process, but long delayed, are finally going back to the banks in big numbers.
Bank repossessions jumped 11% in November month-to-month and rose 5% from November of 2011, according to RealtyTrac. That marks the first annual jump in just over two years.
"Foreclosures are continuing to hobble the U.S. housing market as lenders finally seize properties that started the process a year or two ago — and much longer in some cases," notes RealtyTrac's Daren Blomquist.
Blomquist also warns that the drop in newly started foreclosures may be temporary, as lenders adjust to new rules set forth by new state laws as well as the National Mortgage Settlement signed early this year.
"We're likely not completely out of the woods," he adds.
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The surge in overall bank repossessions is due to big jumps in states that require a judge in the foreclosure process. These "judicial states" have seen far longer delays due to the so-called "robo-signing" foreclosure paperwork scandal, and are just now beginning to ramp up the process.
New Jersey saw an 84 percent jump from a year ago in bank repossessions, and a 538 percent jump in foreclosure starts means those repossessions will continue to rise. The same for Connecticut, which saw a 95 percent jump in starts and a 60 percent jump in bank repossessions. The northeast will see the numbers go down briefly, due to 90-day foreclosure moratoria by banks due to hurricane Sandy, but they are sure to go up again.
"We're likely not completely out of the woods"
Foreclosures continue to ease in the formerly hard hit states, like California, Arizona and Nevada, as investor demand continues to prop up home prices and clear distress from those markets. Newly started foreclosures fell 63 percent from a year ago in California and 59 percent in Arizona.
Foreclosure activity nationwide has now fallen for 26 straight months on an annual basis, according to RealtyTrac, but the large overhang of distress keeps that drop in perspective.
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"While this metric continues being a mild positive for the builders, we do not see it as a meaningful equity driver, but instead, just as another positive data point in the early stages of the housing recovery," writes ISI's Stephen East, who also notes that newly started foreclosures are at a 71-month low.
Much of that drop is due to aggressive, principal reduction loan modifications by the nation's five largest banks under the Mortgage Servicing Settlement. They are also ramping up short sales, which have now surpassed sales of foreclosed homes. Those foreclosure mitigation strategies are at risk from the fiscal cliff. If Congress does not extend a tax relief law on this debt forgiveness, which is scheduled to expire at the end of this month, borrowers will likely reject these loan modifications and short sale offers, given that they would then involve a huge tax bill.
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