Foreclosure Delays Plague Housing Recovery
Foreclosure activity decreased in April for the seventh straight month, bringing total foreclosure activity to a 40-month low, according to a new report from RealtyTrac.
This is not to say that default notices, scheduled auctions and bank repossessions aren't running well above the norms, with one in every 593 US households receiving a foreclosure filing in April. The numbers are actually quite deceptive.
"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," notes RealtyTrac CEO James Saccacio in a statement.
There are currently 3.7 million loans that are 90 days or more delinquent, according to RealtyTrac's Rick Sharga. Nationwide, completed foreclosures (REOs) took an average of 400 days from initial default notice to REO in the first quarter of this year. That's up from 340 days a year ago and more than double the 151 days in 2007. At the current rate, it would take three to four years to move those loans through the foreclosure process. In some states, the picture is far worse.
In New York and New Jersey, it takes more than 900 days to get through the foreclosure process from start to finish, in Florida 619 days, and in California 330 days, according to RealtyTrac.
"Part of it is exacerbated by robo signing," says Sharga, speaking of the paperwork scandal at major servicers that was uncovered last Fall. "We really believe that a big part of it is simply market saturation. We're simply not seeing enough buying activity taking place to dispose of the properties the banks have already repossessed. If you're a lender sitting on tens of thousands of properties you already can't sell, why on earth would you be motivated to accelerate foreclosure proceedings on another 3.7 million homes?"
The big banks dispute this charge, claiming they are moving the process along as quickly as possible to mitigate their own losses. Once they get to REO, as we noted in yesterday's blog, they try to sell them as quickly as possible.
"We don't hold [REOs] to have any market placement or timing. We need to clear inventory, so as soon as we go through that process, the property is marketed as an REO and we move it out," Doug Jones of Bank of America told an audience of Realtors Tuesday at a conference.
But according to Sharga's data, there are 900,000 bank-owned properties, and less than 30 percent of those are available for sale. Fannie Mae, which owns more than 153,000 foreclosed properties, according to its latest earnings statement, claims it is aggressively pushing these properties through the pipeline and out onto the housing market.
"We’ve created one of the largest REO operations in the country," Fannie Mae CEO Mike Williams told me in a rare interview. "We always try to strike the right balance between moving properties, which reduces losses but making sure we’re not moving them in a way that going to either hurt communities or hurt our bottom line. So we have a team that’s very focused on those set of activities and we measure those results on a daily, weekly and monthly basis."
The vast supply of foreclosures, owned by the banks and coming down the pike to REO, represent the single greatest barrier to housing's recovery. The longer it takes to process these delinquent loans, the longer it will take for home prices to recover. While some of the delay in the process can be attributed to the banks working harder to modify loans or work out short sales, they themselves admit the volume is overwhelming, and their staffs are still struggling just to keep up.