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Odd Foreclosure Phenomenon May Be Telling of Bank Tactics

Foreclosure
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Foreclosure

Foreclosure filings were reported on 332,172 properties in October, according to RealtyTrac.

That's a 4 percent drop from the previous month and unchanged from October of 2009.

While notices of default, the initial stage of the process, fell about 2 percent, the big drop was in bank repossessions, down 9 percent from the previous month.

This was thoroughly expected; in fact I expected a bigger drop, of course, because of the big bank foreclosure freezes.

"The numbers probably would have been higher except for the fallout from the recent 'robo-signing controversy — which is the most likely reason for the 9 percent monthly drop we saw September to October and which may result in further decreases in November," writes RealtyTrac CEO James J. Saccio.

I asked the company's chief economist, Rick Sharga, why we didn't see a bigger drop. He explained it away with timing of paperwork and also noted the unexpectedly short duration of many of the freezes.

He does expect to see a spillover into November's numbers.

I also asked Sharga, who pointed out that the overall numbers have been coming down over the past several months, if perhaps the foreclosure crisis was easing, thanks to slight improvements in the job market. Yesterday, the Mortgage Bankers Association's weekly application report noted that the jump in applications "aligned" with improved jobs numbers.

"You're being a little optimistic," Sharga replied.

Imagine that, y'all, me, optimistic.

But then he pointed out a strange trend in the numbers that I hadn't noticed before.

The initial default notices have been running at about the same volume as the bank repossessions. Historically those would not run so evenly. Either you'd have a big surge of new defaults and the servicers would need time to work through them all, or there would be fewer new defaults as the servicers get them all sold and/or repossessed.

The fact that the numbers are running the same tells Sharga "that the lenders and servicers are trying to manage the level of distressed inventory available on the market to help stabilize prices." They are not issuing the notices of default, so home owners become more delinquent before they get that first default notice.

I'm quite sure the big banks will refute this theory, tell me that they send out letters and letters and notices and notices, and granted, neither I nor Rick Sharga have any proof that the banks have any active mandate to manipulate the numbers. It just does seem a bit of a coincidence that these numbers would run so parallel for so long.

So what does it mean?

A lot more borrowers than you might think are sitting in their homes without making payments and without facing any consequences.

Makes you wonder why so many of them leave?

Questions? Comments? RealtyCheck@cnbc.comAnd follow me on Twitter @Diana_Olick

  • Diana Olick serves as CNBC's real estate correspondent as well as the editor of the Realty Check section on CNBC.com.

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